Keynote Speech by OPEC Secretary General

Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the 22nd International Exhibition & Conference “Oil & Gas Uzbekistan (OGU)”, 16 May 2018, Tashkent, Uzbekistan.

Excellencies, distinguished guests, ladies and gentlemen,

I am delighted to be here today. Uzbekistan’s fertile lands, rich natural resources, and colourful cotton and silk handicrafts have always piqued my curiosity. But it is the city of Tashkent that has always seemed a historical wonder to me.

For this opportunity, I would like to thank the organizers of this 22nd International Exhibition and Conference, as well as the Government of Uzbekistan and, specifically, the Cabinet of Ministers of the Republic of Uzbekistan, under whose patronage this Conference takes place. With 21 previous editions of this gathering, this year’s event is a proud achievement.

I am genuinely pleased to participate in this high-level plenary session focusing on the benefits and knowledge-sharing that flow from the expansion of international cooperation. In fact, the spirit of collaboration, cooperation and integration are elements that are very important in today’s increasingly complex and interdependent world, where the forces of globalization have become irreversible.

Allow me to also extend our deep appreciation to His Excellency Ulugbek Sayidov, First Deputy Chairman of the Governing Board of JSC Uzbekneftegaz – we had a very fruitful bilateral meeting yesterday as a continuation of our enhanced cooperation with Uzbekistan; and His Excellency Yuri Sentyurin, Secretary General of the Gas Exporting Countries Forum. I look forward to hearing their insights and valuable perspectives this afternoon.

Ladies and gentlemen,

We are gathered here at a time when the Republic of Uzbekistan is strategically poised in several unique ways.

The oil and gas industry has been one of Uzbekistan’s most important growth sectors. In the Central Asian region, the country is one of the earliest sites of exploration and production, dating back more than 100 years. With such a respectable history and trajectory, its oil and gas industry continues to develop under recent economic reforms. And though the overall current volumes may be considered modest, the sector’s promise and the potential for even higher levels of production remain positive, with the hydrocarbons industry in recent years attracting international attention and interest. It is now a leading sector in this increasingly prosperous nation.

Uzbekistan, in short, is a dynamic country, and its relevance and standing continue to grow. This Exhibition and Conference then is a very clear sign of that attention, with various stakeholders and ‘potential suitors’ expressing their keen interest in investing here.

Ladies and gentlemen,

All these elements – resources, infrastructure, geography and international interest – put the country in a very unique position. But, it has also played a very special role in supporting the recent work that OPEC and other non-OPEC oil producers have done. Thus, allow me to pause here and extend our appreciation, on behalf of OPEC and its Member Countries, to Uzbekistan for its ongoing support for our noble cause. I would like to take a few moments to put this cause into perspective.

The prolonged market downturn that we experienced in 2014-2016 was unprecedented. Although we all recognize that there are natural commodity cycles, our own research has shown at least six distinct price cycles over the last few decades – with this last one being the deepest and most protracted. In fact, its impact was felt around the world and across industries. No one was insulated!

In addition, the growing complexity of markets in recent years made this unprecedented downturn a source of serious concern, posing a major challenge for all of us. The wide recognition of the adverse implications eventually led to the inevitable call for broader cooperation among stakeholders to address this serious challenge. This we did.

OPEC, in cooperation with a group of 10 other non-OPEC producers, held extensive consultations in the latter half of 2016. This effort eventually achieved an historic decision in December 2016 of voluntary adjustments under the name of the ‘Declaration of Cooperation’. We have now been implementing this decision for the past 17 months with visible positive outcomes that have been widely acclaimed around the world.

Ladies and gentlemen,

The success of this Declaration has been undeniable with conformity rates reaching impressive levels throughout 2017, rising to well above 130% in recent months. In March, it reached a new record of 149%.

An additional six producers – including Uzbekistan – have provided further impetus to our efforts by declaring their solidarity with the Declaration. We recognize and applaud Uzbekistan’s participation in this ‘Declaration of Support’ and for supporting the goals and objectives of the ‘Declaration of Cooperation’. In addition to leveraging the critical and strategic value of its own oil and gas industry, the fact that Uzbekistan has chosen to work collaboratively with other global producers is a sign of true dedication to this process of international dialogue and cooperation.

Similarly, the achievements and impact of the implementation of the ‘Declaration of Cooperation’ have been welcome by all. In the short term, it has contributed to a stabilization of the market.

In terms of the short-term impact on the growing stock overhang, the achievements have been significant, with the collective efforts of the producers involved continuing to yield positive results. OECD commercial stock levels have been adjusted from a peak of 3.12 billion barrels in July 2016 to 2.83 billion barrels in March 2018, corresponding to a drop of 300 million barrels, and the stock overhang has been reduced by 400 million barrels.

