Asian Energy Outlook up to 2030

Speech by OPEC Secretary General, HE Abdalla S. El-Badri, to the Fourth Asian Roundtable: Sustainable Growth and Energy Interdependence - Kuwait, 18 April 2011

Excellencies, Ladies and Gentlemen,

 

I would like to begin by thanking His Excellency Sheikh Ahmad Al-Abdullah Al-Ahmad Al-Sabah for the invitation to participate in this Roundtable. It gives me great pleasure to be in Kuwait, a founding Member of OPEC.

 

The first quarter of 2011 has seen a number of significant events that none could have predicted at the turn of the year.

 

In the Asian region, there was Japan’s huge earthquake, devastating tsunami and subsequent nuclear crisis. Our sympathies are with all those affected by these catastrophic events.

 

And in North Africa and the Middle East, unrest has been witnessed in a number of countries. Our thoughts and hearts are with all those civilians who have suffered tremendously and whose daily lives have been adversely impacted. Where unrest remains, it is hoped that peaceful solutions can be found.

 

These events, as well as the continued uncertainties surrounding the global economy, have obviously had an impact on oil and energy markets. However, oil markets, which are global in nature, have rapidly adjusted, both in terms of volume and quality. Consequently, and as OPEC has indicated many times, there is no shortage of oil anywhere in the world, even with the partial absence of production from one of OPEC’s Member Countries. Moreover, stock levels remain high; OPEC’s spare capacity is around 4.5 million barrels a day, even after the recent disruption; the refining system has adequate flexibility; and the Organization’s current production is at the level it was in December.

 

Nonetheless, we have all seen prices increasing in the first quarter and speculator activity on the Nymex has surged to record highs. For example, by mid-March, open interest for the Nymex WTI exceeded the unprecedented level of 1.5 million futures contracts, which is 18 times higher than the daily traded physical crude. Such an increase has been the result of concerns on supply further deteriorating beyond the current situation. A risk premium of about 15 to 20 dollars is currently embedded in the price.

 

It is important the market focuses on its balanced supply and demand fundamentals. A curb in speculative activities is needed. None of us want a return to the price levels we witnessed in mid-2008.

 

The rise in prices has been even more pronounced at the consumer end, where the effect of consuming country taxation is greatly felt. While OPEC has played its role by ensuring the market remains well supplied in crude, it would be helpful at this point in time if consuming countries that have a high level of taxation on oil products consider revising down these levels, at least temporarily, to alleviate the impact on end-consumers.

 

These are exceptional circumstances that need exceptional remedies.

 

Looking to the longer term and the theme of this session – ‘Asian Energy Outlook up to 2030’ – what is clear is that the Asian region has become, and will increasingly become, ever more important in terms of global economic growth and energy demand. This is highlighted in last November’s publication of OPEC’s annual World Oil Outlook.

 

First, in terms of demographics: Asia is home to two-thirds of the world’s population, a population that is young, growing quickly and increasingly located in large urban areas.

 

In terms of the economy, Asia’s role and its global weight is rapidly expanding: today, it contributes 36% of the world’s gross domestic product and this share is expected to reach 49% by 2030. Asia will economically be the fastest growing region over the next 20 years.

 

This economic strength can also be viewed in the region’s recovery from the global economic crisis. Emerging economies, with China and India to the fore, are now back to strong growth rates. This is in contrast to many OECD countries that are juggling the need for additional monetary and fiscal policies to support fragile growth and the necessity for fiscal consolidation. This is particularly evident in the sovereign debt situations of a number of Euro-zone countries.

 

This expected economic growth also translates into Asia’s expanding importance for energy demand, in general, and oil demand, in particular. In fact, the hub for oil demand has been progressively shifting towards Asia in recent years. For example, over the last five years, OECD oil demand contracted by around 3.8 million barrels a day. While Asia, including the Middle East, actually saw an increase of almost 4.8 million barrels a day over the same period.

