Speech to the 20th World Petroleum Congress

Speech by OPEC Secretary General, HE Abdalla S. El-Badri, to the 20th World Petroleum Congress, Plenary 6: Producer-Consumer Dialogue: Expectations and Deliverables, Doha, Qatar, 7 December 2011.

[Slide 1]
Ladies and gentlemen, Good morning.

I would like to begin by thanking the organizers, the World Petroleum Council, for the invitation to speak at this 20th World Petroleum Congress. It gives me great pleasure to be part of such an important event; and one taking place in Qatar, an OPEC Member Country.

I am also happy to share a platform for the first time with my fellow speaker, the Executive Director of the IEA, (Her Excellency) Maria van der Hoeven. We have already met and spoken on a number of occasions and I feel our relationship is a very positive one. 

[Slide 2]
Given today's topic - 'producer - consumer dialogue: expectations and deliverables' - let me stress upfront that OPEC has long recognized the value of adopting a cooperative approach to addressing major topical issues.

Today, it is clear the importance of dialogue between all stakeholders has never been greater in our increasingly interdependent world. And the heartbeat of this world is the global energy system.

It is a global, complex and ever expanding system; one that is finely balanced and where stability must be the mantra.

[Slide 3]
With the global energy system expected to grow significantly in the coming decades, the importance of advancing our understanding of each other has never been so crucial.

It is essential we better appreciate each other's viewpoints; are realistic in our targets and goals; and are more pragmatic in our discussions.

From OPEC's perspective, our thoughts on the global oil scene are set out in the annual World Oil Outlook, with the most recent version published last month.

In the Reference Case for this year's Outlook, energy demand increases by more than 50% over the period 2010-to-2035.

Fossil fuels, currently accounting for 87% of the world's energy supply, will still contribute 82% of the global total by 2035. For most of the period to 2035, oil will remain the energy type with the largest share, although its overall share will fall from 34% to 28%. It will remain key to growth in the transportation sector. Coal's overall share remains similar to today, at around 29%, whereas gas sees its share increase from 23% to 25%.

In terms of non-fossil fuels, renewable energy will grow fast, but since this starts from a low base its share is still only 3% by 2035. Hydropower increases a little, to 3% by 2035. Nuclear power also witnesses some expansion, although prospects for nuclear have clearly been affected by events in Fukushima. It is at 6% in 2035.

There are also plenty of resources to meet these growth patterns. For oil, conventional and non-conventional resources are clearly plentiful for the foreseeable future.

As in the past, technological advances will continue to extend the reach of the industry, reduce costs and unlock additional resources. This can be viewed in the recent developments for both shale gas and shale oil, particularly in the US, although there is also potential for these resources globally.

[Slide 4]
From the oil demand perspective, the central driver for medium-term prospects is the global economy. Given the current economic landscape, there are clearly many uncertainties as to how this might play out in the coming years.

What will be the outcome of Europe's sovereign debt crisis?

How will the US tackle its slowing growth?

And what will be the impact of China's and India's moves to combat overheating and inflation?

Looking to the long-term, other important drivers come in to play: policies, technologies, demographics and consumer preferences. In our Reference Case, demand increases by close to 23 mb/d over the period 2010-2035, reaching almost 110 mb/d by 2035. Fully 80% of the increase in global demand is in developing Asia.

However, oil use per capita in the OECD will remain much higher than in developing countries. By 2035, oil use per head in developing countries will average just three barrels, compared to close to 12 barrels for the OECD.

As with the medium-term, however, it is important to stress that there are a number of uncertainties that could mean this demand figure is significantly higher or lower.

Of particular concern to producing countries are the policies of a number of consuming countries. Obviously, every country has the sovereign right to set its own policies, but it is essential that these provide a clear picture as to their impact on future oil consumption levels and overall energy supply and demand patterns. They need to be feasible, predictable and sustainable. And they should not discriminate against oil.

[Slide 5]
Turning to oil supply, over the long-term there will be increases in conventional oil supply from the Caspian, Brazil, and of course OPEC, as well as steady increases in non-conventional oil. Total non-OPEC supply in the Reference Case increases around 8 mb/d over the period 2010-to-2035. OPEC crude supply rises throughout this timeframe, increasing by 10 mb/d, to reach just over 39 mb/d by 2035. And OPEC NGLs also rise strongly.

The World Oil Outlook also underlines the Organization's commitment to sufficient and secure crude oil supplies. It shows that Member Countries currently have around 132 upstream projects on the table for the five-year period 2011-2015.

This could translate into an investment figure of close to $300 billion should all projects be realized. Taking into account all OPEC liquids the net increase is estimated to be close to 7 mb/d above 2011 levels.

As I have already alluded to, however, these investment decisions and timings are influenced by many factors, such as the global economic situation, policies and the price of oil. There are therefore genuine concerns over security of demand.

[Slide 6]
I would also like to take the opportunity to briefly explore the current oil market situation. This year has seen the oil market in a constant state of flux: the ups and downs of the global economic recovery; Japan's multiple disaster; unrest in parts of North Africa and the Middle East. What has been apparent, however, is that there has been no shortage of oil anywhere in the world.

Libya's shortfall earlier this year was met by other OPEC Member Countries. And Libya is now quickly returning its production and export capacity to the market.

Spare capacity has been, and remains at comfortable levels. And the investments I have just outlined will see these comfortable levels increase in the coming years.

In terms of prices, I think the average price level for this year is satisfactory for both producers and consumers.

