Speech by OPEC Secretary General at the CSIS Luncheon

Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the CSIS Luncheon, 8 March 2019, Washington DC, USA.

Friends, ladies and gentlemen,

It is sincerely a great pleasure to address such a distinguished audience over lunch today.  I would like to thank my friend, Sarah Ladislaw, Senior Vice President and Director Energy & National Security Program, and all the team at Center for Strategic & International Studies (CSIS), for helping put this together.

I would like also like to thank another friend, John Hess from the CSIS Board of Trustees, for his generous introduction.  His wise guidance, and great sincerity to me personally, and to OPEC as an Organization, is always immensely appreciated.

It is truly a great honour to again be at this prestigious institute of international policy and research, which has for more than half a century provided 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.

It is also a distinct privilege to be here in this vast and beautiful country, which has played such a pivotal role in the history of the oil 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 change the world.

I think we can all appreciate the history of the modern oil industry has been littered with tremendous opportunities, as well as huge challenges; large booms, and major busts; and it has attracted many great pioneers and innovators.

It is a fascinating, some might say rollercoaster history; one that has fashioned many distinguished and celebrated accounts chronicling its remarkable story.

What this history shows us, even going back to the times of Edwin Drake, is the vital importance of sustainable market stability.

We have seen plenty of ups and downs for the oil industry in the decades that followed, too many to fully elaborate on over a lunch!

It is clear that cycles are part of the market’s ever evolving nature and we cannot eliminate the ups and downs of these altogether.  However, we can look to help smooth the passage of the cycles through focusing on a balanced market, and helping support a stable environment.

It is also important to remember that cycles today have a far wider and greater impact than they did during the times of Edwin Drake.

Today, the size, scope, and complexity of the global oil market make it almost unique among physical commodities. Currently close to 100 million barrels of oil are produced and consumed every day, and over 60 million barrels are exported.  Moreover, the importance of oil and the crucial role that it plays globally make it perhaps the most strategic growth engine of the global economy.

Oil is the lifeblood that fuels the current civilization and keeps modernization moving.

This further reinforces the point I made earlier: the true scale of the industry and its strategic value to both producers and consumers underscores the importance of sustainable oil market stability.

Ladies and gentlemen,

At this juncture, I would like to take you back to my last visit to CSIS in December 2016.

It was still a dark time for the industry, which had been greatly impacted by the severe three-year downturn from 2014-2016.

However, if you permit me to say, there was a chink of light.  My visit came only a few days after we had put together the landmark ‘Declaration of Cooperation’ in Vienna between 24 OPEC and non-OPEC producing nations.

The US was our first port of call, which underscores the importance we attach to the relationship between the US, OPEC and the global oil industry.

The goal of the voluntary production adjustments in the ‘Declaration of Cooperation’ was to stimulate and accelerate the drawdown of the huge stock overhang, expedite the rebalancing of the market, restore a sustainable stability to the industry and enable investments to return.

It was a decision taken in the interests of both producers and consumers and to help restore confidence to the market.

I recall that I was greeted with some sceptism, not only here in the US, but elsewhere too, about the idea of bringing on board non-OPEC nations to take part in the market rebalancing process and on delivering on the stated objectives.

I am happy to be here over two years later and deliver the scorecard to CSIS and say that those sceptics were mistaken.

It took us around 18 months to return OECD inventory levels to the five-year average, our stated metric.

Moreover, when we saw conformity levels to the voluntary production adjustments overshoot in the middle of 2018, we were agile and flexible enough to modify course and stay ahead of the curve.

When the market has appeared skewed to oversupply, we reacted accordingly, and equally, when concerns were expressed regarding demand outpacing supply, the partners in the ‘Declaration’ took the appropriate action.

The ‘Declaration’ has had a transformational impact on the global oil industry.  The change we have seen over the past two years or so is like night and day.

These noble efforts have not only received positive comments from producers; we have also heard positive comments from consumers too.  To double down on a key message: sustainable oil market stability benefits us all.

Let me stress that we take a very measured approach through the ‘Declaration of Cooperation’ – we look at the market outlook, we listen to consumers and other stakeholders, and I assure you that we are focused on the interests of the global economy.

In terms of current market conditions, since the beginning of the year the market has been slowly, but steadily moving towards a more balanced state and market sentiment has cautiously improved, but we still believe we need to see inventory levels drop further.

We also recognize the fact that underlying risks remain, such as ongoing trade negotiations, monetary policy developments, as well as increasingly complex geopolitical challenges.

It underscores the value we place on being flexible and adaptable to changing market conditions, in the interests of both producers and consumers.

Our mission is never accomplished; the challenge of balancing the market is a continuous process.

We are also fully transparent about what we do.  We are an open book. A fish bowl.  All our publications and data are available online, accessible via digital Apps to the general public free of charge.

Ladies and gentlemen,

In examining the relationship between OPEC and the United States, it goes without saying that the US – as the world’s largest oil producer and the largest consumer of oil – is of utmost importance to OPEC.

We estimate that the US imports around 3 million barrels a day of liquids from OPEC’s Member Countries.  And this is out of a total US consumption of almost 21 million barrels a day, and with US liquids supply expected to hit 19 mb/d in the fourth quarter.

