Stable Economy - Challenge and Responsibility

Speech delivered by Dr. Fuad M. Siala, Senior Advisor, on behalf of HE Abdalla S. El-Badri, OPEC Secretary General, to the 7th Vienna Economic Forum - Go South East, 8-9 November 2010, Vienna, Austria

Ladies and gentlemen,

It gives me great pleasure to engage with such an important forum on behalf of the OPEC Secretary General, HE Abdalla Salem El-Badri. I would like to thank the organisers of this event for the opportunity.

The overall theme of the 7th Vienna Economic Forum emphasises the growing importance of South East Europe, a vibrant region of the world that, although currently going through a rough patch as we heard from the distinguished speakers earlier today, has enormous potential for growth. Yet at the global level the trend of going South East is even more pronounced.

Indeed, OPEC's most recent forecast, published in our just released World Oil Outlook 2010, shows that developing countries and South East Asia in particular are fast becoming the centre of gravity of global economic growth, and therefore of energy needs.

Our forecast also shows that it is necessary to increase fossil fuels use, in particular oil, to meet future energy demand. In this connection, it should be emphasised that the world has enough oil resources to meet demand for decades to come. Let me stress that OPEC remains committed to ensuring the market is adequately supplied at all times, in an efficient, timely, sustainable, economic, reliable and environmentally-sound manner. OPEC Member Countries are willing to make the required investment to achieve that goal, but it is crucial to appreciate that when talk turns to investment there are a number of factors that need to be taken into account. This leads me to the second part of my speech.

For energy producers and consumers alike, a stable economy is an essential requirement. The global financial crisis and subsequent economic downturn of 2008-2009 have had a sharp impact on the oil market. Global oil demand declined for two consecutive years, a situation not seen since the early 1980s, and oil prices have experienced a roller-coaster ride. The OPEC Reference Basket rose to a record $141/b in early July 2008 before falling to $33/b by the end of the year.

Due to unexpectedly low oil prices in late 2008 and early 2009 as the global economic downturn took hold, OPEC Member Countries had no choice but to delay a number of their planned investment projects. However, by now, most of these projects have either been resumed or rescheduled. Over the period to 2014 there are around 140 projects expected to come on stream in OPEC Member Countries. These will result in net crude capacity additions of around 3 mb/d by the end of 2014. The estimated required investment is around $155 billion over the same period.

This 'stop-go' situation in terms of investment plans was not experienced by OPEC countries alone; the entire world oil industry faced similar challenges. Economic stability is vital if we are to avoid a repeat of this.

It is understood more clearly now that improved regulation of the financial sector should be at the very centre of a new and more sustainable way forward. It is widely accepted that factors other than the physical fundamentals of the oil market played a disproportionately large role in bringing about extreme oil price movement in 2008. Commodities have come to be used as an asset class, and speculation has driven large price swings in a variety of markets. Such volatility must be minimised. In this regard, we follow regulatory developments in the US and Europe with keen interest and any positive outcomes of these efforts will be welcomed.

In 2009, global gross domestic product was estimated to have declined by 0.8%, although in the latter part of 2009, and especially in the first half of 2010, global economic growth exceeded expectations. Most analysts believe that the worst of the Great Recession is over. The stimulus packages implemented in many countries have clearly been instrumental supporting a return to growth.

Nevertheless, there are several factors that could significantly hinder the recovery. Concerns remain about the uneven nature of growth. While emerging markets are leading global growth, some industrialised countries are growing more sluggishly, and the risk of a double dip recession remains. In the OECD - particularly in the European Union - there is concern about sovereign debt sustainability. And the premature tapering off of financial stimulus packages around the world continues to present considerable challenges. In addition, concerns relating to high levels of unemployment worldwide, the possible overheating of the Chinese economy and persistent global imbalances remain. In line with this, there are calls for countries enjoying surpluses to play their part by encouraging private consumption to support global reflation.

Ladies and gentlemen,

When we talk of the challenges and responsibility for a stable economy, it is important to stress that we live in an increasingly complex and interdependent world. This means that everybody has a responsibility to support a return to balanced and sustainable economic growth.

This complex world has energy at its heartbeat. OPEC's recent Conference decisions - as well as other initiatives outlined above - prove that the Organization takes its responsibilities seriously.

We take pride in working hard to support stability. We firmly believe that oil prices should remain at levels that will both encourage continued investment in the oil industry and support a return to a healthy, balanced economy.

Thank you.