Speech to Ambassadors from OPEC and non-OPEC nations

Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, to Ambassadors from OPEC and non-OPEC nations that are participating in last year’s historic decisions, 27 February 2017, Abuja, Nigeria.

Excellencies, ladies and gentlemen,

It is truly a great pleasure for me to be here in Abuja – seeing old friends, reacquainting with former colleagues, and on this occasion, it is also an opportunity to thank those people and nations that have done so much to help bring forward the rebalancing of the global oil market and return sustainable stability to the industry.

I would like to begin by thanking Nigeria’s President, His Excellency Muhammadu Buhari and the Nigerian Minister of State for Petroleum Resources, His Excellency Dr. Emmanuel Ibe Kachikwu, the generous host of this evening’s event.

The support, guidance and encouragement they have given to me, and to OPEC as an Organization, have been a tremendous help in allowing us to deliver the historic decisions that were taken by OPEC and non-OPEC nations at the end of 2016.

It is also a great honour to have here this evening the Ambassadors of the other 23 participating nations to the landmark OPEC and non-OPEC decisions of 2016.  The vision, leadership, courage and guidance of your esteemed Heads of States and governments, oil ministers and envoys to the complex process of bringing OPEC and non-OPEC nations together, and to agreeing on the decisions taken have been widely applauded.  Together we have turned a historic page in the global oil industry.

For me personally, I can safely say that when I assumed office as OPEC Secretary General back on August 1, 2016, I could not have envisaged what we have achieved over the past six months.  Of course, I cannot stand here and say it was an easy process!  It was an incredible challenge, a mammoth undertaking, but through a shared vision and a resolute strength of purpose we were able to achieve something that many thought was beyond us.

There were many sceptics who proposed that OPEC Member Countries could not achieve unity among themselves.  They were mistaken.  And there were possibly even more sceptics who poured scorn on the idea that non-OPEC nations would join OPEC in the market rebalancing process.  They were also mistaken.

Excellencies, ladies and gentlemen,

I would like to take this opportunity to describe to you in greater detail about how we reached last year’s landmark decisions.  It is a story that needs telling, and retelling.  I hope after I have finished that you feel able to also share with others.

In 2016, it was evident that all producers, as well as consumers, were beginning to fully comprehend the gravity of the current oil cycle.  There was an acknowledgement that stability on a sustainable basis had been absent from the industry for too long, to the detriment of producers, consumers, and the global economy.

This unexpected instability was reflected in the sharp crude price decline observed between June 2014 and January 2016, when the OPEC Reference Basket price fell by an unprecedented 80 percent.  It is the largest percentage fall in the five cycles of sharp price declines we have observed over the past three decades.

There had been a sharp global inventory build between mid-2014 and the start of 2016 as supply outpaced demand.  OECD commercial oil stock levels reached historic highs in early 2016, and for most of the year remained more than 300 million barrels above the five-year average, corresponding to around 800,000 b/d or 64 days of forward cover.

In both 2015 and 2016, the industry witnessed a dramatic contraction in investments.  Global oil and gas exploration and production spending fell by around 26 per cent in 2015 and a further 22 per cent in 2016 as well.  Combined, this equates to above $300 billion.  This was impacting not only new projects coming on-stream, but new discoveries too.

The industry was also witnessing significant job losses, as well as increasing financial and operational stresses for many companies.

To put it simply: the oil industry could not continue along this path.  Something had to be done to tackle the major stresses that were suffocating the industry, and impacting current and future oil supplies.

It led to OPEC embarking on the most extensive consultations among OPEC Member Countries and between OPEC and non-OPEC producing nations.  At the same time, we also undertook deliberations with the broader international community and other multilateral organisations to further build consensus about the strategic urgency of restoring sustainable oil market stability in a collective manner.

From Doha to Algiers, from Caracas to Tehran, from Baghdad to Riyadh, from Moscow to Istanbul.  I felt I was flying more than an airline pilot!

From OPEC’s perspective, this initially led to the ‘Algiers Accord’ that was agreed by all OPEC Member Countries at the 170th (Extraordinary) Meeting of the OPEC Conference in Algeria on September 28, 2016.  The decision focused on the urgent need to stimulate the acceleration of the drawdown of the stock overhang, bring the market rebalancing forward and ensure that much needed investments return to the industry.

The ‘Algiers Accord’ also initiated a process of consultations between OPEC and non-OPEC oil-producing countries, to establish a platform from where OPEC and non-OPEC producers could take pro-active measures that would ensure a balanced oil market on a sustainable basis.

