The global energy outlook

Opening Remarks by HE Abdalla S. El-Badri, OPEC Secretary General, to the International Energy Week, Moscow, Russia, 28 October 2013

[SLIDE 1]
Excellencies, ladies and gentlemen,
Good morning to you all.

Let me start by thanking the organizers of this International Energy Week for inviting me to address you today. The event plays an important role in promoting energy dialogue among all stakeholders.

As we all know, dialogue is essential if the industry is to meet the many challenges facing it in the future. And today, I hope to be able to give you a brief insight into how OPEC sees the energy future.

[SLIDE 2]
What is clear is that world energy demand is set to grow. In OPEC's World Oil Outlook, world energy demand rises by 52 per cent over the period between 2010 and 2035.

Renewables, from wind, solar, small hydro and geothermal, are expected to grow at over seven per cent per year, often as a result of government support and incentives. They certainly hold promise; but globally their share of the energy mix will still be less than three per cent by 2035, given their low initial base.

Both the share of biomass and nuclear remain at steady levels throughout the period 2010-to-2035, at around nine per cent and just below six per cent respectively.

It is clear that fossil fuels will continue to play the dominant role in meeting demand, although their overall share will fall from 82 to 80 per cent. Throughout most of this period, oil will remain the energy source with the largest share, although its overall share declines from 33 to 27 per cent. Coal’s share remains relatively stable at around 27 per cent. The share of natural gas, however, is expected to rise from 22 to 26 per cent.

[SLIDE 3]
Focusing specifically on oil, our projections see demand increasing by around 20 million barrels a day during the period to 2035.

There will be a big shift in the balance between the OECD area and elsewhere, leading to a steady decline in demand in all OECD regions. It will be developing countries that drive demand, with developing Asia accounting for most of the global increase.

The transportation sector will be the main source of growth, continuing a trend seen since 1980. This will be mainly in road transportation, and the increases will come only from non-OECD countries.

And of course this will also mean significant expansion in the downstream. For example, in OPEC’s World Oil Outlook, it is expected that there will be around 20 million barrels a day of additional crude distillation capacity required in the period to 2035. The majority of this is in the Asia-Pacific and the Middle East.

[SLIDE 4]
The industry is capable of meeting the big demand increases, through its huge resource base. The US Geological Survey estimates the world’s ultimately recoverable resources of crude oil and natural gas liquids at more than 3.8 trillion barrels.

Moreover, there are the recent tight oil developments in North America. This is welcome news – it adds depth to global supply, aids market stability and provides further proof that the world is not running out of oil. However, questions remain over how sustainable this will be in the long term.

[SLIDE 5]
Taking all this into account, it is clear that the market outlook is a favourable one for the oil industry. And it is up to all of us to ensure that this works out in practice.

What the oil market needs most of all, as it seeks to meet the rising levels of demand with the necessary investments, are order and stability. This means a clear vision of the way ahead, together with a cooperative and harmonious approach from all the leading players.

This vision must be a broad one, linking market stability with other key global issues, notably sustainable development and the environment.

However, as we all know, the future path for the industry is marked with uncertainties. These can have significant impacts on investment in future capacity to meet the rising levels of demand.

When planning for the future in the oil industry, whether this is five, ten or even 20 years ahead, we need a clear idea of where the market is heading. Otherwise we may end up wasting huge amounts of capital on unused plant and equipment. Or else we could find that there is not enough new capacity in place to meet the rising levels of demand. Whichever way it is, this could be highly disruptive for the industry and for the energy community as a whole.

Let me stress here that OPEC is committed to invest, and to ensure that consumers receive their oil when they need it. This, in turn, supports oil market stability and sound world economic growth.

According to the latest list of upstream projects in the OPEC Secretariat’s database, Member Countries are undertaking or planning around 120 development projects during the five-year period between 2013 and 2017. This translates into average annual upstream investment requirements of around $35-$40 billion.

[SLIDE 6]
Looking at the market today, we believe fundamentals remain balanced. There is more than enough supply to meet demand. And prices are at comfortable levels for both producers and consumers.

Nevertheless, it is evident that there are a number of uncertainties that the industry needs to address in the years ahead.

Of course, there are the prospects for the global economy, particularly in the short and medium terms. While there have been positive signs here recently, particularly in OECD regions, downside risks remain.

Nevertheless, the outlook for 2014 is better than for 2013. In OPEC’s latest Monthly Oil Market Report, we see global GDP of 2.9 per cent in 2013, and this increases to 3.5 per cent the following year.

There is still concern about the role of financial markets, even after the passage of new laws on financial sector regulation.

Then there is the tragic series of events at Fukushima. More than two and a half years later, the debate continues in many countries about the extent of nuclear power’s future role in global energy supply.

There are also the ongoing UN climate change negotiations, the next round of which will begin soon in Warsaw. These have been going on for two decades and yet their final outcome and impact on the energy sector are still unclear.

Other causes of uncertainty for the oil industry include: discriminatory energy policies; geopolitics; advances in technology; rising costs; and severe weather.

[SLIDE 7]
Before finishing, I should like to highlight that next week we shall be releasing our latest set of energy market scenarios. These will appear in the 2013 issue of the OPEC World Oil Outlook. I hope they will make a useful contribution to the industry in terms of a better understanding of some of the challenges, as well as the opportunities, we face today.

My discussion on some of the uncertainties has highlighted how difficult it is drawing up such scenarios each year. But it is vital that we all continue to consider and discuss our possible energy futures. Dialogue between all industry stakeholders is essential.

The industry needs as much information and analysis as it can get about the oil and energy outlooks, if it is to prosper in the years and decades ahead.

[SLIDE 8]
Thank you for your attention.

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