"The future development of the oil markets: what it brings and what it means"
Keynote Speech by OPEC Secretary General, HE Abdalla Salem El-Badri, to the European Mineral Resources Conference 2012, Leoben, Austria, 19 September 2012
Excellencies, ladies and gentlemen,
I would like to thank the Chairman for his introduction, and the European Mineral Resources Conference for the invitation to speak to you today in such an esteemed seat of learning. It is a pleasure to be here.
For the mineral and energy resources sector, the Montan University, here in Leoben, is an important and leading academic institution. Year-on-year it produces skilled professionals that are essential to running our evolving – and ever-expanding – industries. I would like to congratulate the university on producing high-calibre people who pursue careers in the modern energy and mining industries.
The importance of this cannot be over-stated.
Our industries are heavily people-intensive; from exploration to extraction and production, from transportation through to final end-products.
The resources from our industries are used in thousands of every-day consumer products, as well as high-tech products. The world, as we know it, would not function without them.
Our industries have helped drive economic and social development around the world. And looking ahead, the utilization of raw materials and energy will be central for our economies, society’s future, and in particular, those billions who continue to suffer from poverty.
My speech today will spotlight on just one part of this mineral resources mix: oil. It is of course the main emphasis of the organization I represent, OPEC, and in addition, it is the industry that I have been involved in for my entire career.
I have been asked to focus on the future development of the oil market, specifically what it brings, and what it means. There are many facets to this, but I think I should initially outline what OPEC sees in terms of growth, from both the oil and overall energy perspectives.
Over the past 50 years or so, the world’s demand for energy has expanded dramatically; from just over 55 million barrels of oil equivalent a day in 1960 to around 233 million barrels of oil equivalent a day in 2010. This demand growth was met by a variety of energy sources, but the majority has come from fossil fuels.
This expansion is set to continue, with OPEC’s most recent World Oil Outlook published in November last year, projecting a figure of close to 360 million barrels of oil equivalent a day by 2035. It means that energy demand increases by around 50% by 2035.
All energies witness growth, with fossil fuels – which currently account for 87% of the world’s energy supply – still contributing 82% in 2035. Oil will retain the largest share for most of the period to 2035, although its overall share falls from 34% to 28%. It will remain central to growth in many areas of the global economy, especially the transportation sector. Coal’s share remains similar to today, at around 29%, whereas gas increases from 23% to 25%.
In terms of non-fossil fuels, renewable energy grows fast. But as it starts from a low base, its share will still be only 3% by 2035. Hydropower will increase only a little – to 3% by 2035. Nuclear power will also witness some expansion, although prospects have been affected by last year’s events in Fukushima. It is seen as having only a 6% share in 2035.
From the perspective of oil, this translates into demand increasing by close to 23 million barrels a day over the period 2010-to-2035. It reaches almost 110 million barrels a day by 2035.
The question asked by some is: can this oil demand increase actually be met? I am in no doubt that it can. There are two main reasons for this.
The first concerns the availability of oil. While some voices continue to talk about impending peak oil – just as others have done in the past – the industry continues to push the boundaries in terms of what can be found, and what can be recovered. Of course peak oil supply will arrive one day – it is a non-renewable resource after all – but at present, this day is being pushed further and further into the future.
Technology and people continue to transform the oil industry, in terms of the way resources are identified, developed and produced. Technology is bringing out more resource from the tight grip of rocks.
Over the years, the improved quantity and quality of information available about different geological structures has enhanced the likelihood of finding oil, and extended the reach of surveyors, geologists and explorers into remoter and harsher locations in the ‘frontier areas’.
Petroleum science has evolved from basic geology to supercomputer-based calculations, reservoir simulators and 3D views of deep and complex horizons in the subsurface. In terms of drilling, we have progressed from drilling tens of metres to many kilometres below the surface, both vertically and horizontally.
New technologies have also helped transform resources once thought unconventional into conventional ones. We should remember that only forty years ago, all offshore oil was considered unconventional. Today, this portion of total global oil supply accounts for 30%.
Today, the quantity of recoverable oil resources is higher than ever. Estimates from the US Geological Survey of ultimately recoverable resources have more than doubled since the early 1980s, from just 1.7 trillion barrels to around 3.5 trillion barrels. Cumulative oil production has been less than a third of this.
And the second reason comes from looking to the past.
The required production capacity in the coming decades – including compensating for natural decline in oil fields – is nothing new for the industry. This level of increase has been achieved in the past. Producers have seen total oil supply increase from around 22 million barrels a day in 1960 to over 87 million barrels a day in 2011, again driven by technological progress.
