Keynote Speech by OPEC Secretary General at the CECME Annual General Meeting in Madrid

Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the plenary session of the CECME Annual General Meeting, 25 September 2018, Madrid, Spain.

Ladies & gentlemen,
Buenos días

It is a great pleasure to have been asked to speak to you today.

In this regard, I would like to personally thank Mr. Iñigo Diaz de Espada, the Chairman of the Spanish Committee of the World Energy Council and the Chair of this session.  OPEC has always been a strong and positive supporter of the World Energy Council, and I am extremely honoured to be speaking here to such a distinguished gathering.

I also fondly recall that one of my first speaking engagements as OPEC Secretary General was at the 23rd World Energy Congress in Istanbul in October 2016.

I would also like to offer thanks to my great friend, HE Suhail Mohamed Al Mazrouei, the Minister of Energy & Industry of the United Arab Emirates – where the 24th World Energy Congress will take place – and the President of the OPEC Conference.  He was a key initiator behind my participation today.

Suhail has also been a skillful advocate for OPEC during his tenure as OPEC President, helping push the Organization’s objectives at events such as this one, as well as through the historic ‘Declaration of Cooperation’ between 25 OPEC and non-OPEC producers.

[SLIDE 2 - Disclaimer]

The ‘Declaration’ has focused on restoring a sustainable stability to the industry through what I might term ‘innovative and ground breaking cooperation’.  And let me stress that the impact of this cooperation has exceeded even the most optimistic projections.

The cooperative efforts have helped accelerate the return of balance to the global oil market, return much needed optimism to the industry, with investments now gradually picking up, and it has had a positive effect on the global economy and trade worldwide.

Moreover, it has also led to a significant change in industry-wide and public perceptions of OPEC.  The Organization has ably demonstrated its credentials as a body committed to international cooperation, and honouring its commitments and promoting mutual respect among all nations.

The ‘Declaration’ is now a permanent feature of the global energy scene, establishing a novel framework for producing countries, whilst also taking into account the vital interests of consumer countries, as well as the global economy.

The importance of these recent developments, specifically in terms of helping achieve market stability, and just as importantly, sustaining it, is clearly vital across all timeframes. While the focus for many is obviously on the short-term, we need to recall that the short- , medium- and long-terms are all interlinked. We cannot view any of them in isolation.

This is the focus of OPEC’s World Oil Outlook  (WOO), with the 2018 edition very much ‘hot off the press’ after being launched only two days ago in Algiers, at an event to mark the secondary anniversary of the seminal Algiers meeting that set us on the path that eventually led to the ‘Declaration of Cooperation’ in December 2016.

The Outlook aims to bridge the linkages between the various timeframes to enable the Organization to share its views and analysis of global oil and energy markets.

Ladies and gentlemen,

It was the great Spanish artist, Salvador Dali, who said:

“He who wants to interest others must provoke them.”

It is with this thought that I am here today, as I present the findings of our 2018 Outlook as a means to stimulate discussions, stir debate and hopefully foster knowledge-sharing.

I think we all appreciate that the future is one laden with challenges and uncertainties, but also many opportunities.  There will no doubt be areas where we may all agree, as well as areas where there will be divergences.

I very much welcome your feedback, and your questions.  Please feel free to provoke me!

The theme of today’s event relates to energy futures and energy transitions.

It is evidently an extremely timely and relevant theme given that there is currently much talk of the ‘energy transition’.  In this regard, it is important to ask the question: what does this actually mean for the energy mix, and for people around the world?

Today, we hear media reports of a future world of only renewables, where electrification will come to dominate the transportation sector, and where fossil fuels are set to be consigned to history.

All of these statements offer an extremely misleading view.  It is important that we all look beyond the headlines, and bring some analysis and perspective to our energy future.

What is clear is that the world will need more energy in the decades to come.  It is easy to appreciate why.

In OPEC’s World Oil Outlook, the size of the global economy in 2040 is estimated to be more than 200% that of 2017.  And over the same timeframe, global population is projected to reach around 9.2 billion, an increase of over 1.6 billion from today’s level.

We should also not forget that today around three billion people lack access to clean fuels and efficient technologies for cooking, and almost one billion are still without access to electricity.  It is vital that this is addressed.

Energy access is not a luxury; it has to be seen as a necessity.  There is huge potential for socio-economic development in terms of expanding access to modern energy services.

We expect global energy demand to increase by a robust 33% between 2015 and 2040, which is driven predominantly by developing countries, which see almost 95% of the overall growth.

Energy will be required to power more homes, more services, more businesses, more cars, more planes, more ships, more technologies … I could go on.

At the same time, however, we need to recognize the threat posed by climate change to our environment.  Let me stress here that OPEC remains fully engaged and supportive of the Paris Agreement.

