Opening Remarks by OPEC Secretary General

Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the Center for Strategic and International Studies, 13 December 2016, Washington, D.C., U.S.A.

Ladies and gentlemen,
Good morning to you all.

Allow me to begin by thanking Thomas Pritzker, CSIS Chairman; John Hamre, CSIS President and CEO, as well as John Hess from the CSIS Board of Trustees for this opportunity to speak with you here today and offer OPEC’s perspectives on the current and future outlooks for the world energy markets.

After my remarks, Dr. Jorge Leon from our Energy Studies Department will take you through some of the key findings from our 10^th World Oil Outlook, which was released last month at the Abu Dhabi International Petroleum Exhibition and Conference.

Let me say that we are honoured to be here at this prestigious institute of international policy and research, which now has more than half a century of experience in providing leaders with strategic insight and advice on world affairs. We commend you on the valuable and often groundbreaking work you have produced over the years, and that you continue to do today.

Before coming here, I had a look at your event schedule of the last months and was pleased to see that CSIS recently hosted two very prominent members of the OPEC family.

His Excellency, Ali I. Al-Naimi, former Minister of Petroleum and Mineral Resources for the Kingdom of Saudi Arabia, was here in April and more recently in early December in 2016 to share his views on the dynamic changes in the global energy markets. He undoubtedly also spoke about his compelling life story and his illustrious career at the top echelons of the oil industry, which are now all captured in his new book entitled: “Out of the Desert: My Journey from Nomadic Bedouin to the Heart of Global Oil.” This is a must-read for anyone in our field of energy.

Although he has now retired, he is still remembered and appreciated at OPEC for his countless contributions in steadfastly guiding his country and our Organization through several very challenging energy cycles. He has tirelessly devoted his efforts to promoting stability and growth in the international oil and gas industry.

I also noticed that His Excellency Khalid A. Al-Falih, Saudi Arabia’s current Minister of Energy, spoke here last June on the Saudi-US relationship as well as on Vision 2030, the Kingdom’s ambitious long-term plan to transition the country to a diversified and sustainable economy.

Though Mr. Naimi was a hard act to follow, Mr. Al-Falih has taken over the reins and is providing excellent leadership both as Energy Minister in the Kingdom and as Head of Delegation at OPEC—this was evident over the last weeks as he played a key role in helping OPEC reach its key consensus decisions both in Algiers and in Vienna.

Our presentation here at CSIS is part of a week-long United States visit. On the 12^th of December, we had very engaging discussions at IHS Markit and the International Monetary Fund, and on the 14^th and 15^th of December, we look forward to meetings with the US Energy Information Administration and Columbia University in New York City.

It is a distinct honour to be here in this vast and beautiful country, which has played such a pivotal role in the history of our industry. The United States is considered the home of the first commercially drilled oil well. Thanks to the genius and ingenuity of Edwin Drake, oil was extracted from a deep well near Titusville, Pennsylvania in 1859, sparking an oil boom that would take the world by storm.

It goes unsaid that the United States—as one of the world’s largest oil and gas consumers—is of utmost importance to OPEC. We estimate that it imports 3.6 million barrels a day of liquids from OPEC’s Member Countries. And this is out of a total US consumption of 20 million barrels a day. This makes the United States a vital customer for our Member Countries.

Thus, it is my hope that our meetings and consultations here this week will open up a new cycle of ongoing dialogue between our Organization and the United States. Both parties have nothing to lose and everything to gain with this type of cooperation—it is a true win-win scenario.

Over the previous years, I have had the opportunity to spend quite a bit of time here in Washington, mainly pursuing my academic goals in higher education.

Today, though, I return here for a different reason and in a different capacity. This time, I come as the leader of one of the world’s most influential energy organizations, and one, which has recently proven that it is as relevant today as when it was founded in Baghdad in September of 1960.

In the last few years, there has been talk that perhaps OPEC was no longer important and that it had possibly lost the key role it has played in the world of energy since its founding.

Well, ladies and gentlemen, I am here to report to you that OPEC is alive and well.

