Falah J. Alamri, Iraq's governor for OPEC and head of the State Oil Marketing Organisation (SOMO), discusses the most important factors impacting global energy security, including the supply of Russian gas, the U.S. shale gas revolution and Europe’s attempts to diversify its energy sources
A local contractor at the Range Resources hydraulic fracturing operation in Claysville, Pa. Photo: AP
At the International Energy Forum Ministerial summit that took place in Moscow last week, Russia Direct talked to Falah J. Alamri, Iraq's governor for OPEC and head of the State Oil Marketing Organisation (SOMO), to discuss the implications of the U.S. shale revolution, especially as it relates to the energy future of Russia and world energy prices. In addition, Mr. Alamri discusses Europe’s new initiatives to lessen its dependence on Russia’s gas and the shifting dynamics of supply and demand for global energy.
Russia Direct: From your point of view, what are the major challenges for global energy security today?
Falah Alamri: Global energy security is a matter of supply and demand. What needs to be tackled is secure demand. After all, if producers want to meet demand, they need the security to invest over the medium-term and long-term. In this context, they need to be sure that the supply is also secure. They want to spend a lot of money for it, seeking the balance between demand and supply. So, we cannot invest billions of dollars to create this supply of energy if there is no demand for it at all: Consumers will go elsewhere.
RD: What about other challenges for global energy security? For example, a lot of experts are currently talking about the shale gas evolution in the U.S. Some say that it might undermine energy security in Russia and the Gulf countries not only economically, but also politically.
F.A.: There are a lot of challenges regarding shale oil and gas. Probably, shale (“tight”) oil is considered to be a phenomenon. And the leader of this phenomenon is America. Although the U.S. is now producing a lot of shale gas and oil, there are a lot of challenges such as water supply, public concerns, regulation, and property issues.
Over the medium-term, the shale gas revolution has a certain effect, but this effect will be narrow. But over the long-term, it will have no effect. Actually, it depends on technology and oil prices. If they are going to produce more shale oil and shale gas, that may reduce the price. If they reduce the price of gas and oil, it will not make sense economically to continue production. So, there is always a [subtle] balance between the production of oil and gas and the price.
As indicated from the name of this energy source – “unconventional” - that means that is not easy to extract oil, it is very sophisticated and complicated and needs high technology. It also needs a lot of water, because this oil is trapped in rock formations and needs hydraulic drilling. If you go to an oil field in Iraq, you will find oil 500-1000 meters in depth, but if you go for unconventional oil, you have to go in 3000 meters in depth, as in the case of horizontal drilling. That’s a big difference.
RD: Nevertheless, these arguments don’t address the competitive capacity of shale oil and gas. After all, during a short period of time, between 2007 and 2012, the U.S. achieved a lot. For five years they increased the production of shale gas by about 30-50 percent. And if they invest in hydraulic drilling a lot, economically it should make sense, right?
F.A.: We are going to the era of natural gas from here. We have already started it actually. So, for environmental and economic reasons (because gas is cheaper than oil), global energy policy is being directed to shift its focus to [natural] gas. But using gas and power generation is a big goal for every country, because it is cheaper and easier to abstract. Gas policy will not be disturbed by the larger quantity that will be produced [thanks to the shale revolution in the U.S.]. Though, globally, it might affect the percentage of oil [production] in favor of gas [production].
RD: Ok, you still didn’t mention the effect of the shale revolution on global energy prices. After all, some experts in the U.S. predict that shale gas revolution might severely affect energy prices in Russia and Gulf countries. That, in turn, might undermine their economic and political stability. Do you find such forecast well grounded or is it just exaggeration?
F.A.: It’s fun to say that it may undermine stability. After all, there is gas produced by international companies, and they are not coming from another planet no matter if they are Russian or if they are American. They work in coordination with the initial policy of each company.
And if there is huge gas production that creates a stable international market, again, it will just affect the production of oil: There will be not the growth of oil like now, the growth might be decreased in favor of gas.
So, shale gas will not undermine [the stability of] those countries that produce gas, because international companies want to go and produce gas from unconventional sources of energy, it is not going to be cheap and they are not going to produce it in this case.
A worker shovels the powder used to make a mixture with water used in the hydraulic fracturing process in the Marcellus Shale layer to release natural gas at a Range Resources site in Claysville, Pa.Photo: AP
RD: In the context of the shale gas revolution and the decrease in gas exports to Europe, Russia might exaggerate Europe’s dependence on Russia’s gas and underestimate the U.S. potential to help Europe handle this dependence. Do you agree?