We firmly believe that a global consensus from the multilateral process remains the best and most inclusive way for all nations to collectively mitigate or adapt to the impacts of climate change based on the core principle of ‘common but differentiated responsibilities’ in a fair and equitable manner.

Thus, our 2018 Outlook underscores that OPEC is fully aware of the dual challenge of meeting growing energy demand, while constantly improving the environmental footprint of all the energies we use.

To put it simply, the basic energy challenge can be summed up in two questions.

The first is how can we ensure there is enough supply to meet expected future demand growth?

And the second is how can this growth be achieved in a sustainable way, balancing the needs of people in relation to their social welfare, the economy and the environment?

What the Outlook emphasizes is that all energies are required.  It is not about choosing one energy source over another.

In fact, the Reference Case for this year’s Outlook sees all energy sources expanding over the entire forecast period, except coal that peaks around 2030.

Nonetheless, it is vital we appreciate just what each energy source provides today, and what they can provide in the decades ahead.

There is no doubt that renewables, such as solar and wind, will continue to significantly expand their role.  They are expected to have the highest average growth rate of around 7.4% per annum over the period to 2040, although it is important to remember their current low base.

OPEC Member Countries recognize and support the development of renewables.  Many of our countries have great sources of solar and wind, and significant investments are being made in these fields.

Nuclear is also expected to witness some expansion in its share of the global energy mix, and biomass and hydropower are forecast to maintain their shares in the years ahead.

Overall, these renewable energies and nuclear are expected to increase their share in the energy mix from around 18% in 2015 to about 25% by 2040.

The upshot of this is that all of the three current main primary sources of energy – oil, gas and coal – are still anticipated to supply about three-quarters of the energy mix by 2040.  Oil is expected at around 28%, with gas at 25%, and coal at just over 22%.

From the perspective of oil and gas, it underscores the fact that they will remain central to supplying the growing global population with the critical energy it needs in the decades ahead.

Of course, you may say to me, well you would say this – you are the OPEC Secretary General.  But I am also a realist.  I do not see any outlook predicting that other energies will come close to overtaking oil and gas in the decades ahead.

In terms of oil, specifically, I think the key message from our Outlook is that there is no doubt that oil will remain a fuel of choice for the foreseeable future.

We see oil demand increasing by around 14.5 million barrels a day between now and 2040 to reach close to 112 million barrels a day.  Moreover, this is the second consecutive year we have raised our oil demand numbers for 2040.

I would also like to dig a little deeper into oil demand in our Outlook to look at some of the sectors driving this growth, as well as highlight the potential impact of electric vehicles.

In terms of sectors, transportation remains the major incremental demand driver to 2040, with expectations for an increase of more than 8 mb/d, mostly in the road transportation sector, which sees growth of 4.1 million barrels a day.

As you would expect, this demand growth is driven by the expected increase in the total vehicle fleet for passenger and commercial vehicles.  This is projected to increase by over 1.1 billion vehicles to hit close to 2.4 billion in 2040.

Here, it is important to underscore that the majority of the growth continues to be for conventional vehicles.  Nonetheless, the Outlook does see the long-term share of electric vehicles in the total fleet expanding and reaching a level of around 13% in 2040, supported by falling battery costs and policy support.  For all alternative fuel vehicles, the figure is 18%.

While this is certainly an impressive expansion for electric vehicles, given that levels were well below 1% in 2017, it does need to be placed in the context that conventional vehicles, including hybrids, are still expected to make up 82% of the vehicle fleet by 2040.

While there are various sensitivities that could shift these numbers, both upward and downwards, there is a message to be derived from this.

Conventional vehicles will remain the mainstay of the road transportation sector, and I should add there are clearly possibilities to further improve the efficiencies of these engines and the fuels they use.

It is also important to note the expected oil demand growth in the petrochemicals sector, which for the first World Oil Outlook sees more growth than in the road transportation sector over the forecast period to 2040.

Global demand in this sector is estimated to expand by 4.5 million barrels a day by 2040.  The largest increase is projected for developing countries, most notably Asian countries and OPEC Member Countries, driven by demand for petrochemical products and the availability of feedstock in these regions.

[SLIDE 10]
On the supply side, non-OPEC is set to increase supply by more than 9 mb/d between 2017 and 2027, with the major driver being US tight oil, but there are also significant additions from Canada, Brazil and Kazakhstan.

In fact, global tight oil supply is set to grow to over 15 million barrels a day by the second half of the 2020s, thus making up almost a quarter share of non-OPEC supply at its peak.

Beyond this period, however, non-OPEC supply is set to decline by around 4 mb/d, chiefly due to losses in US tight oil production, as well as depletion in other regions, such as the Asia-Pacific, North Sea and Latin America.

[SLIDE 11]
It means that in the long-term, the demand for OPEC crude is projected to increase to around 40 mb/d in 2040, up from 32 mb/d in 2018.

