Keynote speech on the future of global oil supply and demand dynamics
Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at Columbia University, Center on Global Energy Policy, 15 December 2016, New York State, U.S.A.
Ladies and gentlemen,
It is a great honour to be asked to deliver a keynote address at such a distinguished seat of learning as Columbia University. It is the oldest institution of higher learning in the state of New York, it was founded by royalty, specifically King George II of England, and it is home to the annually awarded Pulitzer Prize honouring excellence in journalism and the arts.
That is some list, and this does not even mention the notable alumni that include some of the Founding Fathers of the United States, three US Presidents, other Heads of State, Supreme Court Justices, Academy Award winners and Nobel laureates.
It is also a privilege to be at the university’s Center on Global Energy Policy, one of the leading global institutions for energy dialogue and policy. Given recent events in the oil market, it’s obviously an extremely interesting time for energy dialogue and debate. I hope to be able to highlight some of the most pertinent viewpoints of our Organization’s outlook over both the short- and long-term.
Ladies and gentlemen,
When Columbia University was founded back in 1754, the modern petroleum industry had not even been born. It would be more than 100 years before what many believe to be the first commercial oil well was drilled. Edwin Drake’s 1859 well that was drilled using a steam engine near Titusville, Pennsylvania, is widely believed to be the first modern oil well and one that ushered in the first major oil boom, the dawn of a new era of industrialization and prosperity.
It is interesting to note that this oil well initially yielded just 25 barrels per day. Oil was then seen as a somewhat obscure commodity, but today its existence is vital to billions of people across the world. Although I should underline here that there remain 1.3 billion of people that still have no access to modern energy services. It is critical that energy poverty is eradicated, one of the pillars of the UN sustainable development goals. I have no doubt that oil has a strategic role, in this regard.
Today, the size, scope, and complexity of the global oil market make it almost unique among physical commodities. Currently more than 94 million barrels of oil are produced and consumed every day. Beyond the magnitude of this trade, the vital importance of oil and the crucial role that it plays in globally makes it perhaps the most strategic growth engine of the global economy.
The true scale of the industry and its strategic value to both producers and consumers underscores the importance of sustainable oil market stability.
Stability is vital for producers in terms of security of demand. Stability is vital for consumers in terms of security of supply. Stability is vital for all industry stakeholders.
Over the past couple of years, however, stability on a sustainable basis has been absent from the industry, to the detriment of producers, consumers, and the global economy.
This is reflected in the sharp crude price decline observed between June 2014 and January 2016, when the OPEC Reference Basket price fell by an unprecedented 80 percent. It is the largest percentage fall in the five cycles of sharp price declines we have observed over the past three decades.
We have seen supply outpace demand, which led to a sharp global inventory build between mid-2014 and the start of 2016. This year OECD commercial oil stock levels have seen little change, but they still remain more than 300 million barrels above the five-year average. Moreover, we have seen a rise in non-OECD inventories, plus an expansion in some non-OECD strategic petroleum reserves.
In both 2015 and 2016, we have witnessed a dramatic contraction in oil industry investments. For example, global oil and gas exploration and production spending fell by around 26 per cent in 2015 and a further 22 per cent drop is anticipated in 2016. Combined, this equates to above $300 billion. This will impact not only new projects coming on-stream, but new discoveries too.
And we have witnessed significant job losses across the industry, as well as increasing financial and operational stresses for many companies.
In 2016 it has been evident that all producers, as well as most consumers, have come to comprehend the gravity of the current oil cycle.
Throughout 2016 there have been numerous bilateral and multilateral meetings and consultations concerning these challenges. These consultations gathered pace in August 2016 with many OPEC Ministers, non-OPEC Ministers, as well as some Heads of State and Governments engaging in the process of rebalancing the oil market, and expressing their views on the need to see sustainable stability return.
From OPEC’s perspective, this led to the ‘Algiers Accord’ that was agreed by all OPEC Member Countries at the 170th (Extraordinary) Meeting of the OPEC Conference in Algeria on September 28. The agreement focused on the urgent need to stimulate the acceleration of the drawdown of the stock overhang, bring the market rebalancing forward and ensure that much needed investments return to the industry.
