Energy and Environment: Challenges and Opportunities

A Keynote address by Mr. Mohamed Hamel, Head, Energy Studies Department at the OPEC Secretariat to the "Offshore Arabia 2006" Conference and Exhibition in Dubai, 17-19 December 2006

[Slide 1]
Excellencies, ladies and gentlemen,

Let me begin by thanking the Regional Clean Sea Organisation for inviting me to address this prestigious Conference and its distinguished audience. Special thanks go to Dr Khamis Bu-Amim, who has kindly agreed to revise the programme, so as to ensure OPEC’s participation.

In introducing the theme of the conference, Recso refers to “finding solutions to energy and environmental challenges”. This is central to OPEC’s thinking too.

We have always looked upon the exploitation of our exhaustible hydrocarbon resources as providing a stepping stone to socioeconomic development.

We have, at the same time, taken a keen and active interest in the issue of sustainable development, as epitomised by the Plan of Implementation resulting from the World Summit on Sustainable Development, held in Johannesburg in 2002. In particular, we consider that poverty eradication — as the first UN Millennium Development Goal — is an overriding priority. We maintain that sustainable development should be approached in a balanced manner through its three mutually supportive pillars; these are economic development, social progress and the protection of the environment. And we believe in the need for developing countries to have improved access to modern energy services that are reliable, affordable, economically viable, socially acceptable and environmentally sound.

We often hear about the impact of energy use on the environment, but far too little is said about the opposite phenomenon. This concerns the positive effects of a sound energy system on people’s day-to-day lives, especially in the poorer nations. For example, the provision of modern energy services means less smoke-filled dwellings, less carrying of heavy firewood, less deforestation, more efficient cooking, easier access to doctors, greater mobility for jobs, and so on.

Clearly, energy and environmental challenges occupy much common ground, and, if managed carefully, they will benefit from coordinated solutions!

[Slide 2] In my presentation today, I shall first see how the world energy scene may evolve in the future, with increasing reliance on OPEC oil and gas , especially from the Middle East. This may present greater challenges than ever before for the region — both in meeting the steadily rising demand and in doing this in a manner that is in full harmony with the environment. I shall then identify some of the environmental challenges before making some conclusions on these important issues.

[Slide 3] As we look into the future, demand for energy is clearly set to continue growing. Fossil fuels will continue to provide more than 90 per cent of the world’s total commercial energy needs, accounting for 95 per cent of the growth in demand over the next 20 years, and will provide essential support for the forecast sustained pattern of healthy global economic growth. Oil has been in the leading position in supplying the world’s growing energy needs for the past four decades, and there is a clear expectation that this will continue, accounting for close to 40 per cent of energy demand over the next two decades. Gas is expected to grow at fast rates, while coal will maintain its importance in the energy mix. The total contribution of hydro, nuclear and new renewables will flatten out: indeed, despite the extremely high growth rates for some new renewables, the rather low initial base makes the growth in absolute terms rather limited.

[Slide 4] Turning specifically to oil demand, OPEC’s reference case scenario puts average annual oil demand growth at 1.6 per cent for the period up to 2025, reaching 113 million barrels a day. For gas, the figures are 2.6 per cent and 79 million barrels of oil equivalent a day. It is important to stress that the global resource base is sufficient to deal with such large rises in demand for decades to come.

There will be a growing call on the vast quantity of oil and gas reserves in OPEC and, notably, the Middle East. According to our projections, non-OPEC crude oil supply is expected to reach a plateau of around 58–60 mb/d after 2015, after continuing to rise up to that time. Then OPEC will be relied upon increasingly to supply the incremental barrel.

[Slide 5] In turn, this will help iron out the discrepancy between OPEC holding 78 per cent of the world’s proven crude oil reserves and yet accounting for only 42 per cent of its production.

[Slide 6] However, the situation is not as straightforward as this. Investment strategies can be adversely affected by uncertainties over such key factors as world economic growth levels, advances in technology and policy measures in consuming countries. Over the next 15 years, for example, our scenarios show that the amount of oil required from OPEC could range by close to 10 mb/d. Even over the medium term to 2010, there is an estimated range of uncertainty of $50 billion for required investment, and this increases to as much as $240 bn by 2020. Thus there is a heavy burden of risk for producer countries, with the huge amounts of capital that must be committed up front and the long lead times that characterise our industry. This is why OPEC calls repeatedly for more transparency in energy sector policy-making among consumer countries. For oil-producing developing countries, security of demand is as important as security of supply.

Let us now look more closely at the implications of all this for the Middle East.

[Slide 7] Our projections show that exports of crude oil and oil products will continue to increase from the Middle East. Oil exports are expected to rise from around 20 mb/d in 2005 to almost 24 mb/d by 2015 — that is, by around 20 per cent in just a decade. The major destination for these exports will be Asia, which will account for more than 75 per cent of them.

[Slide 8] Consequently, this rising level of oil exports, in combination with growing volumes of other traded goods, will result in a substantial increase in tanker traffic in the Gulf region and hence constitute an enhanced challenge for the environment in the area. The sea lanes in this region are already among the busiest in the world, and it is estimated that close to one-third of global oil tankers pass through them.

