Introductory Remarks by the President of the OPEC Conference

Delivered by HE Khalid A. Al-Falih, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, and President of the OPEC Conference, at the 6th High-level Meeting of the OPEC-Russia Energy Dialogue, 31 May 2017, Moscow, Russia.


Introduction

Your Excellencies, Alexander Novak, Mohammad Sanusi Barkindo, ladies and gentlemen, good morning.

It is a delight to be in Moscow, and a great pleasure to attend this High-level Meeting of the OPEC-Russia Energy Dialogue. The fact that this meeting is being convened for a sixth time underscores the continuing importance of the strategic and tactical relations between Russia and OPEC.

The role of Russia

I would like to thank His Excellency Alexander Novak, Minister of Energy of the Russian Federation, and his staff for hosting today’s meeting. Russia and the OPEC Member Countries share many common interests, hold many of the same views and confront many of the same challenges, and this Dialogue provides a platform to compare notes on both short and long-term issues in the global oil market, while deepening relations at both the technical and ministerial levels.

As you know, much of the impetus for the present level of cooperation between OPEC and non-OPEC members came from talks between Saudi Arabia and the Russian Federation that began roughly a year ago, culminating in an agreement between the two countries announced on the sidelines of the G20 meeting in China last September.

Today, that bilateral commitment is stronger than ever: in fact, just yesterday His Excellency Minister Novak and I attended a meeting of the Saudi and Russian leadership at the Kremlin, during which both our nations renewed their determination to rebalance the global crude oil market in the interest of greater market stability—and restated our commitment to doing whatever it takes, together with other like-minded producers, to attain those goals.

Recent successes

Of course, yesterday’s discussion and today’s dialogue here in Moscow follow a number of major market developments over the past year. Ten months ago, we were faced with major uncertainty, with excess supplies and inventories on a generally rising trend.

As a result, market sentiment was distinctly pessimistic, and investment flows were drying up. But, since that time, the OPEC decision in Algiers last year, followed by the collaboration between OPEC and a number of key non-OPEC producers, Russia chief amongst them, has delivered outstanding results.

For example, since the beginning of this year, OECD commercial stocks have seen an absolute reduction of 31 million barrels, while floating storages have declined by some 30 million barrels during that same period—and with the extension of the Declaration of Cooperation, we can expect further inventory drawdowns.

Furthermore, following two consecutive years of decreased global E&P investments—when since 2014 there has been a decline in investments of roughly 40 per cent—investments have stabilized this year at 530 billion dollars. This stabilization is attributed to the presence of clear market leadership and the expectation of a balanced market in the near future, given the cooperative actions taken by OPEC and non-OPEC producers.

In short, we have made tremendous progress in rebalancing the market and giving the market strong direction through our determined actions and high degree of conformity.

But our joint deliberations with Russia concluded that while the rebalancing goal is on its way to being achieved, more needed to be done to draw inventories toward the five-year average.

This set the stage for the successful meetings held last week in Vienna, where 24 nations comprising both OPEC and non-OPEC producers demonstrated the cohesion and consensus that the markets needed to see by extending the Declaration of Cooperation by nine months. This was a major achievement, in which we can all justifiably take pride.

A look forward

If we look ahead, we see four key drivers at play in the market: (1) robust oil demand growth, supported by an improving global economy; (2) the natural decline in legacy fields; (3) the impacts of investment cuts of roughly a trillion dollars over the past two years and the continued lag in sizeable investments in long-term projects, as opposed to shorter-term incremental investments; and (4) the new dynamic of cooperation between OPEC and non-OPEC producers, led by Russia, to keep markets in balance.

When these four factors are taken together, I can only conclude that the supplies coming from marginal barrels, including shale production, will not be sufficient to meet the future need for incremental capacity. The market balance is already pointing in that direction, and in my view, this trend will only strengthen in the coming two years.

That said, the challenge requiring our greatest attention remains bringing crude oil inventories down toward the five-year average.

All in all, however, I am confident that the high level of cooperation we have seen among producers over the last six months will remain strong, and that by acting in solidarity and in pursuit of our common objective, we can steadily overcome the inventory challenge.

Russia-OPEC partnership

Of course, the partnership between Russia and OPEC is important to both strengthening market fundamentals and giving the market much needed confidence, which is why I place a great value on our cooperation.

Here I would like to once again acknowledge the outstanding role played by His Excellency Alexander Novak in building and nurturing this relationship, in encouraging our ongoing dialogue, and in enhancing the spirit of collaboration and cooperation.

Long-term objectives

Furthermore, I believe the high degree of cooperation between OPEC, Russia and other non-OPEC producers opens new avenues to achieve other critical long-term objectives.

First and foremost is the key partnership and collaboration theme in OPEC’s future vision that I outlined upon assuming its Presidency early in the year. We want to institutionalize the goal of maintaining and strengthening critical cooperation between OPEC and non-OPEC producers, while also fostering and extending excellent relations with international energy institutions to promote better understanding. OPEC has a fundamental interest in the health of the global economy and the worldwide energy industry, to ensure that appropriate levels of investment are maintained and technological progress continues to be encouraged and nurtured.

I believe we also now have a golden opportunity to expand our cooperation to other areas of mutual interest. For example, major holders of hydrocarbon resources should join hands and assist in formulating a balanced strategy that concurrently meets the goals of climate protection and sustainability while meeting long-term energy demand and spreading economic prosperity.

Conclusion

Your Excellencies, ladies and gentlemen, allow me to conclude by saying that the strong relationship created between the Russian Federation and OPEC has produced outstanding results by turning an uncertain market into one that can look toward the future with confidence.

This partnership has been and will continue to be beneficial for the global markets, for the global economy, and for all of the nations involved. In this spirit, I look forward to an engaging event today, and I foresee many opportunities to continue and enhance our joint efforts in the months and years to come.

Thank you, and spaseebo.

HE Khalid A. Al-Falih, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, and President of the OPEC Conference, delivers his remarks at the meeting

HE Khalid A. Al-Falih, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, and President of the OPEC Conference, delivers his remarks at the meeting

HE Khalid A. Al-Falih, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, and President of the OPEC Conference (r); and HE Alexander Novak, Russia's Minister of Energy

HE Khalid A. Al-Falih, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, and President of the OPEC Conference (r); and HE Alexander Novak, Russia's Minister of Energy