Bauquis – Professor at IFPen and TPA (Total Professeurs Associés) – France
Current professor at France’s IFPen and TPA shares his deep knowledge of the industry and gives his views on the USA shale revolution and its impact on the global energy landscape.
You have had quite an outstanding career in the oil and gas sector. What have been some of the major highlights in your career, and where are you heading now?
My background is mixed. My first degree was from Nancy School of Geology and my second was in Economics from IFP (French Institute for Petroleum) School. My first real contact with the industry was in 1966 in Algeria, just after the war of independence. Back then, many young French people were sent there to assist on infrastructure projects. I therefore spent two years there working in oil and gas instead of entering the military. It resembled a Peace Corps operation. It was a very interesting experience and I decided to remain in the industry. I spent the next five years in the French Institute for Petroleum IFP where I worked in the economic evaluation department, whose main purpose was to evaluate new economic processes in drilling, seismic, and other areas. I started teaching soon after, at the French Institute for Petroleum, and abroad in Lebanon three weeks a year.
After five years with the IFP, I wanted to go deeper into the business so I started working for Total. I spent 30 years with the company, divided between positions in France and missions abroad. I spent six years in Abu Dhabi, from 1973-1978, followed by two years in East Africa in the downstream sector. I went on to spend six years in Indonesia. Finally, I was assigned to the North Sea in 1987 and became Head of the North Sea in 1991. Lastly, I was asked to take my last “real” job, as head of strategy and planning for the group. I finished off my career by becoming an advisor to the Chairman Thierry Desmarest. When I retired at age 60, I returned to teaching as I really enjoyed working in this industry, and I enjoy teaching abroad to young people who are just entering the field, in Russia, China and elsewhere.
In what ways do you think the USA shale revolution has changed the energy landscape, and can the US truly become an exporter of gas in the coming years?
No one had introduced the topic of shale gas before I left Total in 2002. It had barely started to emerge in the US. When I realized that this new industry was growing, and growing very quickly, it was very unexpected. Of course, shale hydrocarbons were known but we were convinced that these hydrocarbons would forever remain economically unviable to produce. I tried to understand how we failed to anticipate the potential of this resource and the many issues related to its economic viability. The US will undeniably become a gas exporter but probably never a net oil exporter.
Last November, OPEC countries decided not to cut production to favor an increase of prices, and Saudi Arabia’s willingness to “kill” shale oil profitability might actually kill other OPEC’s producers like Venezuela, Algeria and Iran. How has the shale revolution impacted geopolitical dynamics in your view?
The US are gas self-sufficient and will soon become an exporter of gas. Moreover, it has increased its oil production by 4 million barrels per day thanks to LTO. We must address the issue of long-term sustainable shale gas and oil production. Russia, Saudi Arabia and the US have roughly the same oil production capacity of 10-12 million barrels a day for the coming years but the issue remains that LTO production is very price sensitive. How long will prices remain at today’s level? Obviously in the US it’s a very reactive industry that will cut any production that is not economical, meaning the number of drilling rigs is dropping rapidly to adjust to the new equilibrium price. So the real question is how long will it take to rebalance the market until the price rises again in a sustainable way. The longer the price remains low, the more drastic the increase in oil prices will be in order to rebalance the market.
As for OPEC, many countries that refused to reduce their quotas might regret not decreasing their quota by 10 percent for instance and allowing to rebalance the price at around $100 per barrel. But this was something totally unforeseeable. You can understand the logic behind their decisions but you can’t predict their outcome. Take, for example, the current situation in Saudi Arabia. There is no incentive for them not to continue this trend as long as it benefits them. First of all, under the current circumstances, Saudi Arabia is indirectly weakening its greatest enemy, Iran. The current oil situation is far worse for Iran than it is for Saudi Arabia. Second, Saudi Arabia’s relationship with the US has become ambiguous after enjoying 50 years of extremely close ties. In simple business terms, to make the LTO part of the US industry, which is a new and dynamic competitor, suffer makes sense. It’s not about politics at all, it’s merely business. In my opinion, it is rational for the Saudis to lose 50 percent of their revenue in the short term because it greatly strengthens their position in the long run.
France, like many European nations, banned Hydraulic fracturing in 2011. Jean-Louis Schilansky the president of the newly created CHNC Centre for Unconventional Hydrocarbons stated that “Shale has become a taboo, it’s become an ideological, almost religious debate”. What is your position on this front and what is the key message you wish to send?
France and Bulgaria are the only two countries in Europe to have officially banned hydraulic fracturing. This is typically French. There have been no real studies about the dangers of hydraulic fracturing, no rational thinking; yet it was immediately banned by law instead of freezing activities until the necessary studies were conducted. The government should have made a moratorium, conducted their studies, and then drawn their conclusions. It’s worrisome because it’s not an isolated case where laws are passed on an emotional basis. It was the same with GMOs, which has me concerned about what such an irrational approach holds for nuclear energy in the future in France.
The message I want to pass along is: yes there are undeniable environmental issues with shale oil & gas, but their potential danger is limited and certainly manageable. There are therefore no grounds to forbid the activity by law. There are grounds for specific legislation in order to minimize the risk of water pollution, emissions of methane into the atmosphere and so on. But all these concerns can be handled within a proper framework, and developed on a sound basis. The message is we have to be rational. When a problem arises, study it and seek solutions to address it.
The US Energy Information Administration (EIA) estimates France to hold the biggest reserves of shale gas in Western Europe. In your opinion, what is the true reserve potential of France?
I really dislike these EIA studies and numbers for potential reserves of various countries. These figures are the result of models that have not been properly tested for each country and are very theoretical. In fact, in my view, these numbers are practically meaningless. It is a complete illusion of numbers produced by a normally very responsible and reliable organization. I don’t think you can say today whether there is one cubic meter of economical shale gas in France and from which reservoir. The only way to know is to do some drilling, fracturing, and testing of wells. Once you have tested between 10 to 100 wells, you can come to a conclusion. So nobody knows the viability and value of these hypothetical productions. If the cumulative sale from one given well is not at least twice the cost of this well, it is not economical. It’s just a simple rule of thumb. You have to conduct tests to assess how much a well can produce. If the EIA had emphasized in their report that the conclusions were purely theoretical, public reaction would have been different, and a lot of misunderstandings by politicians, media and even academics, would have avoided.
How is France perceived abroad? Do you see a change from when you first entered the industry?
It is very clear that the position of the French industry over the past twenty years has weakened due to a slower growth rate and loss of competitiveness. My belief is that with the right policies, this trend can be reversed. France still has a lot of potential in sectors of high-end technologies; therefore, with better management at the political level, France could return to competing on the same playing field as other European countries.