It is at a level that allows producers to invest to meet future demand, and at the same time, it does not impede the global economic recovery.

[Slide 7]
For prices, however, speculative activities remain an issue in the current market.

This can be viewed in the respective sizes of the paper and physical markets. Since 2005, there has been a sharp increase in the number of open interest futures and options contracts. At times it has surpassed three million contracts per day, equivalent to 3 bln b/d. This is 35 times the size of actual world oil demand.

It should also be noted that between 2009 and 2011, data shows an almost one-to-one correlation between WTI prices and the speculative activity of the net long positions of money managers. This is in terms of both volume and value.

Let me stress, excessive speculation is detrimental to both producers and consumers and can cause prices to detach from fundamentals. It is essential to avoid distorting the essential price discovery function of the market.

[Slide 8]
From this brief review of the energy scene, as well as the oil market, I think we can all appreciate the benefits of dialogue and cooperation. We need to continually evolve our understanding of each other.

In addition, we also need to recognize that there are other specific challenges for the industry's stakeholders, as well as for world leaders, in the years ahead.

I am sure many of us here are keeping a close eye on the current negotiations at the UN Climate Conference in Durban. OPEC recognizes the importance of being part of these negotiations to develop solutions that safeguard the legitimate interests of all Parties.

It is essential that these multilateral negotiations reach an agreement that is comprehensive, balanced, fair and equitable; one that respects all the principles and provisions of the United Nations Framework Climate Change Convention and its Kyoto Protocol.

I welcome this year's World Petroleum Congress theme: 'Energy Solutions for All: Promoting Cooperation, Innovation and Investment'. It is essential everyone has access to reliable and sustainable modern energy services.

We need to remember that 1.4 billion people have no access to electricity and some 2.7 billion rely on biomass for their basic needs.

Sustainable development is a high priority agenda for OPEC Member Countries, all developing nations. It is also the main objective of the assistance they provide to other developing countries, directly through their own aid institutions, as well as through the OPEC Fund for International Development, which is an active participant in the UN Initiative of 'Sustainable Energy for All'.

Energy poverty needs the urgent and critical attention of world leaders. Rio+20 next year is a great opportunity in this regard.

Another ongoing challenge relates to excessive market volatility and the continuing trend towards oil acting as a heavily traded financial asset, an issue I touched upon earlier.

There is a need for a better understanding of the effects of excessive market volatility and the role of speculation. In fact, only last week, OPEC, along with the IEA and the International Energy Forum (IEF), organized a workshop in Vienna that examined the issues surrounding the interactions between physical and financial energy markets.

We should also not forget the human resource. With strong competition from other sectors for skilled staff and many in our industry approaching retirement, there is a need to address the difficulties in finding and hiring labour at the global level. This means concerted efforts to restore this essential capacity, by facilitating education and training in energy disciplines, and making the industry an attractive career choice.

[Slide 9]
What I hope I have underlined here are some of the key issues we need to talk about and cooperate on; both as part of the industry's producer-consumer dialogue, and at the broader global and multilateral level.

Cooperation between OPEC and the IEA goes back many years and has advanced considerably in recent times. OPEC sees the dialogue between the two as an important element in improving the understanding of the concerns of all parties for oil market stability and predictability. I am sure my fellow panelist will agree when I say: long may this positive cooperation continue.

Over the last year or so, and as part of the Cancun Ministerial Declaration from the IEF Meeting in April 2010, the two organizations, along with the IEF, have held a number of workshops on financial markets, energy regulation and in January this year, the three organizations held the first annual Symposium on Energy Outlooks in Riyadh. The latter event provided a platform for sharing insights and exchanging views about energy trends and uncertainties, as well as short-, medium- and long-term energy outlooks.

In February next year, OPEC and the IEA will also hold a joint workshop on the use of CO2 for enhanced oil recovery in Kuwait. I think both of our organizations view this as a potential 'win-win' approach. OPEC also participates in the IEA Greenhouse Gas Emissions Reduction Programme.

Elsewhere, OPEC actively participates in the IEF's Joint Oil Data Initiative set up to enhance the transparency, quality, timeliness and flows of oil market data.

We continue to maintain a strong and positive relationship with the European Union, with our 8th Ministerial-level meeting taking place in June this year. Workshops and roundtables with the EU have covered such topics as carbon capture and storage; the impact of the economic crisis on oil investment; and, technological advances in the road transportation sector.

OPEC, alongside the World Bank, the OECD and the IEA, has also been heavily involved in collaborative work related to the G-20 Energy Agenda. Ongoing work streams include energy subsidies, a study on price reporting agencies and the Global Marine Environment Protection Initiative.

And we have also furthered dialogue with other non-OPEC producers and various UN bodies.

Ladies and gentlemen,

[Slide 10]
So what of the future of the producer-consumer dialogue? Obviously, I do not have a crystal ball, but I do feel I can leave you with a few thoughts.

I cannot stand here and say that we will find agreement on everything. We don't live in a perfect world. It is important, however, for producers and consumers to find common ground. And with this in mind:

We need to look for shared solutions, where and when appropriate.

We need to have a producer-consumer environment that is conducive to reaching constructive end results.

And we need input from each and every stakeholder.

At OPEC, we believe in continuing to develop existing and new avenues of cooperation with innovative thinking, collaboration and swift action on key issues, many of which are complex, broad and inter-related.

Our shared objective must be a stable and sustainable energy future in an increasingly interdependent world.

[Slide 11]
Thank you for your attention.

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