"Energy and Economic Interdependence between East and West Asia"

Speech by OPEC's Secretary General, HE Abdalla Salem El-Badri, to the Second Asian Ministerial Energy Roundtable, Riyadh, Saudi Arabia, 2 May 2007

[Slide 1] Excellencies, Ladies and Gentlemen,

Let me start by thanking HE Ali Al-Naimi for inviting me to participate in this distinguished gathering of Ministers from across the East and West Asia region. I have very much enjoyed the presentations here today on such an important topic as the energy and economic interdependence between East and West Asia and I look forward to the discussions that follow.

[Slide 2] It is easy to see how the regions of East and West Asia complement each other. This stems from their closeness geographically, their peaceful coexistence over many centuries, their close trade ties and technology expertise, and from the shared oil supply and demand perspective. It is the latter I will concentrate on today.

[Slide 3] Going forward, the Asian region is expected to see the biggest energy and oil demand growth rates of any region in the world. In OPEC’s reference case scenario world oil demand is expected to climb from 85 mb/d in 2007 to 118 mb/d in 2030. Developing countries comprise most of this rise and more than two-thirds of this growth will be in Asian developing countries. By 2030, Asian oil demand is expected to rise to 43 mb/d, an increase of around 18 mb/d.

[Slide 4] This demand will of course be driven by regional economic growth; in a similar manner to recent years. For example, in terms of GDP growth over the past year, China has grown over 10 per cent, India over eight per cent, Indonesia and Malaysia over five per cent, and South Korea and Thailand just under five per cent.

[Slide 5] On the supply side, to the East there is Saudi Arabia, Iran, Iraq, the UAE, Kuwait, Qatar, all OPEC Member Countries (MCs), as well as other suppliers such as Bahrain and Oman. The region supplies a significant share of the world’s oil and also holds considerable reserves. In fact, taken as a whole, OPEC MCs today hold approximately 78 per cent of the world’s proven crude oil reserves with much of this in the Middle East.

[Slide 6] Bringing these two strands together it is clear that East and West Asia interdependence is already clearly defined. The two regions are mutually supportive. This is further emphasised by the fact that if we take crude oil exports for Asia, Europe and the US, OPEC supplies more to Asia than the other two regions combined. At present, almost 50 per cent of OPEC oil exports are bound for Asia.

[Slide 7] What all this points to is the fact that any talk of energy security must take into account both supply and demand perspectives. The role of oil is equally important to the economic growth and prosperity of consuming-importing countries, as well as to the development and social progress of producing-exporting countries.

The concern for consuming countries is for the secure and predictable flow of oil at reasonable prices. I would like to stress up front that OPEC is ready, willing and able to supply oil – as it always has done – and there are still plentiful reserves.

[Slide 8] For producing countries, concerns centre on demand uncertainties. For example, to 2020, scenarios developed by the OPEC Secretariat highlight that the additional amount of oil required from OPEC could range by close to 9 mb/d. In monetary terms, the corresponding range for MCs is somewhere between $230 billion and $500 billion, representing a huge uncertainty for MCs upstream investment requirements, all with competing needs in such areas as health, education and infrastructure. In addition, a large amount of idle capacity would put much downward pressure on prices and be detrimental to vital export revenues.

With these figures in mind, it is easy to appreciate the importance of producers and other investors having a fair idea of how much will be required and who their main consumers will be so that they may invest with confidence.

[Slide 9] The uncertainties also impact the downstream, which is currently witnessing much tightness. It is interesting to note going forward that the largest number of capacity additions and investments are taking place in Asia and the Middle East, but as with the upstream timely investment needs to take into account policy initiatives. For example, uncertainties related to the levels of future products demand and non-refined supplies are currently resulting in additional risks, for a sector traditionally characterised by low margins and high volatility.

In response to meeting this upstream and downstream investment challenge we also recognise the importance of cross investments, particularly in the East and West Asia region. New refining capacities in Asia will be increasingly dependent on incremental supply from the West and thus cooperation in product movements in areas such as the physical swaps for supply and the sharing of storage infrastructure will be significant. We need to build relationships beyond just the buyer and seller.

[Slide 10] We also hope to see enhanced relationships among National Oil Companies (NOCs), as well as between NOCs and International Oil Companies (IOCs). For example, in today’s environment we need to look at collaboration on technological options that allow the continued use of fossil fuels in a carbon-constrained world, such as Carbon Capture and Storage (CCS).

Elsewhere we also need to aid further information exchange and help evolve larger and more developed research and development networks. One particular area of global concern is that surrounding manpower development and training as a large shortage of engineers and other key personnel is threatening the timely completion of essential projects. Furthermore, such cooperation can also help bring down the high costs of services, which are creating further pressure on well-devised output expansion strategies.

[Slide 11] It is also important that we look to continually develop and explore existing and new avenues of cooperation at the level of governments and international organizations. Efforts at expanding dialogues are something our Organization has, and continues to devote much energy to. The most recent result of this was the establishment of energy dialogues between OPEC and a number of other industry stakeholders: the EU, China, Russia, a number of other non-OPEC producers and the IEA.

This year will also witness OPEC broadening its talks in the Asian region. In late March, there was a meeting with the Asian Refinery Community in Bangkok, and early talks will be held with Japanese officials from the Ministry of Economy, Trade and Industry in Tokyo.

Excellencies, Ladies and Gentlemen,

The regions of East and West Asia already have some excellent economic and energy links. And the relationship from the perspective of the oil market is very much complementary. We need each other. By this I do not mean only as producers and consumers, but as partners. It is important that together we make the right decisions for our futures, particularly given the challenges and uncertainties I have just outlined.

[Slide 12] Thank you for your attention.

2nd Asian Ministerial Energy Roundtable

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