So resource availability is not an issue, and the industry has always been able to deliver the supply needed to meet demand.
This, however, only tells half the story. We need to also look at the question: what will the industry need to succeed in the future?
This takes me back to my introduction: the importance of the human resource. To put it simply: with the industry continuing to expand, and the need to increasingly tap into resources in more remote and challenging areas, the industry needs more people.
Today, however, it is increasingly being recognized that there is shortage of human resources entering the industry. It is essential that this is rectified.
It leads me to the question: what are the core human resource challenges that the oil industry has to deal with today?
There is the large scale downsizing that led to a lack of recruitment into the energy sector during the 1980s and 1990s. At this time many universities also cut back drastically on the number of people taking energy disciplines. It proved a damaging experience. In fact, the industry is still paying the price.
In recent years, there has been a dramatic expansion in the service and emerging knowledge economies, which has led to fierce competition for talent.
And there is also a sizeable section of the industry’s workforce, particularly the large numbers that entered the industry in the 1970s, that are now approaching retirement.
Earlier this year, Schlumberger, in its 2011 Oil & Gas Human Resources Benchmark Survey, said that pressures on the industry's technical workforce threaten the timely completion of projects. In the survey, up to 70% of national oil companies and 60% of major international oil companies acknowledged project delays due to staffing difficulties.
It is apparent that there are no real short-term solutions. Meeting the human resource challenge will not happen overnight. The industry must look long-term. The industry is one characterized by long lead times, and often long payback periods, which means it must view employees as long-term assets.
The key is making the industry more appealing; to make it accepted as an inclusive and forward looking workplace. The industry needs to be sure it is well presented as a prime employment choice; a high-tech and diverse sector with great prospects.
In fact, this needs to begin before actual employment – with education and training, at establishments like the one here in Leoben. It is important for the industry to be significantly involved in developing and supporting new graduates and its potential workforce at an early stage. The focus is on further developing a better relationship between prospective employees, universities and the industry.
Our industry is nothing without a well-trained workforce. It is the lifeblood for developing and deploying the techniques and technologies that continue to push our industries forward.
Here, let me add a few words to any students in the audience who are undertaking or thinking of a career in the petroleum industry.
Oil has been fundamental to a great deal of humanity’s progress over the centuries. Whether we are driving a car, flying an aeroplane, playing music, using a toothbrush, wearing glasses or shoes, or even camping in a tent, we are using products made with crude oil. It is an industry that can change the way we do things.
Looking ahead, there are great challenges and opportunities, in both the short- and long-terms. There are tremendous prospects for eager young graduates to get out in the field. It is a creative, dynamic and expanding sector, with the scope to push the boundaries of where technology can take us. I know if I was starting out once more, I would again see the industry as an attractive career choice.
Before I finish, I would like to also offer a few comments about the current oil market. It is something I am sure is expected from an OPEC Secretary General! And we should also remember that we cannot view the short- and long-terms in isolation. They are interconnected.
What is evident is the market is currently well-supplied. There is no shortage of oil anywhere in the world. And this is expected to continue.
OPEC forecasts global oil demand is to grow by 900,000 barrels a day in 2012, and 800,000 b/d in 2013. And there is more than enough new supply to meet this increase. Non-OPEC supply is expected to increase by 700,000 b/d this year, and 900,000 b/d next year.
Moreover, OPEC spare capacity remains at comfortable levels and total commercial stock levels remain healthy
The global economic situation remains a major uncertainty. It will be important to monitor this carefully in the coming weeks and months, but risks currently appear skewed to the downside.
In terms of prices, I should like to stress that while the price has witnessed both ups and downs in 2012, this volatility has not been because of market fundamentals. Speculation has been behind much of the price volatility.
Let me add here that while OPEC does not have a price target, it recognizes the importance of a stable price. This is essential for both producers and consumers. It needs to be a level that does not affect global economic growth. And at the same time; a level that allows producers to receive a decent income and to invest to meet future demand.
Ladies and gentlemen,
They say a conference audience normally remembers three key things from a speech. With this in mind, allow me to provide you with what I feel are the three key ‘long-term’ takeaways:
Firstly, the world will need more energy. It means, the oil and energy industries are set to expand significantly.
Secondly, there are plenty of available resources to meet future demand growth. It is not a question of availability, but one of deliverability.
And thirdly, the industry needs more people. It is essential to attract graduates to undertake energy disciplines, and make sure the industry has skilled, well-trained and happy employees.
With that, I would like to wish you all a successful conference.
Thank you for your attention.