 

Looking ahead, developing countries are set to account for most of the long-term oil demand increase, with consumption rising 22 million barrels a day over the period 2009-to-2030 to reach almost 57 million barrels a day. And around 75% of the net growth in oil demand in this period is in developing Asian economies.

 

It is clear that transportation will remain the main source of the region’s oil demand growth. With strong economic expansion, improvements in living standards and greater disposable incomes, a significant increase in vehicle volumes for Asia’s developing countries is expected. Today, 22% of world passenger cars are in Asia; this figure is projected to reach 39% in 2030. This represents phenomenal growth. 

 

It should be noted, however, that per capita oil use in developing countries will remain far below that of the developed world by 2030. For example, oil use per person in North America will still be more than ten times that in South Asia.

 

Moreover, energy poverty will remain a very real concern for many billions of people, the majority of whom are to be found in Asia.

 

Of course, the region’s growing energy use can be expected to result in higher levels of greenhouse gas emissions. It is important, however, to put this in context.

 

This is specifically in terms of sustainable development, with its intertwined and mutually supportive pillars of economic development, social progress and the protection of the environment. And in regards to priorities and responsibilities, with the United Nations Framework Convention on Climate Change stating that economic and social development and poverty eradication are the first and overriding priorities of developing country Parties. Developed countries should take the lead in combating climate change and the subsequent adverse effects. 

 

Nonetheless, it should be stressed that many Asian countries are already playing a role in reducing their economy’s carbon intensity.

 

For example, China’s recent five-year plan calls for a drastic reduction in both energy consumption and CO2 emission per unit of GDP, by 16 and 17% respectively, by the end of 2015. And many countries in the region are also seeing a significant expansion in renewables, albeit from a low base.

 

There has also been much talk of nuclear in recent years, with a number of countries in the region looking to build nuclear plants. Events at the Fukushima nuclear complex in Japan, however, have led to many questions being asked about nuclear power, particularly in terms of safety, waste and decommissioning.

 

From an oil market perspective, for fast-growing Asian economies it is important that there is adequate supply to meet the growing demand. This is clear, both in terms of production and available resources.

 

While suppliers continue to face significant challenges, such as the impact of the global financial and economic crisis, market volatility and the role of speculation, and an often unclear demand picture as a result of a number of consuming countries policies, investments to increase capacity are being made.

 

In the medium-term to 2015, OPEC Member Countries are expected to invest an estimated $290 billion in upstream projects, with $120 billion in Iraq alone. We remain committed to future investment plans to boost our capacity.

 

Resources are also plentiful. The Middle East alone has an abundant natural resource endowment: over 750 billion barrels in proven crude oil reserves and almost 76 trillion cubic metres in proven gas reserves, which is around 56% and 40% of global totals, respectively.

 

What all this underlines is the ever-expanding interdependence between the Middle East and Asian regions. This is not only in terms of oil trade, which continues to grow, but also from a broader economic perspective. For example, between 2000 and 2009, exports to the Middle East from Asia and the Far East increased by around 300%, compared to an increase of about 120% in terms of total world exports from Asia and the Far East. Exports from the Middle East to Asia and the Far East also increased around 180%, compared to a global figure of about 145%.

 

In looking at Asia’s future energy outlook, it is clear that the relationship between this region and the Middle East is an extremely important one and one which will continue to grow. There is much that each can offer the other.

 

In general, the growing interdependence between us is all the more clear today given that many regions and countries are facing an array of challenges, such as those originating from economic and financial uncertainties, natural disasters and domestic social unrest.

 

With this in mind, our goal must be one of stability, with a clear and consistent environment that enables the industry to continue to develop, produce, transport, refine and deliver energy in an efficient and economic manner. This will benefit producers and consumers, as well as present and future generations, and hopefully deliver a better standard of living for all peoples around the world, as well as a greater hope that tomorrow will be better than today.

 

Thank you for your attention.