This makes the US a vital customer and partner for our Member Countries.

Thus, it is my hope that our meetings and consultations while I am here in Washington DC, and at CERAWeek in Houston next week, will further deepen the dialogue between our Organization and the US at all levels.  Both parties have nothing to lose and everything to gain with this type of dialogue – there is much that binds us together.

In this regard, particularly given the importance of the oil industry to the US and OPEC, it is vital to broach some common challenges.

One major challenge relates to climate change, and the advancement of climate-related financial disclosures that have potential to significantly impact investment into our industry.

Today there is a picture being formed that oil and gas should be viewed as vestiges of the past.  There is a worrying and advancing belief among policymakers and regulators, investment houses, and many other stakeholders that we are an industry that does not have a future. This misrepresents market realities and is grossly misleading.

To put it simply: our industry face a crisis of perception.  It is vital we lay out the facts and do not let pressure and hype blur the pathway to a sustainable energy future for all.

Let me stress that OPEC remains fully engaged and supportive of the UNFCCC and the Paris Agreement, which remains the only viable global framework to address climate change.

As I mentioned at COP 24 in Katowice, Poland, last December, the oil industry must be part of the solution to the climate change challenge. We believe that ‘there is no Planet B.’ We are all responsible citizens of this planet.

Thus, we need to be realistic about how future energy demand growth, which according to our latest World Oil Outlook is expected to expand by a robust 33% by 2040, can be achieved in a sustainable way.  This needs to balance the needs of people in relation to their social welfare – with energy poverty still a blight on the lives of billions of people – the economy and the environment.

In some quarters, we hear stories that suggest renewables are our only energy future.  This is again clearly misguided.

Renewables are coming of age, with wind and solar, expanding fast, but even by 2040 they are only estimated to make up around 19% of the global energy mix.

Some may argue with this percentage, but it is important to note that we have not seen any reputable outlook suggesting that renewables will come anywhere close to overtaking oil and gas in the coming decades.

Let me also stress that many OPEC Member Countries have great sources of solar and wind, and significant investments are being made in these fields, just as they are in the US.

What this means in terms of oil and gas is that there is no doubt that they will remain central to supplying an expanding global population with the critical energy it needs.

In our Outlook, by 2040 oil has an expected share of around 28% in the global energy mix, and gas is at 25%.

Long-term oil demand is expected to reach nearly 112 mb/d in 2040. We see no peak oil demand for the foreseeable future. The IEA and the EIA share similar conclusions.

On top of this, we should also remember that oil producers and companies must invest heavily simply to offset the impact of natural decline rates.  The general consensus is of an annual decline rate of 5%, which suggests that the industry needs to add over 4 mb/d each year to just maintain current production levels.

This is all brought home by the scale of the investment requirements. Oil-related investments across the upstream, midstream and downstream are estimated at around $11 trillion in the period to 2040.

We also need to recall that exploration and production spending fell by an enormous 27% in both 2015 and 2016, and only increased by 8% in both 2017 and 2018.

This only adds to the worry that if our industry is concerned about policies that detrimentally impact oil and investments, with talk of stranded assets and declining values of oil; then we have a potentially dangerous scenario, one that could increase volatility significantly and lead to a future energy shortfall.

Additionally, as often noted by Bob Dudley, BP’s CEO, we need to emphasize this is not a race to renewables alone; it is a race to lower greenhouse gas emissions.

We believe that we need to constantly improve the environmental footprint of all the energies we use.

For oil and gas, the environmental challenge is not oil and gas themselves. It is the emissions that come from burning them.

In OPEC, we are firm believers that solutions can be found in technologies that reduce and ultimately eliminate these emissions.

In this regard, I welcome coordinated action within the industry, governments and through various research and development platforms, such as the Oil & Gas Climate Initiative.  It is vital that we collectively develop and adopt technologies, as well as all-inclusive energy policies, that would address carbon emissions, not crowd out investments in oil.

We need to remind all stakeholders that oil and gas is responsible for much of today’s economic growth, development and prosperity, and a long-term investment in our industry should be viewed as both prudent and profitable.

It was the late, great US President, Ronald Reagan, who said: “The future doesn't belong to the faint-hearted. It belongs to the brave.”

While the times we live in often appear turbulent and the challenges daunting, experience has repeatedly shown us that the enduring principles of cooperation and the audacity to try something new, such as the ‘Declaration of Cooperation’, can bring about some measurable success.

OPEC and non-OPEC participants in the ‘Declaration of Cooperation’ took a brave step at the end of 2016, and we fully believe that the rebalancing of the market and the focus on a sustainable stability over the past two years or so has been beneficial to the global oil industry, and to both producers and consumers.

As an industry, one that is vital to both the US and OPEC, we also need to be brave. We need to continually break down barriers; we cannot work in silos if we are going to change misconceived perceptions and make our voices heard. After all, we are all in the same boat.

We need to ensure that this vital global resource continues to fuel the world, in a secure, reliable, and ever-cleaner manner.

With that I look forward to your questions.

Thank you for your attention.