Energy transition in a global perspective

Keynote address delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the 25th Lustrum Symposium, 21 November 2017, Delft, Netherlands.

Excellencies, distinguished guests, ladies and gentlemen,
Good morning.

It is a great pleasure to return here to this beautiful and historic city of Delft to take part in the 25th Lustrum Symposium.

In November of 1987, I had the privilege of accompanying the Honourable Dr. Rilwanu Lukman, Nigeria’s Minister of Petroleum Resources for his speaking engagement at this very event. At the time, I was Special Assistant to Mr. Lukman and Head of Office for the Chairman of the Nigerian National Petroleum Corporation Board. He went on to serve a very successful term as OPEC Secretary General from 1995 to 2000, a legacy I have now had the honour of inheriting.

Dr. Lukman was one of the oil industry’s most influential and respected ambassadors and personalities. His illustrious career spanned five decades, and he was one of the longest-serving heads of both the Nigerian oil industry and OPEC.

As his adopted son, a later friend and a close confidant of his, I can tell you firsthand that he was a true patriot who loved his homeland. Not a day would go by without a discussion on how to best meet the challenges Nigeria was facing. He had our country’s best interests always close to his heart. His legacy will live on, both in Nigeria and around the world. He was truly the most decent person of his generation, an icon of all times!

Ladies and gentlemen,

I would like to take this opportunity to thank the esteemed 25th Lustrum Symposium Committee for their kind invitation for me to speak here today.

It is a privilege for me to return once again to this highly reputed centre for technology education and research — The Delft University of Technology — which is celebrating its 125th anniversary this year.

The roots of this fine institution date back to the reign of King Willem II who founded the Royal Academy to educate and train engineers, scientists and other civil servants. It has since evolved and grown in stature and prestige to become the Netherlands’ largest and oldest technological university. Additionally, it is competitively ranked among the world’s top technological universities.

Many students who have had the privilege to walk these hallowed corridors have graduated and gone on to achieve great things. Many are leaders in their respective fields of expertise, and some have even been awarded the prestigious Nobel Prize for their outstanding scientific achievements.

These include Jacobus Henricus van't Hoff, who, in 1901, was the recipient of the first-ever Nobel Prize for chemistry for his innovative work related to rates of chemical reaction, chemical equilibrium and osmotic pressure. Then, in 1913, Heike Kamerlingh Onnes was awarded the Nobel Prize for physics for his cutting-edge research that led to the production of liquid helium. And then, more recently, in 1984, a second Dutchman, Simon van der Meer, was awarded the Nobel Prize for physics, along with Carlo Rubbia, for groundbreaking contributions to the CERN project, which led to the discovery of the W and Z particles, two of the main constituents of matter.

These are truly achievements that have changed the course of science and innovation, and it is indeed both inspirational and humbling to be here in the very academic halls where these legendary minds developed and perfected their insights.

Ladies and gentlemen,

The theme of this year’s Lustrum Symposium is “Energy transition, the world with a growing natural resource demand”.

I couldn’t think of a more timely and relevant theme for our industry and indeed for OPEC, as we have just released our 2017 World Oil Outlook (WOO) on the 7th of November.

This annual publication provides a comprehensive overview on the medium to long-term forecasts to 2040 for the global oil and gas industry. It also offers valuable insight into the uncertainties and challenges that lay ahead for the industry.

Now, I would like to begin by providing you with a few highlights from this year’s edition of the WOO. I will then link these findings back to our short-term outlook by touching on OPEC’s latest efforts in cooperation with non-OPEC producers to bring an enduring stability to the global oil market.

The 2017 WOO provides a comprehensive analysis of what lies ahead for the global oil market and our industry in the timespan leading to the year 2040.

First of all, it is important to understand that oil and gas will continue to play a major role in the world’s energy mix for the foreseeable future, contributing an estimated 52% of the global energy mix by 2040.

Looking at demand, we see total primary energy demand increasing by 35% in the period to 2040. Long-term oil demand is projected to surpass 100 mb/d in 2020 to reach a level of more than 111 mb/d by 2040.

