Challenges will grow as reserves become harder to reach

An interview with Kamel Bennaceur, the chief economist of Schlumberger.

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Kamel Bennaceur, the chief economist of Schlumberger who will participate on Tuesday in an ADIPEC panel discussion on new frontier challenges, shares his views on the oil and gas industry

The chief executive of Schlumberger has recently called for greater standardisation and streamlining of technologies used in oil exploration and production. Could you explain why this is important?

The industry is facing more challenges because of the need to replenish the production base. That's for both oil and gas. The industry needs to make a large effort to replace its current production sources. The other message is that the reserves will be harder to produce because they will be in remote and challenging areas. The size of the discoveries is not going to increase and in the past five years 50 per cent of oil and gas discoveries were in offshore. Even in OPEC countries the cost of production will increase.

How do you see the relationship between producers and oilfield services companies evolving?

The services companies will continue to work with international oil companies, national oil companies and independent producers but the business model may be different. What we now refer to is the services intensity of producing oil and gas. That will increase. How that is going to be shared between services companies and others is to be determined.

What has most affected Schlumberger's global business model in recent years and how has the company adapted?

We have certainly been affected by the global financial crisis. One of the biggest areas was in North American gas because of the prices going down. We have also been affected by the Deepwater Horizon oil spill and the moratorium [on exploration drilling] in the Gulf of Mexico … it will take time for the deepwater industry in the Gulf of Mexico to recover fully and there will certainly be a number of consequences for the oil producers and services companies operating in the gulf. We have also seen developments in Europe. So far, we haven't seen impacts in the other deepwater basins such as west Africa and Brazil. But I wouldn't say it's business as usual because everyone is trying to learn from what happened. We have put a number of initiatives in place internally to make sure everyone is aware of what happened and what they need to do in situations that are somehow similar. It's about communications, technology and processes.

Where do you see energy markets heading?

The key is what is going to happen with the global economy. According to the IMF, we should see a slight slowdown next year. This will affect demand but there would be support for oil prices at the current level. For gas prices, we still see weakness, especially in the North American market. For gas there are a number of things to consider. First, how fast is gas going to replace oil? If you look at gas use in power generation, the number one factor will be fuel substitution with coal or even oil. We are certainly looking at all the currency markets … you have to consider that in the physical oil market, movement is measured in knots … while the paper market moves at the speed of light.