Speech by OPEC Secretary General

Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the Crescent Ideas Forum, 23 November 2020, via videoconference.

Good morning, and good afternoon.

It is an honour and pleasure to participate in today’s Crescent Ideas Forum discussion on the Energy Outlook.  I thank Majid Jafar, the CEO of Crescent Petroleum, and his team for organising this very timely event.

It is always a privilege to exchange views and compare notes with my friend and colleague, Fatih Birol, from the International Energy Agency.  I look forward to the day when we can again do so in person.

At OPEC, we are very fortunate to enjoy a strong bond of friendship and cooperation with the IEA, a bond that has grown stronger under Fatih Birol’s leadership.  Our Organizations share a commitment to improving data timeliness, quality and transparency, and to strengthening producer and consumer dialogue in pertinent areas.

Ladies and gentlemen,

Before I speak about the market outlook, allow me to highlight some of the important outcomes of yesterday’s G20 Summit.

To begin, I would like to point to the significant contributions made by the Kingdom of Saudi Arabia through its capable leadership of the G20 throughout this tumultuous year, which culminated in last weekend’s successful Summit.

As part of yesterday’s G20 outcomes, the world’s leading economies underscored the pivotal importance of a stable and uninterrupted energy supply to the recovery process, and to achieve a secure and sustainable energy future.

The G20 endorsed the Circular Carbon Economy (CCE) platform with its 4Rs (reduce, reuse, recycle and remove), recognizing the key importance and objective of reducing emissions, taking into account system efficiency and national circumstances.  The CCE is a voluntary, holistic, integrated, inclusive, practical and complementary approach to promote economic growth while enhancing environmental stewardship through managing emissions in all sectors, including – but not limited to – energy, industry, mobility and food.

We call on all parties to the UNFCCC to also endorse this game-changing toolbox.

Ladies and gentlemen,

We began this year on an optimistic note, optimistic about the global economy and healthy oil market growth.  But our 2020 vision did not foresee the devastating impact of the coronavirus, the deadly toll it has taken across the world, nor the blow it has dealt to many economic sectors, especially crude oil.

We are heartened by the promising vaccine developments, and the hope that they can quickly be brought to market to save lives, first and foremost, but also to help reboot the global economy.

Nonetheless, the oil market today is overshadowed by the resurgence of COVID-19 and a slower pace of economic recovery than we had envisioned in the second half of the year.

In this respect, our OPEC outlook for 2020 oil demand is now slightly above 90 million b/d.  This represents a sharp decline of nearly 10 million b/d from where we started the year, and almost an 11 million b/d contraction compared to what we forecast for the year back in January.

In 2021, we expect growth to bounce back to 6.2 million b/d, to just over 96 million b/d, compared to our pre-coronavirus expectations for demand reaching almost 102 million b/d next year.

The recent revisions are due to the easing pace of the economic recovery and recent COVID-19 containment measures, which are assumed to impact transportation and industrial fuel demand well into next year.

The crucial market rebalancing efforts are further complicated by high stock levels.  Preliminary data for October shows that total OECD commercial oil stocks were 208 million barrels above the latest five-year average, compared to 13 million barrels below the five-year average in January of this year.

Total global inventories have surged by more than 1 billion barrels since the beginning of this year.  These figures would have been dramatically higher – and clearly unsustainable – had it not been for the unprecedented cooperative efforts taken to address the imbalance in fundamentals and stabilize the market.

In April, we delivered an unprecedented response to an unparalleled market shock, by adjusting output down by 9.7 million b/d, or roughly 10% global demand at the time.  These efforts were spearheaded by leaders of major world oil producers and further supported by the G20, in the spirit of solidarity, at the group’s Extraordinary Energy Ministerial Meeting on April 10th.  Both Fatih and I participated in this meeting.

The DoC’s unprecedented response has already gained notice in the annals of our time.  One of the world’s leading energy writers, Daniel Yergin, encapsulates the significance of the DoC in his newest book, The New Map.  He describes the actions undertaken by the DoC in this way:

“The deal itself was historic, both for the number of participants and the sheer complexity ... Nothing like this had ever happened before in the world of oil."

In June, the DoC re-affirmed the importance of these contributions to overall market stability and full participation in the agreed adjustments.

In addition, the participating countries agreed to a fair and effective compensation mechanism for those who were unable to achieve 100% conformity in the first months of the agreement.  These provisions stand out as a remarkable acknowledgement of both the commitment by these countries to support the market, and the scale of the challenge.

There is no doubt in my mind that these decisive and proactive efforts helped put the oil market back on stable footing.  In doing so, the DoC provided much-needed support to the global economy as it began to pick up steam in the third quarter of this year.

Since May, the production adjustments undertaken by the participating countries have helped reduce the global supply by around 1.6 billion barrels, a truly impressive feat given the economic uncertainty overshadowing the industry.

I would like to stress that these efforts were undertaken not just for the good of the DoC participating countries, but in the wider interests of consumers, investors and the global economy in general.  There can be no recovery without market stability, and no one stands to benefit from volatility.

Looking further into the future, I would like to draw on the analysis and insights provided by OPEC’s 2020 World Oil Outlook – or what we call the ‘WOO’.

Published last month, our flagship annual publication provides additional context on both the short-term implications of COVID-19, as well as market prospects through 2045.

Let me say here that our WOO and the IEA’s World Energy Outlook, the latest edition of which was also published in October, supply different perspectives on energy.  But we are on the same page when it comes to our commitment to providing a better understanding of the current market, and prospects for the future.

The outlook for crude oil may look anaemic now, but we anticipate a gradual normalization of demand growth as the world recovers from the COVID-19 shock.  Our analysts foresee global oil demand returning to relatively robust annual growth and reaching nearly 104 million b/d by 2025.