The majority of this rising demand will come from developing countries, increasing by almost 24 mb/d, to reach 67 mb/d by 2040.

I should add here that there is no expectation for peak oil demand over the forecasted period, and oil will continue to be relied upon over the long term to help meet the world’s rapidly rising energy requirements.

This is no small challenge when you consider that an estimated 1.1 billion people around the world still have no access at all to electricity.

Looking at the industry sectors driving this growth, the three main ones will be road transportation (5.4 mb/d), petrochemicals (3.9 mb/d) and aviation (2.9 mb/d).

Now, turning to the supply picture, non-OPEC liquids supply is forecast to increase from 57 mb/d in 2016 to 62 mb/d in 2022. This is mainly a result of the recovery and improved outlook for US tight oil production, however, when we look further ahead, we see non-OPEC liquids output dropping to 60.4 mb/d by 2040.

This dynamic bodes well for OPEC crude, which will benefit from rising demand, reaching an estimated 41.4 mb/d by 2040. The share of OPEC liquids in the total global liquids supply is forecast to rise to 46% by 2040, up from 40% in 2016.

The WOO also covers an issue that has been elevated to the top of the industry agenda, and that is the urgent need to reinstate robust, long-term investment to the industry.

The current downward price cycle, which began midway through 2014, saw a stunning 80% drop in the OPEC Reference Basket from June 2014 until January 2016, the largest percentage fall of the six previous declines we have witnessed over the last 40 years.

The effects on the industry were severe — industry budgets were depleted and exploration and production spending was reduced by an enormous 27% in both 2015 and 2016. In total, nearly one trillion dollars in investments were frozen or discontinued, and many thousands of industry staff were cut from payrolls.

So, considering both the fallout from this crisis I have just described, in relation to the need to meet rapidly rising world oil demand in the coming decades, it is clearly imperative that industry investment be urgently restored to levels that will secure the energy requirements of future generations. To achieve this, an estimated $10.5 trillion in industry investment is expected to be required from now until 2040.

On a positive note, we do see investment picking up slightly this year and in 2018, but this is far from the levels we have witnessed in the past. In particular, the industry is in dire need of investment in long-cycle projects, which are crucial to longer-term industry growth.

It is also important to remember here that this is not only a question of increasing new production, but producers will also need to compensate for natural decline rates, which can be 5% per year. So, to maintain current production levels, the industry might need to add upwards of 4 mb/d each year.

Here, I should point out that OPEC Member Countries have continued to invest in their industries throughout this volatile down-cycle. This has positioned them well to maintain their leading roles as reliable suppliers to growing economies around the world, including right here in Europe.

Let us not forget, though, that the foundation for investment and growth can only come through balance and stability in the market. It is always worth recalling that long-term security of supply is intrinsically linked to short-term conditions.

And, indeed, on this front, OPEC and its non-OPEC partners continue to forge ahead in restoring balance and stability to the market.

The data is clear that progress is being madeglobal stocks are coming down, the world economic outlook is positive and we see robust demand ahead. We are on the path to stability.

Ladies and gentlemen,

The historic Declaration of Cooperation, now in its eleventh month, has provided an effective framework for the development of lasting market stability.

Next week at the 173rd Meeting of the OPEC Conference and the 3rd OPEC-Non-OPEC Ministerial Meeting on 30 November, we will commemorate the one-year anniversary of this landmark cooperation.

These committed efforts will continue until we see the global stock overhang come down to the five-year average, indicating a balanced market.

We are not out of the woods just yet, but we are getting there, step by step, thanks to a good measure of patience, perseverance and focus.

When we do achieve our common goal, though, all stakeholders across the entire industry stand to benefit, not just the participating producers of the Declaration of Cooperation.

A revived and growing global oil market will, in turn, also boost the global economy, promoting development and prosperity around the world.

Ladies and gentlemen,

In today’s globalized and increasingly interdependent global oil industry, stakeholders must work together to achieve their common goals.

This makes all the more sense when you consider that stakeholders often share common challenges and want to accomplish similar objectives.

