Keynote Address by OPEC Secretary General
Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at Nigeria Oil and Gas International Exhibition, 28 February 2017, Abuja, Nigeria.
Your Excellencies, colleagues, ladies and gentlemen, fellow countrymen,
I am greatly pleased to have the privilege of delivering this keynote address in my home country. It is always a pleasure to come home. This time I return not only as a fellow countryman, but also as the Secretary General of OPEC and I am honored to share my thoughts with you at the 16th Nigeria Oil and Gas Conference (NOG) today.
This very Conference was created through the vision and leadership of the late Rilwanu Lukman, then OPEC Secretary General and later Presidential Adviser and Minister of Petroleum Resources and the close collaboration that grew between Rilwanu and Alirio Parra, a former Minister of Energy of Venezuela.
The first NOG event took place in London and some three years later NOG was brought to Abuja and it has since evolved to become a major independent platform for discussion and debate among all Nigerian oil industry stakeholders, including a critically important theme of national content. In my view, NOG can be considered as one of the great energy events that has brought much acclaimed prestige to Nigeria.
I should like here to pay a glowing tribute to an icon of the oil and solid minerals industry, Dr Rilwanu Lukman. This is not only as one of the longest-serving heads of both the Nigerian oil industry and OPEC, spanning over four decades with the best interests of his country and OPEC at heart, but also as one of the oil industry’s most influential and respected ambassadors and personalities.
On behalf of OPEC, I should also reiterate our deep appreciation to the honorable Minister of State for Petroleum Resources Dr. Emmanuel Ibe Kachikwu for his outstanding leadership through the recent challenging downturn in the oil market, as well as his exemplary role in assisting OPEC accomplish the historic decisions in late 2016. Your efforts, Excellency, alongside the efforts of fellow OPEC Ministers, as well as non-OPEC Ministers, should be highly commended.
I should also like to like to seize this opportunity to convey to the Nigerian Government and President Muhammadu Buhari our sincere thanks and admiration for his open and cooperative stance, his willingness to use his good offices and international respect to intervene at his level, and for his flexibility in reaching a consensus solution. All this was instrumental in helping carve out the landmark achievements with concrete deliverables and implementation structures.
Ladies and gentlemen,
Nigeria is a very important country on the African continent and in the world of energy in terms of size, economy and resources, especially regarding petroleum. With an economy of more than half a trillion dollars, Nigeria is by far the largest economy on the continent. It also has the second-largest proven oil reserves in Africa and accounts for more than 3% of the world’s proven crude oil reserves.
Although 2016 was a tough year for all producers, the 2017 forecast for the country is positive, with a growing output target and some exciting new discoveries, such as the Owowo field. Analysis suggests that incremental growth will be recorded for the next three years.
In addition, notable reforms to the NNPC will help the company become more transparent and profitable and encourage investment, thus helping Nigeria meet its hydrocarbon potential.
As the honorable Minister of State for Petroleum Resources Dr. Emmanuel Ibe Kachikwu stated in a recent address, there has already been a bullish re-entry by oil majors and others to find reserves in the country in 2017, the Petroleum Industry Governance Bill has made good progress and improvements in Niger Delta issues have led to a recent jump in oil production. In general, the future looks bright.
Ladies and gentlemen,
In terms of the short-term global oil market, oil prices have stabilized recently in a relatively narrow range above $50/b for the OPEC Reference Basket, with the market supported by OPEC and several non-OPEC country production voluntary adjustments. Indeed, in January the OPEC Reference Basket was above $52/b. The extreme volatility that was rocking the market has abated.
Looking back, the sharp decline in oil markets that started in June 2014 saw the OPEC Reference Basket price plummet by an unprecedented 80% by January 2016. This constitutes the largest percentage fall of the five downward cycles we have seen over the last three decades. During these past years, global inventories also rose to the highest levels ever witnessed and investment was scaled back for two consecutive years — this is also unprecedented.
The knock-on effect caused by price volatility has been felt deeply within our economies and throughout various sectors. Most, if not all of our Member Countries rely largely on oil revenues for their national budgets and we have seen these, in some cases, shrink by as much as 70%. Oil companies have had drastic reductions in earnings, with significant job losses across the industry. Global oil and gas exploration and production spending fell by around 26% in 2015 and a further 22% in 2016. Economic growth slowed in many emerging countries, with some major economies facing recessionary pressure.
Many months of intensive consultations were held around the world between OPEC Member Countries and between OPEC and non-OPEC to try and find solutions to this crisis. These extensive consultations resulted in the signing of three landmark agreements:
- First, the ‘Algiers Accord’ of September 28, 2016 that saw the OPEC Conference opt for an OPEC production target ranging between 32.5 and 33 mb/d, in order to bring the market rebalancing forward.