The waterways are also relatively shallow and highly vulnerable to pollution, with the accompanying severe public health risks. Unregulated dumping of waste materials, including oil sludge and waste oil, remains a common problem, and even the practice of reballasting at sea comes with known environmental impacts.

It is well known that the countries of the region have been exceptionally proactive in rising to these challenges. This is well reflected in the activities of our hosts, Recso. Most of these countries have ratified the ‘MARPOL’ International Convention for the Prevention of Pollution from Ships. Other important regional institutions and agreements do exist, such as the Regional Organization for the Protection of the Marine Environment.

[Slide 9] Turning now to local environmental concerns arising from oil product use, it is important to note that the global oil industry has a long history of successfully improving the environmental credentials of oil, both in production and use . As can be seen from the chart on the right, emissions from cars have been dramatically reduced over the last 30 years. Carbon monoxide and nitrogen oxide emissions have declined by an order of magnitude. These improvements are expected to continue in the future.

Regarding domestic fuel use in this region, the chart on the left shows clearly that the Gulf countries have made significant recent progress towards introducing tighter product quality specifications, especially for gasoline and automotive diesel. The sulphur content, for example, in products consumed both on land and in tankers, is set to decline dramatically, thus improving air quality substantially.

[Slide 10] However, to enable this, substantial investment would be required in the region’s refining sector, and our own calculations indicate that we are looking at a sum in excess of US $30 billion within the next ten years or so.

In the broader context of the downstream, some $310 billion of investment will be necessary across the globe in additional capacity during this period.

Nevertheless, it is reassuring to know that, in the Middle East, investment is on the way, and there are many projects that will expand the existing refining capacity for both crude distillation and upgrading processes.

Let us now look at another important subject, gas flaring.

[Slide 11] OPEC’s Member Countries have invested billions of dollars over the past decades in flared gas recovery projects. This has represented a significant contribution to the reduction, by more than half since the early 1970s, of the amount of gas that has been flared from a produced barrel of oil.

In OPEC, much of the reduction has been achieved by reinjecting associated gas into oil reservoirs to improve recovery or through monetizing associated gas through liquefaction, such as in Nigeria. There are plans to continue to devote resources to further reduce flaring in the future.

OPEC is interested in furthering partnership opportunities, such as that offered by the World Bank and Global Gas Flaring Reduction Partnership (GGFR), where we are active participants.

[Slide 12] Before concluding, Mr Chairman, ladies and gentleman, I should like to tackle another important question. As I said earlier, the world will continue to increase its use of fossil fuels for years to come. Is this increased use compatible with the third pillar of sustainable development — environmental protection? In OPEC, we believe so.

One promising means is carbon capture and storage (CCS), where carbon dioxide is captured from large stationary sources , such as power stations and industrial sites, which account for over half the energy-related CO2 emissions, and is then injected into deep geological formations, where it is stored. The technology already exists, and commercial projects are already underway. What is required now is action to raise awareness of this. Indeed, CCS can also be used in conjunction with carbon dioxide-enhanced oil recovery, which offers a ‘win-win’ opportunity by not only storing CO2, but also increasing oil reserves in mature fields. Moreover, we also believe that, in accordance with the principle of “common but differentiated responsibilities” and respective capabilities, the developed countries should take the lead in the area of providing cleaner oil and gas technologies by promoting large-scale demonstration projects, including the use of the clean development mechanism (CDM).

OPEC has repeatedly demonstrated its commitment to CCS, through, for example: its involvement in the International Energy Agency’s Greenhouse Gas Research and Development Programme; the roundtable it held on CCS jointly with the EU in Riyadh in September; and, shortly before that in the same city, its active participation in the First International Conference of the CDM.

In conclusion, Excellencies, ladies and gentlemen,

[Slide 13] It is clear from everything I have said so far that OPEC in general, and the Middle East in particular, will grow in importance in meeting the world’s energy needs. This has important implications for the environment, in terms of air quality and broader-based concerns about climate change.

Notwithstanding the progress made so far, many more energy and environmental challenges lie ahead, both within this region and in the world at large. But, with the challenges come the opportunities for enterprising, far-sighted visionaries to ensure that the world receives the energy it needs in a cleaner, safer and more harmonious environment.

The activities of the Regional Clean Sea Organisation have clearly indicated the direction in which all of us should go.

OPEC too is committed to environmental protection, as reflected in its recently launched Long-Term Strategy.

It is necessary to deal with the issue holistically, in the context of the three mutually supportive pillars of sustainable development — economic development, social development and environmental protection.

Finally, let me remind you that the 15th Session of the UN Commission on Sustainable Development (CSD15) will be held in New York on 30 April – 11 May next year. Significantly, the CSD15 Bureau is chaired by His Excellency Abdullah bin Hamad Al Attiyah, Second Deputy Prime Minister and Minister of Energy and Industry of the State of Qatar. His chairmanship provides an excellent opportunity to address these key concerns.

[Slide 14] Thank you.

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