“Mapping the Future Energy Scene”

Speech by OPEC Secretary General, HE Abdalla Salem El-Badri, to the 4th OPEC International Seminar, Hofburg Palace, Vienna, Austria, 18 March 2009

Thank you Mr Chairman.

Excellencies, ladies and gentlemen,

In looking at the theme of this session – “Mapping the Future Energy Scene” – I feel it is important to begin with what has today become the world’s overriding concern: the global financial and economic crisis.

It is clear that its implications have moved far beyond the countries where the crisis originated. And of course for the oil market, there are ever more worries about the impact the crisis may have on the medium- to long-term outlook.

We need to appreciate that mapping the energy future means linking the short-, medium- and long-terms; they cannot be treated in isolation. And in this regard, we need to learn from the past and ask ourselves, how have previous crises impacted the industry?

Thinking back to the 1990s, there were downturns in a number of OECD countries at the start of the period, and towards the end of the decade many of us were impacted by the fallout from the Asian financial crisis.

It led to weak oil prices, and an actual price collapse in 1998 and early 1999. It meant that through much of the decade the industry was deprived of the required amounts of capital to invest adequately for the future.

In turn, the downsizing and cost-cutting strategies that occurred left the industry short of essential skills and with an ageing workforce, as well as significantly reduced budgets for research and development into new technologies.

We can all appreciate that these developments have impacted the industry in the years since.

And it is obvious that what occurred in the 1990s is similar to what is happening today.

The question is: do we follow a similar path in dealing with the current crisis, with delays and cancellation in investment, layoffs, and little or no research and development? Or do we look to follow an alternative route, with solutions that look beyond the near-term?

I hope that everyone here today agrees that we should be looking at the latter. It is essential that we all recognize the importance of developing a sustainable energy future.

To do so, we need to look at all the core issues, such as the reasons behind the current crisis; oil prices; supply and demand; projects on the table; the investments; the costs; human resources; technology; the environmental challenges; and, policy targets.

Allow me to provide you with some additional comments – in no particular order – on a number of these issues.

Firstly, it is clear that confidence has to be restored and the world economy put back on track.

It means, looking at where the crisis originated, namely the banking sector, and taking the necessary measures to quickly restore confidence. Thereafter, the needed regulations must be put in place to make sure it never happens again. The focus should be on reining in financial speculation, everywhere, and in a coordinated manner.

Secondly, there is the oil price and investments.

For a few months last year, oil prices were certainly extreme. I should add, however, that these were not an indication of a shortage of oil. The market was well-supplied with crude and stock levels were high.

It was caused mainly by speculative investments flowing in and out of the futures markets. There was a total disconnect between these markets and the actual physical one.

Today’s low prices are moving to the other extreme. The dramatic fall that has taken place since the crisis took a hold globally is now seriously threatening the long-term stability of the oil market.

At present, oil prices are not at the levels needed to support the industry’s expansion. And the situation is particularly acute given the fact that construction costs relative to oil prices are still very much on the high side. This has been acknowledged by a broad consensus of stakeholders.

Thus, current prices threaten the very sustainability of planned industry-wide investments. We have all heard of project cutbacks, delays and cancelations. It is putting future crude supply at risk.

And this is not just an oil industry issue. It impacts the broad energy spectrum. Each energy source, each technology, and each project, has a price when it is viable; and a price when it is not.

It is essential to find and sustain a stable and realistic price. We need only recall the past, to see how low oil prices can damage the industry’s future.

Thirdly, we have the human resource.

The past has shown us that it is critical to maintain and advance the adequacy of the industry’s skills base, even during an economic downturn.

This is because the world economy will return to growth. We all know this. And with energy being the “backbone” of the global economy, it points to increasing energy demand.

Then, there is technology.

Advancements in technology have helped expand production, improved recovery rates and at the same time facilitated a continuing increase in the estimates of global ultimately recoverable reserves. In fact, USGS estimates of ultimately recoverable reserves have practically doubled since the early 1980s and continue to rise.

It is essential that the research, development and deployment of technology continues, so that the industry can continue to develop, produce, transport, refine and deliver oil to end-users in an ever more efficient, timely, sustainable and economic manner.

This includes the early development and deployment of cleaner technologies. For example, Carbon Capture & Storage (CCS), is a proven technology that can be cost effective, and has the potential to contribute significantly to reducing emissions.

It may not be easy in the current climate, but we need to recognize that crises come and go. Yes, we all want to see the global economy back on its feet as quickly as possible, but we need to make sure that it is sustainable.

For the energy industry, this means not losing sight of the long-term, as in all scenarios mapped by the OPEC Secretariat, and other energy research institutions, future energy use is set to significantly rise. In OPEC’s World Oil Outlook (WOO) 2008 reference case, it increases 50 per cent by 2030.

And realistically, fossil fuels will continue to satisfy most of the world’s energy needs, contributing more than 80 per cent to the global energy mix over this period. Of all fuel types, oil will continue to play the leading role, although its share will be slightly lower in 2030.

In short; it means major investments will be required, significant numbers of personnel will need to be recruited and trained, and considerable advancements in technology will be necessary.

However, with such big, costly and lengthy undertakings in mind, the market needs to find a balance. And in this regard, perhaps the key issue at present is the importance of sustaining a stable and realistic price that supports all the elements of security of supply and security of demand.

This sits at the heart of all the issues I have touched up on today. It is essential this is addressed.

The overall goal is to provide a stable setting in which investments and expansion flourish, economies witness stable growth, and where better access to modern energy services help make energy poverty a thing of the past.

It is a challenge for us all. We share a common interest in energy market stability when mapping the energy future.

All this points to being inclusive. And I would like to say to you all here today to look at solutions and ways forward over all the various timeframes – ones that learn from the past; and ones that benefit us all. This will be essential for the industry’s healthy evolution in the years ahead.

And with that I wish you an enjoyable and successful OPEC Seminar.

Thank you for your attention.