2010 and The Future Outlook

Speech delivered by Dr. Ibibia Lucky Worika, General Legal Counsel, on behalf of HE Abdalla S. El-Badri, OPEC Secretary General, to the Oil Council's Awards of Excellence and Gala Dinner, 25 November 2010, London, U.K.

Ladies and gentlemen, it gives me great pleasure to be here this evening representing the Secretary General of OPEC, HE Abdalla Salem El-Badri.  And on his behalf, I would like to thank the Oil Council for the invitation to address this respected gathering.

As each and everyone one of us in this industry knows, the last few years have been hugely challenging.  I certainly do not need to remind anyone here of the turbulent journey the world economy has gone through. Nor do you need reminding of the belt-tightening measures that have been implemented by most governments over the last two years. All intended to put the economy back on the path of growth.

It has been a momentous and unpredictable time. And we still face many hurdles and challenges. Yet, there is still good reason to look ahead with optimism.

If I may, I would like to touch briefly on the background to the crisis.

The global financial crisis and subsequent economic downturn of 2008-2009 were very severe. The crisis had its foundation firmly rooted in the sub-prime mortgage crisis in the United States as well as the activities of speculators. The oil market was severely affected by these developments and the result was a roller-coaster ride for oil prices. The OPEC Reference Basket recorded prices in 2008, that were both extremely high at $141/b and as low at $33/b. Inevitably, this did not create a good investment climate. Consequently, projects were either delayed or suspended in both OPEC and non-OPEC Member Countries, as governments worked to find ways to put the economy back on track. The latter, as we know, has been largely through the monetary and fiscal stimulus packages implemented across the globe -  which  have certainly helped economies return to growth.

For its part, OPEC's decision to adjust production by 4.2million b/d at its Conference in Oran, Algeria in 2008 went a long way in helping to stabilize the oil market.

Trying to put the crisis behind us, we entered 2010 with optimism.

As we all know, a stable economy is an essential requirement for growth and investment for both energy producers and consumers. For now, most analysts are of the opinion that the worst of the global financial crisis and subsequent economic downturn is almost behind us. Also, with the price of oil remaining relatively stable at a range of $70-85/barrel this year, the economic outlook appears far brighter than it did a year or so ago.

And, as the world economy continues to recover, most of the investments affected as a result of the crisis have been resumed. In OPEC Member Countries for instance, according to our forecast, over the period to 2014 there are around 140 projects expected to come on stream. These will result in gross capacity of 12mbd by the end of 2014. The estimated required investment is around $155 billion over the same period.

Of course looking ahead there are future challenges.

Now, the question is, can we also approach 2011 with the same level of optimism as we did 2010 or do we have cause to be wary?

Ladies and gentlemen, the future seems to be fraught with challenges and evidence of a newly emerging crisis point to the need for cautious optimism.

But make no mistake there is and will continue to be demand for crude oil. In our World Oil Outlook for 2010 released earlier this month, the forecast showed that developing countries and South East Asia in particular, are fast becoming the centre of gravity of global economic growth. And therefore of energy needs! Most importantly, the forecast also shows that it is necessary to increase fossil fuels use, in particular oil, to meet future energy demand most of which will come from these regions.

While this is the situation, it is important to also note that there are present realities that may affect demand in the years ahead, especially over the immediate future. When we talk about economic recovery, the nature of such a recovery has not been as balanced as many would have preferred. The recovery, and growth in oil demand, is being fuelled by the emerging markets of non-OECD countries. 

Growth meanwhile, in some of the industrialized countries has been lethargic. This has raised fears of a double dip recession. In the OECD - particularly in the European Union - there is concern about "sovereign debt sustainability". And the early reduction of financial stimulus packages around the world continues to present significant challenges.

Also, there is genuine concern over rising unemployment worldwide. This is in addition to a possible overheating of the Chinese economy and continuing global imbalances. These have led to calls for countries enjoying some level of economic boom to actively encourage private consumption to bring the world economy out of recession.

Then, of course, there are new challenges that include the Irish debt crisis -  the second for the Euro zone in 6 months, the weak dollar and also energy policies of some consumer countries that set ambitious targets for some fuel types, such as biofuels at the detriment of oil. The danger in this is that as we all know, lead times for investment are very long in this industry, and it is a complex and ongoing challenge to avoid over- or under-investing.

In other words, there is the need for clear non-discriminatory policy directives that would point investors in the right direction.

Another challenge that we have to deal with to ensure stable supply in the future, is that of the availability of suitably trained manpower. It is important to remember that the training, education and retention of skilled labour are fundamental to the future health of the OUR industry.

As we approach 2011, if these challenges are not well handled, they have the capacity to erode the gains made in 2010.  How we handle them therefore will affect the pace of recovery and demand in 2011. 

Let me now please talk of OPEC's commitment.

For our part, OPEC remains committed to its goal of providing steady supplies of crude to the market at all times. As you may be aware, OPEC celebrated its 50th Anniversary on 14 September, of this year. Fifty years on -  I am proud to say that in ensuring steady and secure oil supply , OPEC has remained faithful to the objective that was agreed by its Founder Members - Iran, Iraq, Kuwait, Saudi Arabia and Venezuela at its first conference in Baghdad in 1960. 

In addition, the Organization has supported market stability, encouraged sustainable development initiatives through the OPEC Fund for International Development and committed itself to efforts to protect the environment.  We are also strongly committed to encouraging dialogue between OPEC and non-OPEC producers, as well as with consumers.

In the area of adequate manpower provision, it is encouraging to see that our Member Countries have been making increasing efforts to provide appropriate education and training to industry personnel. Globally, however, a lot more thought has to be given to this area just as more needs to be done to ensure that the industry does not run out of skilled manpower in the future.

And on that note ladies and gentlemen, I thank you all for your time. And please enjoy the rest of your evening.

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