The challenge then was ensuring the ‘Algiers Accord’ was delivered in a full and timely manner.

I can honestly say that the two-month period after the ‘Algiers Accord’ was the most intense period of talks and negotiations I have been involved in during my more than 30-year involvement with OPEC.  Turning it into a lasting and viable solution for oil market stability took a great deal of hard work, diligence, courage and compromise from every OPEC Member Country and many non-OPEC producers too.

Following two months of exhaustive and determined diplomacy efforts and consistent and encouraging advocacy in a variety of international energy platforms and fora, the ‘Vienna Agreement’, was adopted on November 30, 2016 in Vienna.  This was followed soon after by the Declaration of Cooperation with non-OPEC countries on December 10.

For the first time in the history of the industry, 13 OPEC nations and 11 non-OPEC participating countries, came together to help rescue and stabilize this strategic global industry – one that has been vital to the development of modern civilization.

Through a shared vision by Heads of State and Government, Ministers, Ambassadors, and many officials from the 24 participating countries, collaborative and timely intervention was taken to address the prevailing market realities.  Let me also stress that we want this OPEC and non-OPEC relationship to be a lasting and flexible partnership that when necessary can help reduce volatility, provide more confidence to the market, and steer a path towards more sustainable stability.

The commitment made by the 24 nations was one to all oil industry stakeholders, both producers and consumers, as well as one to the broader global community, through the restoration of oil market stability and the potential positives of this for the global economy.

Allow me here to put the importance of this in some context.

Oil is perhaps the most strategic growth engine of the global economy.  Currently more than 94 million barrels of oil are produced and consumed every day.

In the industrialized world, oil has transformed economies and societies.  The products derived from this precious natural resource are fundamental to daily lives.

And we need to remember that many billions of people across the world continue to suffer from energy poverty.  They need to benefit from the great advantages oil has brought to billions of others.

The scale of the industry, and its potential, underscores the importance of sustainable oil market stability.

The industry needs regular, timely and sustainable investment to guarantee security of supply to the global community.  It is essential for our industry’s future and that of the global economy.  It is essential to all those consumers around the world who rely on hydrocarbon resources for their everyday needs.  And it will be essential to the future of those currently without access to modern energy services.

Excellencies, ladies and gentlemen,

As I am sure you all realize the historic decisions of last year are not the end of the process.

To support the implementation, a Joint Ministerial Monitoring Committee (JMMC) has been established, which met for the first time in Vienna on January 22.  The adoption of the framework for oversight and monitoring implementation, which now also involves a Joint Technical sub-Committee (JTC) that met for the first time on February 22 in Vienna, is both innovative and unique.  At OPEC, we value the importance of data sharing, openness and transparency.

The report of the JTC and the data for January shows conformity from participating OPEC nations above 90 per cent.  Similarly, figures for non-OPEC nations have also proven to be positive.

Looking ahead, I firmly believe that all countries involved remain resolute in the determination to achieve a higher level of conformity.  Our common goal is 100 % conformity.

We are already seeing more favourable conditions for the industry to deliver the necessary medium- and long-term investments for our energy future.  Confidence is returning to the market.  However, we cannot rest on our past successes; we need to continually strive to ensure that we push for the timely and full implementation of these decisions.

The overall goal must remain on ensuring sustainable oil market stability.  This is central to everything we do.

We need stability – for investments and capacity expansion, to guarantee supply levels are adequate and sufficient, and to enable producers to respond quickly and appropriately in times of unexpected supply constraints.

We need stability – for investors and producers to realize a fair return from the exploitation of their non-renewable resource.

We need stability – for consumers to receive reliable and secure supplies.

We need stability – for the market to react and respond to future unforeseen events.

We need stability in all its forms.  It guarantees a more balanced market today, which also guarantees a balanced market in the future.

Excellencies, ladies and gentlemen,

It was the legendary American football coach, Vince Lombardi, who said: “The achievements of an organization are the results of the combined effort of each individual.”

That quote is very apt for what OPEC has achieved over the past six months, and what OPEC and non-OPEC has achieved too.  The effort of many individuals has enabled us to accomplish great things.

Thank you again for being here this evening.  It has given me great pleasure to share with you the story of the historic and landmark decisions taken by us all at the end of 2016.

I hope that this is just the beginning of a long and successful relationship between OPEC and non-OPEC nations.

Thank you.