The share of OPEC crude in the global oil supply is estimated to increase from 34% in 2017 to 36% in 2040.

[SLIDE 12]
To meet the expected global expansion will require huge investments.  We also need to consider that new barrels are needed not only to increase production, but to accommodate for decline rates from existing fields.  Oil-related investment requirements across the upstream, midstream and downstream are estimated at around $11 trillion in the period to 2040.

On a positive note, we have seen investment picking up again this year, after the significant downturns witnessed in 2015 and 2016.  However, we need to remain watchful and vigilant to ensure the necessary future investments are made.

It is important to remember 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.

In this regard, OPEC Member Countries remain fully committed to investments across the whole industry value chain, and the issue of returning global investments is a core focus of the ‘Declaration of Cooperation’.

[SLIDE 13]
When thinking about our energy future, particularly when viewing it from the industrialized world, we need to remember how important oil and gas have been to their past.  They have transformed their economies and their societies.  They have provided heat, light and mobility.  They have created and sustained economic growth and prosperity.

However, we should not forget that this has not been the story for everyone.

When we start up our cars, switch on our modern cookers, turn on a light, we need to recognize that these everyday things are still unknown to billions of people across the world who continue to suffer from energy poverty.

These are people that need their voices heard.  They need access to reliable, safe and secure modern energy services at scale.

Of course, the economics of wanting more, coupled with growing populations and rising energy demand, has created challenges that were not foreseen when Thomas Edison was developing the light bulb, or when Henry Ford was mass producing the car.

I am talking here about the environmental challenge.  In this regard, we need to recognize that the issue is not oil and gas themselves.  The challenge is the emissions that come from burning them.

It is a challenge we need to face head on.  And I believe it is a challenge that can be overcome.  Given what I have already said, it would be wrong of us to dismiss oil and gas as part of the past.  I am a believer that solutions can be found in technologies that reduce and ultimately eliminate these emissions.

We need to continually look to develop, evolve and adopt cleaner energy technologies, as well as all-inclusive and non- discriminatory energy policies, that enable us to meet the expected future energy demand, in a sustainable manner.

[SLIDE 14]
One word I have uttered on many occasions over the past two years is central to all this.  That word is ‘cooperation’.

The ‘Declaration of Cooperation’ has shown what can be achieved through collaboration in challenging times.  It helped turn the tide of the oil market, and we now see calmer waters.

However, this kind of cooperation needs to be undertaken not only in times of instability, but also when the market is stable and balanced.  Dialogue is vital at all times.

Over the years OPEC has pushed many forms of energy cooperation, including dialogues with the European Union, Russia China and India, symposia and workshops with the IEF and the IEA, various initiatives with the G20, and meetings with other industry stakeholders.

In this regard, we look forward to meeting the European Commissioner for Energy, Miguel Arias Cañete, and his team later this year through the EU-OPEC Energy Dialogue, to discuss a variety of issues, including the future energy mix, policies and technologies.

Of course, I cannot stand here and say dialogue will mean we find agreement on everything.  We do not live in a perfect world.  But it is important for all stakeholders to look for shared and realistic solutions, where and when appropriate.

[SLIDE 15]
Ladies and gentlemen,

In terms of talk of an ‘energy transition’, I think it is important to leave you with a few key messages:

  • The future of energy will require all energy sources to meet rising demand.  It is not about choosing one energy source over another.  It is vital that we lay out a practical and realistic future energy path, and appreciate what each energy source can deliver.
  • Oil and gas are expected to still meet over 50% of the world’s energy needs in 2040.
  • It is vital that we continue to improve energy efficiency and develop cleaner energy technologies.
  • And we need to ensure 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.

Thank you for your attention.

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HE Mohammad Sanusi Barkindo, OPEC Secretary General

HE Mohammad Sanusi Barkindo, OPEC Secretary General

HE Mohammad Sanusi Barkindo, OPEC Secretary General (l); and Mr. Iñigo Diaz de Espada, Chairman of the Spanish Committee of the World Energy Council

HE Mohammad Sanusi Barkindo, OPEC Secretary General (l); and Mr. Iñigo Diaz de Espada, Chairman of the Spanish Committee of the World Energy Council

HE Barkindo, OPEC Secretary General, spoke about the recently released OPEC's World Oil Outlook

HE Barkindo, OPEC Secretary General, spoke about the recently released OPEC's World Oil Outlook

HE Mohammad Sanusi Barkindo, OPEC Secretary General (l); pictured with the Chair of the plenary session, Mr. Iñigo Diaz de Espada, at the CECME Annual General Meeting, in Madrid, Spain

HE Mohammad Sanusi Barkindo, OPEC Secretary General (l); pictured with the Chair of the plenary session, Mr. Iñigo Diaz de Espada, at the CECME Annual General Meeting, in Madrid, Spain