At the same time, we are seeing robust demand growth, which is forecast at around 1.65 mb/d in 2018. This, in turn, is supported by a healthy global economic outlook, with GDP growth expected at around 3.8% for this year. We also witnessed prices rebound from a low of below $30/b in January 2016 to recently reach the highest levels we have seen since November 2014.

These are excellent indicators of the effectiveness of our shared efforts in the wake of the market downturn of a few years ago. Today, however, our concern is continuity with the proven success of this decision – with a view towards its sustainability in the long term.

Ladies and gentlemen,

The ‘Declaration of Cooperation’ was not just about restoring market balance in the short term. It was also about ensuring the continuity of that new cooperation into the long term. In this, three key words come to the fore:  fairness among all participants in the Declaration, transparency of production levels and verifiability through well-established mechanisms for monitoring and implementation of the Declaration – that is, the JMMC and the JTC.

While the smooth and reliable implementation of the Declaration has had several significant outcomes, one of the most important is that it is gradually fostering the enabling environment for the rebound in investments, which sharply contracted by about 25-27% in 2015 and 2016.

In fact, I would suggest that Uzbekistan’s leaders are quite cognizant of the importance of creating an enabling, secure environment for investments. The reform process being undertaken demonstrates their understanding that the industry itself needs investments to take the sector to the next level of development. This means investing in innovation to create value and ensure future supplies, in addition to fostering diversification across the entire value chain.

According to OPEC’s most recent World Oil Outlook (WOO), the majority of the energy demand growth in the 2015-2040 period comes from non-OECD countries with around 29 mboe/d, while some 5 mboe/d is located in the mature markets of OECD countries.

Long-term oil demand is expected to increase by 15.8 mb/d, rising from 95.4 mb/d in 2016 to 111.1 mb/d in 2040. In the long term, more than half of the oil demand growth is expected to be satisfied by light products. Separately, the demand for middle distillates is anticipated to increase by 6.8 mb/d during the forecast period.

Of course, investments are the only way to ensure that this is maintained – specifically investments that are timely, adequate and continuous. And, although many recent conversations and exchanges among stakeholders have focused on short-cycle investments, what is most needed is steady, long-cycle investments, which represent the global base load.

It’s worth recalling that our industry is very capital-intensive and technology-driven. Complex by nature, it requires significant up-front investments. But even after such financial resources have been secured, the industry is susceptible to myriad challenges, both regional and global.

Ladies and gentlemen,

One of the important lessons learned from the most recent and perhaps worst prolonged oil market downturn in history is this: We must always be vigilant of market signs and indicators; and that we must always have the mid and long term in mind as we make our short-term calculations and decisions. Recognizing that something needed to be done in direct response to this recent market downturn was a positive, constructive response by responsible global producers.

Another lesson, however, is that we can and should no longer act in isolation. The complexity and interrelated nature of markets and economies today requires concerted efforts to ‘not go it alone’ and to instead seek ways to work together in common cause. Collective problems require collective responses – and this is something that the international community continues to learn.

Let me also add here that we must also expand and institutionalize this powerful international dialogue and cooperation if we hope to effectively address the major global challenges related to climate change and the environment, sustainable development and energy poverty.

In this context, let me say that OPEC continues to be actively engaged and supportive of the Paris Agreement. It is our firm belief that a global consensus through multilateral channels remains the optimum way for all nations to collectively counter climate change in a fair and equitable manner. All energy sources will be required, especially to meet the dire needs of the estimated 1.1 billion people in developing countries that have no access to electricity and the 2.3 billion without commercial energy.

Here, there is an opportunity to work together to develop and adopt innovative technologies, as well as energy policies that are fair and inclusive. These concerted efforts will have the potential to improve the environmental credentials of all energy sources.

The signatories of the ‘Declaration of Cooperation’ welcome any additional support from the world’s other producers. Expanding the ‘circle of trust’ to include other countries, whether they form part of the original decision or whether they simply offer their gracious support like Uzbekistan, the task of working together is vital for the good of market stability. And as Uzbekistan seeks to expand its own industry, revitalizing it through investments, joint ventures and collaborative efforts with other producers, we will see it find its natural place in this ongoing adjustment process.

Thank you for your kind attention. I now wish you all a splendid time at this Conference and Exhibition.

HE Mohammad Sanusi Barkindo, OPEC Secretary General, delivers his keynote speech

HE Mohammad Sanusi Barkindo, OPEC Secretary General, delivers his keynote speech

The 22nd International Exhibition and Conference took place in Tashkent, Uzbekistan

The 22nd International Exhibition and Conference took place in Tashkent, Uzbekistan