The 15th International Energy Forum Ministerial

Speech delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General at the 15th International Energy Forum Ministerial. Plenary Session 1 - Oil markets: outlook and the stability challenge, 27 September 2016, Algiers, Algeria.

Excellencies, ladies and gentlemen,
Good morning.

It gives me great pleasure to be here in Algeria, an OPEC Member Country, for this 15th International Energy Forum Ministerial (IEF) meeting.  I would like to thank the Algerian Government, its Energy Ministry, and the IEF for organizing this event, and for inviting me to speak in this opening session.

I would also like to take this opportunity to wish the new IEF Secretary General, Dr. Sun Xiansheng, who I met for the first time in Paris earlier this month, every success in his new position.  Your Excellency, I believe we both took up our positions on 1st August 2016.  So I am sure we will share many platforms together in the future.  I look forward to this.

This morning we are also sitting alongside the Executive Director of the International Energy Agency (IEA), Dr. Fatih Birol.  In my position as OPEC Secretary General I have already had the pleasure of personally meeting with Dr. Birol at the IEA’s headquarters in Paris.  I am sure we will have a close working relationship and speak together at events on many occasions.  I look forward to this too.

Excellencies, ladies and gentlemen,

Since the last IEF Ministerial meeting in May 2014, the market has undergone much upheaval and witnessed significant volatility.

Between June 2014 and January 2016 the OPEC Reference Basket price fell by 80 percent. It is the largest percentage fall in the five episodes of sharp price declines we have observed over the past three decades.  Although since the start of this year prices have mostly seen an upward trend, and the OPEC Reference Basket price now sits above $40 a barrel.

The current cycle was supply-driven with most of the supply increases in recent years coming from generally high-cost non-OPEC production.  Between 2008 and 2015, non-OPEC liquids supply growth was 7.9 million barrels a day, while OPEC liquids production was 1.5 million barrels a day during the same period.  A similar surge in non-OPEC supply also occurred during the short timeframe from 1977–1984 when non-OPEC supply grew by more than 11 million barrels a day.

The knock-on impacts of these developments have been felt across the industry.

For example, global exploration and production spending fell by around 26 per cent in 2015, and a further 22 per cent drop is anticipated this year.  Combined, this equates to a loss of more than $300 billion.  This will impact not only new projects coming on-stream, but new discoveries too.

And with supply outpacing demand, the market has seen a global oil inventory build since mid-2014.  The difference to the five-year average in terms of total OECD commercial stocks remained very high at around 240 million barrels at the end of August.  Moreover, since last year stocks in the non-OECD region, mainly going to strategic petroleum reserves, rose by around 150 million barrels to nearly 2,250 million barrels, encouraged by lower crude oil prices.

There is evidence to suggest that the market is now gradually realigning itself. In 2016, non-OPEC supply is expected to contract by 0.6 million barrels a day and oil demand growth is set to be 1.2 million barrels a day.

However, a return to balance is taking time due to the persistently high stocks overhang.

We also need to appreciate how short-term developments and the current instability can impact the medium- and long-term.

Looking ahead, all energies will be required, and there is no doubt that oil will remain a fuel of choice.  OPEC sees oil demand increasing by around 17 million barrels a day between now and 2040 to reach close to 110 million barrels a day.

This will require significant investments.  New barrels are needed to not only increase production, but also to accommodate for decline rates from existing fields.  Overall, we see oil-related investment requirements of around $10 trillion over the period to 2040.

We need to ask ourselves:  Is the current environment putting this future at risk?  What is clear is that a prolonged period of low prices is not good for anyone.  Low oil prices are a concern for producers today and lead to situations that are a concern for consumers tomorrow.  And high oil prices are a concern for consumers today and lead to situations that are a concern for producers tomorrow.

To reverse the declines in investment and output, it is vital to see a rebalanced market with sustainable stability, so that the industry can deliver the necessary investments for our energy future.

In this regard, it is vital to keep in mind the link between the marginal cost, the price and investments.

Of course, there are also many other ongoing and related challenges for oil markets, such as:  the uncertain prospects for the global economy; excessive speculation and the role of financial markets; the impact of geopolitics; advances in technology and their impacts on exploration and production; and environmental and sustainable development concerns.

I see that many of these issues are on the agenda for subsequent sessions.  I look forward to listening to the speakers, and playing an active role in the discussions.

Excellencies, ladies and gentlemen,

Given that the oil industry is highly capital-intensive and with long-lead times for projects, stability is vital.  That is not to say that we can rid the market of cycles altogether – these have been part of the modern oil industry since the first successful oil drilling by Edwin Drake in Pennsylvania in 1858.  But we need to ensure that we all do everything we can to reduce the length of downturns, lessen any volatility, further enhance energy data transparency, through such platforms as the JODI, and continually make the industry more resilient and more efficient.

This means bringing together all industry stakeholders, to help develop cooperative and coordinated approaches to the often complex challenges, as well as the multitude of uncertainties, we all face in achieving market stability in the short-, medium- and long-terms.

Market stability and sustainable energy development go hand-in-hand with open dialogue and action-oriented cooperation to evolve inclusive solutions.

Let me stress that OPEC has been a reliable supplier of oil and a dependable partner in a broad community of stakeholders and will continue to be in the future.  We are committed to delivering a sustainable oil and energy future for all.

Thank you.

Speech slides

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Delegates at the IEF15

Delegates at the IEF15

HE Sellal, Algeria's Prime Minister (right) with HE Barkindo, OPEC Secretary General

HE Abdelmalek Sellal, Algeria's Prime Minister (right) with HE Barkindo, OPEC Secretary General

HE Barkindo at the opening session

HE Barkindo at the opening session