The Greater Middle East Has Good Prospects; OPEC Faces Big Challenges.

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The 14th Annual APS Conference, Middle East Strategy To The Year 2013, held in Nicosia on Oct. 9-11, concluded that the prospects ahead for the Greater Middle East will be good if the region, extending from the Yamal Peninsula in the north to the Arabian Sea in the south and from the Kazakh-Chinese border in the east to Morocco's Atlantic coast in the west, catches up quickly with the global trends.

The conference was opened by Pierre Shammas, President of APS Energy Group, who in a keynote address reviewed petroleum and the Middle East in the global economic perspective and OPEC's options. He said neither the collapse of oil prices of mid-1996, nor the price rise of 1996, nor the fall in 1998, had much to do with a change in the structure of the oil industry. To credibly defend prices, he added, OPEC must act as a swing producer. But OPEC must raise production to bring oil prices down to a level that should preserve oil's competitiveness.

A strategic point emphasised by Shammas is that liquid petroleum has become "more vulnerable to alternative fuels than at any time before, as the price of crude oil remains the most important factor in the world's energy business". OPEC's option is to keep liquid petroleum competitive to alternative fuels for as long as possible. He noted that the developed world has begun to move into green pricing of energy, which will include emission and congestion taxes.

Green pricing of energy is shortly to become part of the package of structural reform and adjustment measures, which the IMF, the World Bank and other multilateral organisations will be demanding of nations that require their assistance.

Shammas concluded by saying that, despite the uncertainties which are expected in the next 12 years, "we all can plan our future with reasonable certainty. It is an active future which we need to plan and execute, an active future which we can have if our planning is done properly, and not a passive future which is always full of surprises (see transcript of his paper in Downstream & Gas Market Trends).

The changing E&P regimes in the Middle East and North Africa (MENA) were reviewed by Isabelle Morelon of the Institute Francais du Petrole (IFP). The presentation was based on a detailed study by Ch. Armengol, B. Bensaid and A. Thouvay of IFP's Strategy, Economy and Planning Department. The paper said that, in 1999, investments in petroleum exploration and production (E&P) fell to US$90 billion, a decrease of 20% from the previous year.

However the high oil prices of 1999 and 2000 should see this decline reversed, the IFP paper added. Drilling activity at 46,000 wells in 2000 is higher than in 1998 and 1999 but below the level of 52,187 in 1997. There are many variations in upstream activity from region to region. There will continue to be the considerable activity in the Middle East. In the period from 2000 to 2010, it is likely that US$150 billion will be invested in the Middle East. This will allow Middle East oil production to increase from 21 million b/d in 1999 to 43 million b/d in 2010.

Antony Scanlan, of the British Institute of Energy Economics, reviewed the economic ties between North Africa and Europe and assessed the prospects for closer integration. He pointed out that the energy industries were a vital part of the integration process. The North African system is likely to develop piecemeal - just as happened in Western Europe from Norway to Sicily, Russia to Gibraltar.

There is only one border crossing between Sinai and the Gulf of Sirte. The implication is that Middle East gas concentrates on westwards movements, leaving oil from the Persian Gulf to continue to dominate Asian markets.

In the long term, there is a role for both North Africa and Asia Minor to play in this, as well as the Russian pipeline system to Europe. Such a prospect may be beyond our horizon year, but by 2013 piecemeal development in the eastern Mediterranean may be beginning to match existing western Mediterranean infrastructure and the feasibility of long distance gas and of swap deals may emulate those developed in Western Europe.

In conclusion, Scanlan said development of the Euro-Med concept will be led by trade between the EU's 15 members and the Arab Maghreb Union. One key factor the EU needs for its own development is more people of working age. Spain has said she needs an extra quarter of a million annually and the EU estimates a need for 12 million workers in the next decade over and above the projected internal population. At the same time, illegal immigration into Europe has become a major problem and a business rivalling narco-trafficking. There is a great prize to be won on both sides of the Mediterranean. The Euro-Med dialogue can make a contribution to the right type of labour movement in this new era of co-operation.