In the longer term, there are a number of factors that will drive consumption, such as population and economic growth, especially in developing and emerging economies.  We expect the global economy to more than double from 2019 to 2045, to $258 trillion, and the population to grow by at least 20%, to 9.5 billion.

Simply put, our world will continue to thirst for energy.  The WOO anticipates that oil will remain the dominant fuel in the global energy mix for the foreseeable future, accounting for a nearly 28% share in 2045, followed by gas at around 25%.

It is important to point out that it is the mainstream consensus of the leading reporting agencies is that oil and gas will retain their prominence in the energy mix for the foreseeable future.

In absolute terms, we see oil demand rising by almost 10 million b/d from 2019’s levels to around 109 million b/d in 2040, and then begin to plateau.  The non-OECD will be the growth powerhouse, accounting for around 68% of overall oil demand by 2045, with the economic tigers of India and China leading this growth.

In absolute terms, we expect oil demand in the developing and emerging economies rising by 22.5 million b/d to around 74 million b/d in 2045.

Last week, the ten Association of Southeast Asian Nations members joined with China, Japan, South Korea, Australia and New Zealand in signing a trailblazing trade pact.  The participating countries account for a significant 30% of global GDP, and around 28% of the world’s population.  In terms of size, this new free trade zone surpasses those of the European Union and North America.

The pan-Asian agreement is a beacon of hope for the recovery and longer-term growth, and a model of regional cooperation and the critical importance of multilateralism.

I would next like to highlight a few points about sectoral demand.  Our outlook shows that petrochemicals and transportation will underpin crude oil demand going forward.  Electricity generation is the only area expected to see a decline as oil gives way to renewables and natural gas.

Road transportation will be the real driver of oil needs, just as it is today, and will account for 43% of total demand by 2045.  We again see the growth shift to emerging and developing economies as the use of alternative powertrains rises in the OECD countries.

Aviation fuel consumption nosedived this year, falling by almost 50%, but we expect it to recover and be a primary driver of oil demand going forward, growing by 2.8 million b/d by 2045.

On the supply side, non-OPEC liquids are likely to recover from pandemic-related shut-ins over the medium term.  Further down the road, however, non-OPEC liquids are expected to decline from a peak of nearly 72 million b/d by the end of this decade to around 65 million b/d in 2045, similar to levels in 2019.

OPEC liquids will increase from nearly 34 million b/d in 2019 to 44 million b/d in 2045.  By the end of our outlook period, OPEC Member Countries will account for 40% of global liquids supply, up from 34% last year.

Turning to the downstream, we anticipate a wave of refinery closures as new capacity comes online in the Middle East and Africa, as well as the Asia-Pacific, with crude distillation capacity expected to increase by 15.6 million b/d until 2045. 

Ladies and gentlemen,

We cannot have a meaningful conversation about the energy future without addressing the pressing global challenges of climate change and energy poverty, two of the action areas addressed at the G20 Summit this past weekend.

Let me be very clear that OPEC and its Member Countries are fully supportive of the Paris Agreement.  All 13 countries signed the Paris Agreement and nearly all have ratified it.

We also back an energy transition that draws on the strengths of all energy forms, including oil and gas, which are and will remain the workhorses of our global energy system.  

Many of our Member Countries are blessed with virtually limitless solar potential, and they are already hard at work diversifying their domestic energy mix.

A good example is the United Arab Emirates, the home base of our hosts today, which is tapping its solar potential and expanding the use of carbon capture, utilization and storage to harness the full potential of its diverse natural resources.

Another example is Saudi Arabia, which has successfully used the G20 platform to promote the Circular Carbon Economy to improve overall environmental performance.

We must not forget that there can be no fair and responsible transition without addressing energy poverty.  The coronavirus pandemic has been a rude awakening for rich and poor, but this and other public health threats add a new layer of vulnerability for the 800 million people in the world who lack access to electricity.

We cannot take a leap forward without first taking steps to significantly expand energy access.

Nor can the oil industry move forward without the adequate capital to sustain its historic leadership in innovation and production efficiency.  We will need financial firepower to grow out of the coronavirus-induced crisis, to sustain technological development and human resources, and to help provide a stable, economic and secure energy supply for the future.

For OPEC and its Member Countries, stable and timely investment is essential if we are to successfully achieve our cherished goals of economic diversification and development, and importantly, to help diverse our own energy mix.

In fact, OPEC’s World Oil Outlook shows that upstream capital expenditure could fall by more than 30% in 2020, exceeding the annual dramatic declines seen in the industry downturn of 2015 and 2016.  Looking ahead, our projections for the oil industry show that investment of around $12.6 trillion will be needed in the upstream, midstream and downstream between now and 2045.

To get there, it is very important that the policy discussions on energy and investment remain inclusive and supportive of a diverse portfolio of energy options.

Despite the challenges that exist today, we at OPEC are as committed as ever to investments that that strengthen the oil industry’s resilience and capacity to meet the world’s demand needs over the long term.

Only yesterday, the UAE announced visionary plans to invest around $122 billion in its oil industry over the next five years.  This is a powerful example of how a leading oil-producing nation is looking at the road ahead, fully focused on its continued leadership in exploration, technological advancement and environmental innovation.

In closing, I would like to share with you a brief video we prepared to help recap some of the findings of the WOO.

Before doing so, allow me to again thank Majid Jafar and the Crescent Ideas Forum for organizing this discussion about the energy outlook at such our critical juncture in the industry’s history, and indeed for all humankind.

I look forward to your questions, and to hearing from Fatih Birol.