This brings me to another important area in which we are working together with the international community to achieve a common objective. And that is the issue of environment and sustainability.

Just last week, we were in Bonn, Germany for the high-level segment of the UN Climate Change Conference (COP 23/CMP 13/CMA 1-2).

At this Conference, we deliberated extensively on how the world can meet the rapidly rising energy needs of future generations while still protecting our environment.

OPEC supports the comprehensive implementation of the Paris Agreement. All 14 OPEC Member Countries have signed the Agreement, and eight of them have ratified it. The rest are in the process of ratification.

We will remain fully engaged in this process to help reach a global consensus on how the world community can come together to tackle climate change in a fair and equitable manner.

The fact is that the world will require all energy sources now and in the future to ensure adequate supply levels, and fossil fuels are still plentiful. At present, the world’s proven crude oil reserves alone stand above 1.2 trillion barrels.

It is also important to recognize the positive aspects of these resources and how they have impacted the lives of billions around the world for hundreds of years.

Without them, we could not have achieved the economic growth, development and prosperity we enjoy today. Indeed, they are the basis upon which our modern civilization is built.

Our industry should appreciate this and be proud of this progress. These natural resources are fundamental to our daily lives, and will continue to be well into the future.

At the same time, we are fully aware that there are environmental issues regarding the emissions that emanate from fossil fuels.

However, we also believe that viable solutions can be developed by leveraging cutting-edge technology that has the potential to minimize and even, eventually, eliminate these emissions.

In this regard, we must support the development of cleaner fossil fuel technologies, such as carbon capture utilization and storage, and other innovative solutions in the future.

Our Member Countries have already been active in utilizing these technologies, and I expect this will increasingly be the case in the years to come.

At OPEC, we will continue to prioritize the advancement of the environmental credentials of oil, both in production and usage.

Here, I should mention that institutions of higher learning, such as this prestigious university here in Delft, have an important role to play in this process.

Your groundbreaking research efforts could make a difference in helping us ensure the sustainable development of this growth industry.

Let me also point out that when we talk of an energy transition, this does not necessarily mean moving from one energy source to another.

As I mentioned previously, all energy sources will be needed in the years ahead to meet rising demand, and each source has an important role to play in the overall energy mix.

The energy transition, in a broader context, also means ensuring that energy is made available to all of the world’s citizens.

This entails a transition to a more inclusive world in which every person has access to energy — whether young or old, whether poor or rich. We want to see a world where no one is left behind.

Ladies and gentlemen,

I have outlined a wide range of issues and challenges here today that will need to be managed in the years to come, both in the short term, as well as the medium and long terms. And, we are currently making inroads in addressing some of these.

However, going forward, we will need the participation of all industry stakeholders — producers, consumers, academia and civil society — to achieve a sustainable stability for our industry.

We have already witnessed the strength and effectiveness of cooperation as manifested by the landmark Declaration of Cooperation. But, we can do more.

Thus, I would like to take this opportunity to extend an invitation to the world’s oil producers to join this unprecedented dialogue and cooperation that began last year in Algiers.

Join us and become part of the new golden chapter that is being composed in the history book of our industry.

These are challenging, yet exciting times in this industry, especially when you consider how a diverse group of industry players voluntarily came together in a historic commitment to cooperate and make a difference, for the benefit of all.

Ladies and gentlemen,

In 1945, against the backdrop of a turbulent time in world history, former US President, Franklin Delano Roosevelt, delivered the following words to the United States Congress:

He said “The point in history at which we stand is full of promise and danger. The world will either move forward toward unity and widely shared prosperity - or it will move apart”.

Seventy-two years later, these words of wisdom are not only most relevant today, but in fact prophetic!

We all aspire to have success, growth, development and prosperity for ourselves, for our children and for our children’s children. This is our natural human desire.

So, let us continue to work together as one team, unified in the spirit of cooperation and dialogue, to achieve a global oil market that is stable, growing and sustainable.

This will pave the way to the widely shared prosperity that we all desire.

Thank you for your attention.