F.A.: Because we live in the era of gas and they seek to change the geography of gas, Russia is now facing a lot of challenges, real challenges. And the first of these challenges is it has to maintain its supply to Europe, the percentage of this supply.
Today, America is selling its gas to Europe and, in addition, the U.S. and UK started importing from Qatar. Because of politics, America and Europe try to change the route of gas. In reality, it was about three-four years ago when they thought about the gas coming from Qatar to Europe. To paraphrase, they want to increase the source of supply that should come not just from Russia. And I think in the future Europe will seek to decrease its dependency on Russia.
RD: Can Iraq help Europe to diversify its energy sources?
F.A.: As for gas, Iraq is not an option for Europe, because we are, primarily, an oil country, not a gas country. Iraq has huge energy reserves. Now it produces 3-4 million barrel of oil per day, but within 10 years the production size may be doubled. Regarding gas, now Iraq is a net importer of gas, but in the future, may within five or six years, Iraq will become a net exporter of gas.
So, in short, in the medium-term, I don’t think Iraq will participate in supplying Europe with gas, but in the future, after 15-20 years, if there is a surplus, maybe, we will export it.
But this will not have a great impact on Europe’s dependence and how to replace the Russian gas. Theoretically, Russian gas could be replaced only by American gas in the long-term.
RD: Ok, hypothetically, let’s assume Iraq starts collaborating with Europe to supply gas in the long term, do you think it might affect economic and political ties between Moscow and Baghdad, given Russia’s sensitivity to Europe’s attempts to reduce its dependence on Moscow amidst the Ukrainian crisis?
F.A.: We try to have good relations with all countries for the sake of national interests. Historically, we have had comparably good relations with Russia and we have a new relationship with America that started in 2003.
In this regard, we have to be careful in our relations with the two countries. However, regarding energy, we have plenty of companies from both Russia and America, from the United Kingdom (BP has the largest oil field in Iraq). And we have about 3 or 4 companies from China. We have companies from Italy, from France.
Iraqi workers at the Rumaila oil refinery, near the city of Basra, 550 kilometers (340 miles) southeast of Baghdad, Iraq, Sunday, Dec. 13, 2009. Photo: AP
RD: Russia and Iraq have established a good collaborative working arrangement, with Russian energy companies such as Lukoil working in Iraq and signing long-term agreements. What about competition? After all, Russia is the sixth major exporter of oil to China following Saudi Arabia (first place), Iraq (forth place) and Iran (fifth place). Well, what can you say about this rivalry in the Asian energy market, given Beijing’s hunger for oil and gas to maintain its economic growth?
F.A.: At the moment, there is competition. China relies on policy and maybe it is going to pursue a policy based on gas. If Iraq is going to produce, to double its gas production over the next 10 years, while Russia is increasing its production from its current production, that means there is a lot of oil going to a limited market: China, India, and, maybe, South Korea. And this is one of the big challenges facing producers. We are worried. After 2020, the OPEC countries will continue to increase their production. Let’s leave this challenge for the future.
RD: The Middle East is a very turbulent place from the point of view of international terrorism. Does the terror threat affect global energy security?
F.A.: To a certain extent, it affects us, because now, for example, it reduced oil production by 300-400,000 barrels per day in Syria because of bombings. They used to produce 400,000 barrels per day, now they produce 100,000. Likewise, Libya used to produce 1.5 million barrels, now they produce about 200,000 per day. So, 1.3 million barrels disappeared from the market.
But the negative effect of terrorism is local: It affects supply in some countries locally, not globally, because there are other sources of supply. There are countries that have capacity to maintain the market.
RD: Do you think that switching to renewable energy sources is possible and reasonable today, especially given Germany’s controversial experience? Germany actually ended up with a coal consumption increase, which, in turn, affected the environment.
F.A.: One of the speakers [at the International Energy Forum event] asked if low carbon energy is a reality or a fiction. It’s a reality. Efficiency and technology in transpiration and power generation will reduce [carbon emissions]. Whether it’s true or not, it also can create jobs in the end. But we are going to have good results in the future in this field, if not in the short-term, then probably in the long-term. We should start gradually and provide the right information and cooperation between consumers and producers.
Editor’s note: This interview has been edited, restructured and abridged from the original transcript.