- Second, the consensus decision on the final implementation of the Accord among OPEC Member Countries was reached at the 171st Meeting of the Conference on 30, November 2016 – the ‘Vienna Agreement’. This saw OPEC Member Countries commit to adjusting production by around 1.2 mb/d, effective 1st January 2017.
- Third, as an integral part of the implementation decision of the Ministerial Conference (30 November, 2016), voluntary production adjustments of 558 tb/d were formalized by 11 non-OPEC countries through a Declaration of Cooperation on 10, December 2016.
The landmark decision of OPEC’s Vienna Agreement, the first since Oran in 2008 during the global financial crisis, underlined the importance and urgent need for an institutionalized framework for structured, sustained and transparent partnership with non-OPEC countries. This, in turn, has been openly shared with the public in order to reflect its credible, equitable, transparent, measurable and verifiable features.
The Declaration of Cooperation underlined the resolve of the 24 producing countries to achieve an accelerated realignment of global oil supply and demand. The Declaration also demonstrated the shared commitment of both OPEC and non-OPEC participating countries to work together to reinforce the decision through the establishment of a Joint Ministerial Monitoring Committee (JMMC) comprising Kuwait, Algeria, Venezuela, the Russian Federation and the Sultanate of Oman.
The Declaration of Cooperation came into force on the first day of January 2017, and it commits a global platform of oil producers – 24 altogether – to a production adjustment of around 1.8 mb/d, during the first six months of 2017. This was the first of its kind – a new historic page!
These landmark decisions have already positively impacted the market as seen by the onset of a more bullish sentiment among oil investors and the global oil industry, as well as a welcome spillover effect to the global economy with improved performance in some key industrialized countries. Recent data confirms that the OPEC-11 achieved a conformity level of 94 percent in January 2017, while together with participating non-OPEC producing countries the conformity level stood at 86%. Let me stress that all 24 countries are confident of further improvements to reach the full and timely conformity of the decisions taken. Our common goal is 100% conformity.
The positive indicators that have been recently seen are leading to better short- and medium-term perspectives for the market, in particular for investment. Africa has a great deal of investment potential and economies are receiving a lot of support from recent hard-earned market stability, thus investors are once again eyeing the continent.
Market stability is paramount to economic growth and development, particularly for oil-producing countries that are often closely linked to resource endowments. OPEC and its Member Countries have been tireless in striving to maintain stable markets for the benefit of both producers and consumers.
Ladies and gentlemen,
Looking down the road, it is clear that the world’s need for energy will continue to grow as the population expands and more people come out of poverty. According to OPEC’s 2016 World Oil Outlook, released in November 2016, the global population is expected to increase by almost 1.8 billion people from 2015–2040 to surpass 9 billion people, with most of the growth occurring in developing countries, in particular led by Middle East and Africa.
GDP growth is also expected to gradually improve and average 3.4% per annum from 2015-2021, with the overall growth rate between 2015 and 2040 slightly higher at 3.5% per annum. Most of the expansion is expected to come from developing countries, with especially strong growth in India and China.
As a result of these trends, total primary energy demand is set to increase by 40%, reaching 382 mboe/d by 2040. Of this amount, 53% will still be satisfied by oil and gas. There is no doubt that oil will remain a fuel of choice for the foreseeable future.
Looking specifically at oil demand, it is expected to surpass 99 mb/d by 2021. It is then projected to climb to over 109 mb/d by 2040, an increase of 16.4 mb/d from 2015, which comes mainly from the road transportation sector, petrochemicals, and aviation. In parallel with energy growth, oil demand will rise most in developing countries.
Reflecting demand trends, supply will also undergo adjustments. Non-OPEC supply is expected to return to growth during 2017. It is currently anticipated to grow by 0.2 mb/d after a contraction of 0.7 mb/d in 2016. It is also expected to experience a further gradual recovery in the medium-term, reaching 58.6 mb/d by 2021, with most of the growth coming from Latin America, the US and Canada. In the longer term, US tight crude will remain a major source of growth until 2030, before declining. However, the supply outlook faces considerable uncertainty from factors such as cost, technology, geology, policies and geopolitical developments.
The contribution of OPEC crude oil to the global supply will remain robust and is expected to rise steadily to reach 41 mb/d by 2040, when the share of OPEC crude in the total world liquids supply will reach 37% – three percentage points higher than in 2015.