The Accord reaffirmed OPEC’s continued commitment to stable markets, in the interests of both producers and consumers.
Moreover, it also initiated a process of consultations between OPEC and non-OPEC oil-producing countries, to establish a platform from where OPEC and non-OPEC producers could take pro-active measures that would ensure a balanced oil market on a sustainable basis.
I am sure everyone here can appreciate the road to success is not always easy to navigate. Turning the ‘Algiers Accord’ into a lasting and viable solution for oil market stability took a great deal of hard work, commitment, courage and compromise from every OPEC Member Country and many non-OPEC producers too. Following two months of intensive and determined efforts since the ‘Algiers Accord’, September 28, the ‘Vienna Agreement’, was adopted on November 30, 2016 in Vienna.
This landmark decision by OPEC, as well as the pledge made by a number of non-OPEC producers at a joint ministerial-level meeting in Vienna on December 10, underlines a shared and deep resolve to return much needed stability to the market, and the industry, as a whole.
Through a shared vision, among both OPEC and non-OPEC producers, collaborative and reasoned action was taken to address the prevailing market realities. It was a commitment to all oil industry stakeholders, as well as one to the broader global community through the restoration of oil market stability and the potential positives of this for the global economy.
It is also important to highlight that these recent decisions should not only be viewed as a short-term necessity. Yes, the short-term is in all of our minds, but as we all know, this is very much a medium- to long-term business. We need to view these actions as vital to long-term oil market stability.
The value of this is readily apparent in OPEC’s recently launched tenth edition of its World Oil Outlook, which provides comprehensive analysis of key industry dynamics, as well as detailed insights into the challenges and uncertainties the industry faces.
The 2016 edition of the Outlook shows that oil demand is estimated to reach over 109 million barrels of oil a day by 2040, an increase of over 16 million barrels a day.
This expansion will obviously require significant investments. Moreover, new barrels are needed to not only increase production, but also to accommodate for decline rates from existing fields. Overall, we see oil-related investment requirements of around $10 trillion over the period to 2040.
This investment figure puts the need for sustainable market stability in stark perspective.
Ladies and gentlemen,
The experience of 2016 has shown us that the importance of cooperation and dialogue between all oil industry stakeholders has never been greater. We believe that our future will increasingly be one of energy interdependence. We do not live in a world of independent energy nations.
It all points to the need to continually enhance dialogue and cooperation, with innovative thinking, collaboration and swift action between stakeholders, where and when appropriate. This lies behind our established and evolving dialogues with the European Union, China, India, Russia, other non-OPEC producers, the International Energy Agency, the International Energy Forum, the International Monetary Fund, the G-20, and others.
In the context of this vision, OPEC sees benefits in exploring and initiating an energy dialogue with the US. We believe this engagement is vitally important to all. The US is currently the number one liquids producer at around 13.6 million barrels a day, the number one consumer, at just over 20 million barrels a day, the number one importer of liquids at about 9.6 million barrels a day, and the number three exporter of liquids, at around 4.6 million barrels a day.
What is in all of our interests is the one word I have uttered on many occasions since I became Secretary General. And that word is ‘stability’.
Stability is central to everything we do. It is the overarching concern that links us all.
We need stability – for investments and capacity expansion, to guarantee supply levels are adequate and sufficient, and to enable producers to respond quickly and appropriately in times of unexpected supply constraints.
We need stability – for investors and producers to realize a fair return from the exploitation of their non-renewable resource.
We need stability – for consumers to receive reliable and secure supplies.
We need stability – for the market to react and respond to future unforeseen events.
We need stability in all its forms. It guarantees a more balanced market today, which also guarantees a balanced market in the future.
On this point, I would like to thank you for your attention, and hand the floor to my colleague, Dr. Jorge Leon, who will present a more detailed overview of the 2016 OPEC World Oil Outlook.
HE Mohammad Sanusi Barkindo, OPEC Secretary General, delivers his keynote speech at the Columbia University Center on Global Energy Policy