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Panel Detail:

Monday, April 28, 2008
9:35 AM - 10:50 AM

The Future of Oil and Gas

View Slide Presentation

The panel listens intently as Robert Cavnar of Milagro Exploration discusses the energy sector's need to develop skilled human capital, including engineering talent.

With crude oil futures approaching $120 per barrel, it's no wonder that this breakout session on future of oil and energy attracted significant interest from attendees. Moderator Osmar Abib of Credit Suisse highlighted the rising prices of oil and gas and the complex relationship between oil prices, interest rates, inflation and the strength of the U.S. dollar. He cited an OPEC official who asserted that there is no supply problem because there are no lines at the gas pumps and that the more immediate problem was the rising price of food. Abib emphasized that it is time to recognize the need to address the rapidly increasing demand for energy from developing economies.

Karen Harbert of the U.S. Chamber of Commerce stated that the demand for energy will increase 50 percent between now and 2030, with 70 percent of that figure coming from developing nations. India and China alone will account for a significant portion of increased demand. To address the problem, she said, approximately $20 trillion in new investment across various technologies is required. Unfortunately, there are several barriers to get the money flowing, including resource nationalism. She also emphasizes on the lack of sufficient investments necessary to meet the demand.

What does this mean to the price of oil? Antoine Halff of Newedge predicted that price volatility is here to stay. According to him, producers no longer find it necessary to increase production to maximize profits; now they are focused on capturing the rent (controlling the market), even if it means curtailing production. He also believes that renewable sources will constitute a small fraction of the overall energy supply.

Robert Cavnar of Milagro Exploration cited access restrictions to energy sources as a supply impediment, noting that most of the wells his company drills these days are at least 14,000-16,000 feet deep, up to a mile deeper that wells that were dug just a few years ago. In contrast to Halff's assertion that renewables will constitute a small niche in the overall future energy supply, Joseph Stanislaw of the JAStanislaw Group said he was certain that renewables will emerge to become one of the main sources of U.S. energy. Although passionate about renewable energy, both Stanislaw and Harbert agreed that the United States cannot get away from reliance on traditional energy. Nor is it good to demonize oil and gas, which continue to fuel the existing infrastructure. Instead, they suggested, oil and gas will have to become bridges to a renewable-rich future.

The panelists also discussed the relative advantage that the national oil companies have over their international counterparts. Yet despite having access to huge reserves, national oil companies are reluctant to invest in exploration. This must change, the speakers agreed.

Another important factor affecting the growth of the energy sector is the availability of talent. "We're having a difficult time sourcing technical people," said Robert Cavnar of Milagro Exploration, who added that while experience is valuable, his average engineer is 55 years old. Russia, he said, has done a tremendous job of training skilled petrochemical engineers, but international oil companies find it hard to recruit them.

Nuclear energy, panelists agreed, is the elephant in the room, capable of filling the energy gap between supply and demand. But the nuclear industry suffers the same problems: a lack of materials (uranium), engineers and capital.

In conclusion, panelists concurred that the political environment isn't yet even conducive to a long-term focus on energy demand. Changes in the regulatory, fiscal, legal and diplomatic realms will have to come first.

Speakers:

Robert Cavnar, President and CEO, Milagro Exploration LLC

Antoine Halff, Deputy Head of Research and Head of Commodities Research, Newedge

Karen Harbert, Executive Vice President and Managing Director, Institute for 21st Century Energy, U.S. Chamber of Commerce; Former Assistant Secretary for Policy and International Affairs, U.S. Department of Energy

Joseph Stanislaw, Founder and CEO, The JAStanislaw Group; Independent Senior Advisor on Energy, Deloitte LLP

Moderator:

Osmar Abib, Managing Director, Global Energy Group, Credit Suisse


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