Ladies and gentlemen,
Understandably, these significant oil market developments will have strong implications for the downstream in both the medium- and long-term.
On the world scale, new required refining capacity will continue to mirror demand growth in developing regions, led by the Asia-Pacific, and will continue to move away from industrialized regions. Assessed project additions to 2021 total 7.3 mb/d of crude distillation capacity, compared with the existing base capacity at the beginning of 2016. It is also important to note that, in the medium-term, the capacity of secondary units follows the increase in distillation capacity.
Beyond current projects, further capacity requirements of 12.2 mb/d are projected by 2040, for a total of 19.5 mb/d of new crude distillation capacity requirements by the end of the forecast period.
Africa is one of the regions forecast to witness increasing refining capacity deficits over the next several years, and I know this is a subject being discussed widely in Nigeria. On the other hand, Africa is also expected to see a lot of new long-term additions that may help satisfy its growing demand. In fact, the continent is well positioned for downstream capacity additions.
Currently, the region imports about 30% of the refined products it consumes, making it by far the largest net product importing region. This is because of a combination of insufficient refining capacity and very low utilization rates in many facilities. Distillation capacity additions for Africa between 2016 and 2021 are expected to be around 0.6 mb/d. Some capacity expansion is likely to be forthcoming in Nigeria by 2020 through the rehabilitation of existing refineries and some grassroots projects.
The downstream is expected to face several uncertainties in the coming years, including the reaction of refiners to the need for capacity rationalization, changes in the quality of the global crude slate, and adopting to tight environmental regulations and product specifications. Additionally, lower oil prices in the past two years have led to many investors deferring projects, which may be re-considered if prices continue to recover.
Ladies and gentlemen,
I would like to also dwell on one of the most important topics of our time – the issue of climate change within the context of the global energy transition. The policy changes resulting from climate change concerns have the potential to impact energy demand, as well as the overall energy mix and the future economy of oil.
OPEC Member Countries welcomed the Paris Agreement that resulted from COP 21 and indeed played an important role in reaching the Agreement. OPEC Member Countries will also play a leading role in its implementation – all 13 OPEC Member Countries have already signed the agreement and are in the process of ratifying it.
Additionally, OPEC has been working closely together with the UN Framework Convention on Climate Change (UNFCCC) to promote cooperation between the two bodies. This new and positive development resulted from a working visit I had with the UNFCCC Executive Secretary Patricia Espinosa in October of last year in Bonn, Germany.
However, I want to reiterate that the implementation of this agreement should continue to be guided by the principles and provisions laid out by the UNFCCC, particularly the principles of common but differentiated responsibilities and respective capabilities. Equity is at the heart of the UNFCCC and subsequent COP Agreements. It is a core principle that holds together the sometimes competing aspirations of the people of the world represented at the COPs.
OPEC Member Countries, as developing country parties to the UNFCCC are not only impacted by the harsh realities of climate change with enormous impacts on our eco-systems, but equally face increasing severe unintended consequences from the policy programmes of developed country parties. It is important to therefore remember that oil and gas will continue to be the bedrock of our economies for the foreseeable future, despite the heroic efforts of our governments, in embarking on a variety of macro-economic reforms.
Finally, I want to refer to OPEC’s leading role in tackling sustainable development through its sister organization, the OPEC Fund for International Development (OFID). Sustainable development and mass poverty, including energy poverty, are subjects we attach high priority, and OFID is doing a great deal on the African continent to tackle these issues, with projects in nearly 50 countries. The Organization – which celebrated its 40th birthday last year – helps these countries through public and private sector lending, trade financing and grants.
OFID’s resources consist of voluntary contributions made by OPEC Member Countries and the accumulated reserves derived from its various operations. At the close of the year 2015, cumulative commitments of the Organization topped US$16 billion and total disbursements were close to US$13 billion.
In conclusion, we should be conscious of our resources, we should use them effectively and efficiently to help support our development aspirations, uplift our economies and aid diversification.
OPEC is committed to sustainable stability for the benefit of both producers and consumers, and one of our most important tools to that end is dialogue. Sharing views and experiences with industry leaders is essential in building a stable and sustainable future.
I wish you useful exchanges and a successful exhibition.
Thank you for your time.
HE Mohammad Sanusi Barkindo, OPEC Secretary General, delivers his keynote address
HE Dr. Emmanuel Ibe Kachikwu, Nigeria's Minister of State for Petroleum Resources (r) and HE Barkindo, OPEC Secretary General, attend the16th NOG Conference
HE Dr. Kachikwu and HE Barkindo take a tour of the conference's exhibition