Any naysayers that may have had doubts about OPEC’s efficacy were proven wrong with the historic decision that was made by OPEC’s Heads of Delegation at the last OPEC Ministerial Conference on the 30^th of November in Vienna.

I am referring to what we now call the Vienna Agreement, which was the OPEC Conference’s decision to implement a new OPEC production target of 32.5 million barrels a day. This is a reduction of around 1.2 million barrels a day.

The goal of this agreement is to accelerate the ongoing drawdown of the stock overhang and to expedite the rebalancing of the market.

This is the first production adjustment OPEC has made since 2008, when the OPEC Conference met in Oran, Algeria and decided to adjust production to help ease the adverse impacts of declining prices.

It is also the first time since 1998 that Iraq is part of the production management process. It has been exempted from this role due to the geopolitical challenges it has faced in the past years.

And finally, this agreement marks the first time non-OPEC countries have joined OPEC in a concerted effort to help bring stability back to the market.

The achievement of this important agreement is the culmination of months of intensive consultations held among OPEC Member Countries and also between OPEC and non-OPEC Member countries.

I personally have travelled the world in recent weeks to meet with leaders of OPEC and non-OPEC countries in order to help build support and foster a spirit of dialogue and cooperation.

The many miles of travel and the countless hours spent in meeting rooms all paid off when we reached our initial accord in Algiers, which was adopted at the 170^th Extraordinary Meeting of the Conference held in the Algerian capital on the 28^th of September. This then became the Algiers Accord, which, we now know, has been approved for implementation as part of the Vienna Agreement.

So, why, you may ask, is this all so important? Well, to answer that, let me take you back to 2014, when this current down-cycle began.

In June of 2014, in the midst of an oversupplied market, we saw oil prices plummet, dropping to a low of $20 per barrel in early 2016. This constitutes an enormous decline of 80%.

The chilling effect of this price crash was felt throughout the oil and gas industry. Thousands upon thousands of jobs were lost, budgets were slashed, projects were deferred or cancelled, investment was frozen or discontinued, and some producers went into bankruptcy.

Global spending on exploration and production dropped by around 26 per cent in 2015, and is expected to decrease by an additional 22 per cent this year. Altogether, this amounts to more than $300 billion in lost investment.

This trend is on track to continue into a third year, which would be unprecedented in the history of the oil industry.

This is a frightening situation when you consider that a massive $10 trillion in oil-related investments is estimated to be required in the period to 2040 in order to meet future world energy demand.

In today’s oil market, the industry would simply not be able to meet this level of investment.

These factors were the reason the OPEC Heads of Delegation decided it was time to take action, and that the risks for not acting were dire.

Let me emphasize that OPEC Member Countries remain absolutely committed to ensuring the long-term supply of the market. They continue to invest in both their upstream and downstream sectors despite the spike in costs and the shortage of adequately skilled labour.

This is good news for the industry, as world oil demand is set to rise dramatically in the years to come.

According to our recently published 10^th edition of the World Oil Outlook 2016, global demand is forecast to rise by nearly 17 million b/d until 2040 – at which time it could reach around 110 million b/d.

So, you see, the world’s oil producers, including OPEC, have their work cut out for them if they intend to meet the world’s future energy requirements. But, to achieve this, they need a fair oil price and a stable market, which will provide fertile ground for the necessary investment in production and research and development.

One thing is for sure, though: OPEC cannot achieve this alone. Only through collaborative efforts and open dialogue with fellow stakeholders will we meet with success.

OPEC already has an extensive list of bilateral and multilateral meetings it holds annually with international stakeholders, including the European Union, Russia, China, India, the World Bank, the International Monetary Fund, the G20, the International Energy Agency and the International Energy Forum.

We hope now that the United States will join us for a new era of collaboration and dialogue, so that we can work together towards our mutually beneficial goal of ensuring stability in the world energy markets. These conditions will contribute to economic growth and prosperity, two things we all desire for this and future generations.

Thank you for your attention, and I will now give the floor to Dr. Leon, who will give his presentation on the World Oil Outlook.