Market stability - building for the future today

OPEC Bulletin Commentary February 2012

If there is one thing that is as important as stability in today's oil market, it is stability in tomorrow's oil market.

OPEC has known this for years. So have other responsible stakeholders in the energy industry.

We also know that future stability is something that needs to be worked on today. Upfront investment in new capacity, for example, can be huge and the lead-times long. And that is before we even start thinking about a net return on the investment. Periods of five-to-ten years and sometimes much longer spring to mind here. Therefore, we need to plan well ahead to provide an appropriate structural base for future market stability.

But there is more to it than that. Producers need to have a clear idea at all times of the rate at which oil will be required from their reserves for the world market, since this constitutes a major source of revenue that can be invested in developing and expanding their economies - indeed, for some countries, petroleum sales provide well over 90 per cent of total export revenue. Consumers, for their part, need to be assured of steady, secure supplies of oil at all times, in order to support their economic welfare and growth. This reminds us again of the closed loop between security of demand and security of supply. Whether producer or consumer, critical choices must be made about investment, and improving our understanding of today's market and its likely course in the years ahead will help guide all of us in our decision-making.

What we are talking about here is information, analysis, transparency, cooperation, dialogue.

Recent years have seen much progress in these important areas. The International Energy Forum stands out as a specialist body primed for producer-consumer dialogue at the highest ministerial levels, and it has already achieved much success, particularly in tandem with OPEC and the International Energy Agency (IEA). Separate dialogues abound too at many different levels, and the century so far has witnessed some definitive steps forward in this respect between OPEC and, for example, the European Union, China, Russia, the IEA, the International Monetary Fund, the World Bank and non-OPEC oil-producing countries. The industry at large has benefited from all this.

What is more, dialogue is an ongoing process, and, to illustrate this, let us look at a series of activities involving OPEC on the issue of investment that has taken place at the start of this year. Five important events in five weeks.

January 23 saw the Second IEF/OPEC/IEA Symposium on Energy Outlooks in Riyadh, which provided a chance to compare and discuss the findings from the latest annual issues of OPEC's World Oil Outlook and the IEA's World Energy Outlook, with horizons extending into the second quarter of the century. Complementing this five weeks later is a planned workshop on the creation of an Asian Energy Outlook that is due to be hosted by OPEC in Vienna on February 28 on behalf of the Asian Ministerial Energy Roundtable.

On January 30, OPEC Secretary General, Abdalla Salem El-Badri, addressed the Middle East and North Africa 2012 Energy Conference at Chatham House, in London, where, in the second half of his speech, he focused on the issues of investment, technology and cooperation. At one point, he referred to a topic - The growing use of enhanced oil recovery techniques - that itself provided the theme of another gathering a week later in Kuwait City, on February 7-8, the IEA-OPEC Carbon Dioxide-Enhanced Oil Recovery Kuwait workshop.

Common to these four meetings - and, indeed, essential to any discussion about investment - was the unyielding need for accurate, timely data, and this subject itself was examined in depth at the 11th OPEC Annual Statistical Meeting at the Secretariat on January 31-February 1.

Meetings such as these are a frequent occurrence for OPEC and its Member Countries, whether as host or participant, as they seek to provide the solid base from which the industry will benefit years and decades ahead.

Oil market stability does not just happen by itself, especially in an era when the financial sector has such a big influence on prices, fuelling so much volatility. It needs to be worked on at all times in the areas where dialogue and sound planning can make a difference - such as addressing the crucial balance between demand and supply in a transparent, predictable and sustainable way. And the industry as a whole shares the challenge of building for the future today.

OPEC Bulletin February 2012

Download document