Keynote speech to the "14th International Oil Summit"

Delivered by HE Abdalla S. El-Badri, OPEC Secretary General, at the OPEC-IEA-IEF Session of the 14th International Oil Summit, Paris, France, 4 April 2013

Excellencies, ladies and gentlemen,

Good morning.

I would like to begin by thanking the organizers of this event for inviting me to the 14th International Oil Summit.

I have been asked to share with you - and my colleagues here in the IEA and IEF - our views on the global energy future.

Let me begin by taking you back to the past.  Energy has positively impacted the lives of billions over the centuries, especially after the discovery and utilization of fossil fuels.  It has provided heat, light and mobility, and been central to the development of the industrial civilization as we know it today.

And it will be just as important to our future economic and social progress.  Therefore we need all sources of energy - old and new - and it is easy to understand why.

Firstly, world population is expected to reach around 9 billion by 2040, an increase of over 1.8 billion from today's level.

Secondly, the global economy will rebound in the longer term.  Of course, I cannot stand here and say the current economic outlook is rosy, but we should be optimistic about the future.

Thirdly, passenger car ownership rates are expected to more than double by 2035, from around 900 million today to close 1.8 billion by 2035.

And fourthly, with around three billion people living on less than two dollars 50 cents per day, 1.4 billion people having no access to electricity and some 2.7 billion relying on biomass for their basic needs, there is huge potential for socio-economic development.

All this underlines that world energy demand is set to grow.  In OPEC's most recent World Oil Outlook, world energy demand in 2035 increases by 54 per cent over the period 2010-to-2035.

With this figure in mind, there is clearly room for all energies.  There are great prospects for the industry.  Nonetheless, it is vital that we fully understand which energies will form the core of our future?  And which energies will play a more complementary role?

I should add that none of us can make accurate predictions.  We don't have crystal balls!  Over time, opinions can shift, new realities can set in, and of course, we can expect many challenges and uncertainties on the path ahead.

However, there is no doubt that we can determine some 'basic realities' about the shape of our energy future.

Renewables, mainly wind, solar, small hydro and geothermal, are expected to grow at around 8 per cent per year, often as a result of government support and incentives.  Renewables certainly hold promise, but globally its share in the energy mix will be at 3.5 per cent by 2035, given its low initial base.

Biofuels are expected to expand their role - supported by direct and indirect government subsidies - but not at levels once assumed.  For first-generation biofuels, there remain serious concerns over the competition between food and fuel, as well as due to impacts on biodiversity, greenhouse gas emissions and water resources.  Last year, here in the European Union a 5 per cent cap was placed on the amount of biofuels in the EU's 2020 transport mix over concerns about using food-based crops for fuel.  Second and third generation biofuels can overcome some of these concerns, but they are still far from being available for commercial use.

For nuclear, there remain challenges such as high upfront costs, long-lead times, operational safety, decommissioning, waste management and public acceptance.  Despite these, nuclear is expected to see some expansion, although its overall share drops slightly to six per cent by 2035.

In terms of fossil fuels, they currently account for 87 per cent of global energy demand and will still make up 82 per cent by 2035.

Of all fossil fuels, natural gas is expected to witness the fastest growth rate, at close to 2.5 per cent annually.  And its overall share in the fuel mix rises from 23 per cent today to 26 per cent by 2035.  The increase will be driven primarily by the expansion of natural gas in the power generation sector. 

Whether gas experiences a 'golden age' remains to be seen.  It will clearly be dependent on price, profitability and sustainability.

Coal also witnesses some growth, but over the forecast period its overall share falls slightly and by 2035 it will be at a similar level to oil.  Its future prospects will be impacted by the extent to which costs are attached to carbon emissions, as well as from competition with other sources of electricity generation, notably gas.

For oil, although its overall fuel share falls from 35 per cent to just over 27 per cent between 2010 and 2035, demand still increases by more than 20 million barrels a day over this period.  It will eventually reach over 107 million barrels a day by 2035.

The reality is that fossil fuels will remain dominant in meeting energy demand for the foreseeable future.

We also have the resources to meet future demand.  But obviously we need to turn these resources into supply.  This requires technology and investment.  And, of course, in this regard, we need to think about the price.

The key question is: what price is required to make each energy economically viable?

I am sure we all appreciate that every energy, and every investment project, has a break-even cost associated with it.  Whether producing conventional oil and gas, coal, Canadian oil sands, ultra-deep offshore oil, renewables or biofuels there is an associated marginal cost.

So what is the potential impact of lower prices?

If prices fall below certain levels, then many investors will find their developments no longer viable. 

And if low prices lead to energy investments across the world being put on hold or cancelled altogether, then there is the potential to sow the seeds for extreme high oil prices in the future, if a lack of investment leads to supply failing to keep up with future demand increases.  This has happened in the past.

It underscores the importance of a stable and fair price for all - one that is satisfactory for both producers and consumers and allows the energy industry and the global economy to grow.  It matters to every one of us.

Extreme prices - either too high or too low - not only affect producers, but also consumers, and the global economy as a whole.

Before I finish, allow me to touch upon one issue that have been asked about on numerous occasions over the past year: tight oil and shale gas.

We welcome energy diversity and an expanded energy mix.  Shale gas and tight oil are positive additions.  And in the US they are certainly having an impact.

However, they too have an associated marginal cost; one that is higher than for conventional fossil fuels.  We have already seen a slowdown in US shale gas drilling as natural gas prices fell.

And in addition, we need to be careful in estimating their potential.  There have been reports that shale wells can drop off by as much as 60-90% within the first year.

Excellencies, ladies and gentlemen,

Of course, our energy future will also be shaped by other issues and challenges such as those related to the global economy, the environment and human resources, but these are for another day.

To sum up, the 'basic realities' I have touched upon today are:

The future will be dominated by fossil fuels.  Renewables and other alternatives will play a role, but they will be supportive.

It is important to recognize the different break-even price levels for the various energies.  We believe current price levels are supportive of the energy future we portray, and will not harm the global economy.

And it is clear the future is a shared one.  There is no country, region or continent that can act alone. It is about inter-dependence, not in-dependence.

While none of us can plot the exact path of our energy future, I am sure we all recognize these 'basic realities' and what has been central to much of what I have talked about: the importance of stability.  This will always be paramount to delivering a sustainable energy future.

Thank you.