Speech by OPEC Secretary General to the 19th Middle East Oil & Gas Conference

Delivered by HE Abdalla S. El-Badri, OPEC Secretary General, at the 19th Middle East Oil & Gas Conference, Ministerial Panel Session, 8 March 2015, Manama, Bahrain

Your Excellencies, ladies and gentlemen,

Good afternoon.

I would like to begin by thanking the Government of the Kingdom of Bahrain for the invitation to address the 19th Middle East Oil & Gas Conference.  It is a pleasure to be here in Manama.

Over the years, the global oil and gas industry has gone through a number of cycles and changes that have required the industry to adapt and evolve.  There is no doubt that the last nine months has been one of those intermittent periods of volatility, after several years of stability.

In terms of oil, I am often asked what has been behind the recent volatility.  There are evidently some key factors.

The global economy continues to offer up both optimistic and pessimistic indicators, although we do see global economic growth next year at 3.4 per cent, compared to 3.2 per cent in 2014.

There have been rising supplies from non-OPEC producers.  In fact, since 2008 non-OPEC supply has risen by almost 6 million barrels a day.  In contrast, OPEC’s production has been fairly steady at around 30 million barrels a day.

Oil demand in 2014 was weaker than originally projected at the beginning of that year, although we do expect higher growth this year.  In 2014, oil demand growth was just below 1 million barrels a day, while this year it is expected to rise to around 1.2 million barrels a day.

It means that the supply and demand balance in the first half of 2015 points to an oversupply of around 2 million barrels a day, although the market should return to balance during the second half of the year.

I should stress, however, we do not believe that actual market fundamentals warranted the almost 60 per cent drop in prices that the market saw between June 2014 and January 2015.  It is clear that speculators also played a role in this fall.

Of course, the current lower price environment is a test for all producers and investors.  Lower oil prices mean less revenue.  And less revenue means tighter budgets.  While prices will no doubt rebound, as they have done lately, it is clear that the industry is currently witnessing a landscape that is shifting the global oil industry.

For example, a number of projects are being cancelled or put on hold, rig counts have fallen dramatically, investment plans are being revised, costs are being cut and squeezed, and redundancies have been made.

These are the current realities.  It is a challenging time for the industry.  However, there are clearly many things that the industry can do with one eye on the current situation, and one eye on the future.

It is important to look at new ways to reduce costs and achieve more efficient working practices.

It is vital as an industry to enhance collaboration between National Oil Companies, International Oil Companies, service providers, as well as other industry stakeholders, to help further streamline the industry and discuss views on the industry’s future.

It is essential to maintain R&D initiatives and to continually develop technologies that can help in discovering, extracting and producing more hydrocarbon reserves in an ever more cost effective and sustainable manner.

And for producers, it may be useful to use the situation of lower oil prices to create incentives to use energy more efficiently and implement sustainable policies that could lay the groundwork for more diversified and less energy-dependent economies.

The reason we need to keep our eyes on the longer term is because energy demand is expected to increase by 60 per cent by 2040, with fossils fuels remaining central to the energy mix.  The world will need more oil investments and the MENA region will be central to this.

In OPEC’s World Oil Outlook 2014, oil-related investment requirements are estimated to be around $10 trillion between now and 2040.  And oil demand is seen increasing by around 21 million barrels a day to 111 million barrels a day by 2040, with Asia accounting for almost three-quarters of this growth.  The MENA region is clearly perfectly-positioned to supply Asia’s ever-expanding demand for oil and gas.

However, as we all know, no-one can make precise predictions about the future.  History tells us that things rarely stay the same.  The past nine months have demonstrated this.

There is no doubt that the market and its stakeholders will have to evolve to ever-changing circumstances and challenges in the years ahead.  Alongside the current market situation, these include uncertainties that we can call ‘known’ uncertainties.  These include the potential impact of UN climate change negotiations; the role of financial markets and oil market speculation; energy policies in some consuming countries; manpower bottlenecks; advances in technology; and rising costs.

And there are also ‘unknown’ uncertainties.  These are most often related to geopolitics and severe weather events.

However, it is important to stress that the oil business has been dealing with change and uncertainty since its very early days.  We cannot avoid cyclical events, when prices rise and fall, and we cannot avoid challenges.  It is the nature of the market. 

But there are clearly tremendous opportunities too.  Despite the recent volatility and current uncertainties, there is no doubt that the industry has a healthy long-term future. 

Thank you for your attention.