OPEC and non-OPEC

Delivered by Dr. Maizar Rahman, Acting for the Secretary General of OPEC, on behalf of the Secretary General, HE Dr Purnomo Yusgiantoro, President of the OPEC Conference and Minister of Energy and Mineral Resources of Indonesia. The 9th Annual Asia Oil and Gas Conference: “Asia Oil and Gas: Rising to New Challenges” Kuala Lumpur, Malaysia - 13–15 June 2004

World oil demand is forecast to continue growing, to almost 50 per cent above the 2002 level in 2025. Asia has the fastest demand growth and will benefit increasingly from oil coming from outside the region. There are enough oil reserves, especially in OPEC, to meet rising world demand for decades ahead. The long-term picture points to the need for increased investment in production capacity, but the magnitude of this is very uncertain, with a wide range of feasible demand growth scenarios. Market stability is key to a sound base for investment. Dialogue and cooperation among producers — OPEC and non-OPEC — and consumers are required to ensure that the world’s rising demand is met in a full, timely and stable manner.

Excellencies, ladies and gentlemen,

Let me begin by thanking the organiser, Petronas, for inviting me to be a panel member at this plenary session on OPEC and non-OPEC.

It is essential for all producers — OPEC and non-OPEC — to play their part to the full in ensuring that the world’s growing thirst for oil is always met in a complete and timely manner. This involves a readiness to enter into dialogue and cooperation at all times on important major issues affecting the industry, both now and in the future.

It is widely forecast that there will be a substantial rise in world oil demand in the coming years. However, the industry has the resource base to meet this demand.

Projections from OPEC’s World Energy Model see world oil demand rising from 77 million barrels a day in 2002 to 115 mb/d in 2025 — an annual average growth rate of 1.7 per cent.

The fastest growth will occur in Asia (in this analysis, Asia excludes the Middle East and OECD countries). Our figures show annual average growth of 3.1 per cent in South-East Asia, 4.4 per cent in China and an exceptional 5.5 per cent in South Asia during this period.

However, this rapid growth in Asia and China is not matched by production. On the contrary, oil production in Asia, including China, actually falls, marginally, from 5.7 mb/d in 2002 to 5.6 mb/d in 2025. Asia, therefore, will benefit increasingly from supplies from outside the region.

Our projections show an 18 per cent rise in world oil output from non-OPEC countries in 2002–25, mainly from Russia, the Caspian and Africa. But this is still around 30 percentage points less than the projected growth in demand. Therefore, there will be a substantial rise in the call on OPEC oil in the opening decades of the 21st century. We see this doubling, from 29 mb/d in 2002 to 58 mb/d in 2025.

Our Member Countries have sufficient reserves to cope with the rising demand. Our proven crude oil reserves total nearly 850 billion barrels, which is almost 80 per cent of the world total, and these should be sufficient to see us well into the second half of the 21st century. What is more, OPEC’s reserves are low-cost and highly accessible.

There is, therefore, a considerable challenge facing oil producers — OPEC and non-OPEC — to ensure that the oil requirement is constantly satisfied in a full and timely manner.

Fortunately, much progress has been made in recent years in the area of dialogue and cooperation among producers and this has resulted in a very welcome, steadily growing sense of collective responsibility for the state of the market. The benefits of this can be felt throughout the industry, not only upstream, but also downstream, including transportation and distribution. Indeed, it has become widely acknowledged that the downstream industry should feature prominently in our assessments both now and in the future, so as to avoid it becoming a source of price volatility.

Nevertheless, some shortcomings remain with the present environment for cooperation. For example, there is an element of crisis management about the willingness of some parties to cooperate with OPEC over its market-stabilisation measures, when, in fact, there should also be a “sunny day” element, so that this very welcome and very necessary support remains even when the market is stable. This is because the market can quickly slip from stable to unstable, as we all know, and the stronger the sustained defence mechanisms, then the more effective we will be in handling such situations.

The increased cooperation among OPEC and non-OPEC producers has been accompanied by important advances in producer-consumer dialogue since the early 1990s. This has found special expression in the meetings of the International Energy Forum, which has become an established institution during this period, with its secretariat situated in an OPEC Member Country, Saudi Arabia.

There has also been the development of a closer working relationship between OPEC and the International Energy Agency, to exchange ideas and information. Last year, informal discussions between our two organisations helped stabilise the market at the time of the Iraq war. And, two months ago, we held our Second Joint Workshop on Oil Investment Prospects in Paris. At that workshop, one of the clear messages to emerge was that the starting-point for a sound investment strategy is market order and stability today. This vindicates longstanding OPEC’s market-stabilisation measures and the support they have received from many non-OPEC producers. The state of today’s market will have an influence upon the state of tomorrow’s market. Stability today is conducive to stability tomorrow.

However, in contrast with this requirement, considerable difficulty is created by the large areas of uncertainty that exist today. These are associated with, for example, future levels of oil demand, policy developments and technological advances. Clearly, their existence impedes efforts to make reasonable forecasts about the future oil requirement, especially in view of the long lead times that exist in the industry.

Countering these uncertainties can only be done effectively by a collective approach from within the industry, since the challenges are too large, too complex and too important to be left to partial interests. This requires transparency, consultation, meticulous planning and careful scheduling by all parties.

However, all producers stand to gain from cooperation, on all time-horizons. But there must be reasonable burden-sharing among them. Also, the large oil companies, financial institutions and other intermediary bodies are an integral part of this process and their views and expertise make a major contribution to dialogue and the running of the industry.

Effective dialogue and cooperation among all the major parties are of particular importance during the present period of high oil prices, which are occurring in spite of the the market remaining well-supplied with crude at all times and despite the continued efforts of our Member Countries to meet market requirements. A variety of factors is at work here, including: higher-than-expected oil demand growth, especially in China and the USA; geopolitical tensions; refining and distribution industry bottlenecks in some major consuming regions; and, as a consequence of this combination of factors, increased speculation in futures markets. At our Conference in Beirut on 3 June, we decided to give a clear signal of our commitment to market stability and to maintaining prices at acceptable levels for both producers and consumers, by raising the OPEC production ceiling by 2.5 mb/d, in a two-stage move to be completed by 1 August. At the same time, we, once again, called on all other parties, including non-OPEC producers and consumers, to support our actions and to take appropriate measures to address the challenges facing the industry. Excellencies, ladies and gentlemen,

Let me conclude with one general comment. The world cannot afford to behave irresponsibly and squander its finite petroleum reserves. OPEC and non-OPEC producers are, in effect, custodians of these God-given minerals and we have a duty to ensure that they are exploited in a responsible manner, to the benefit of the global community, today and in the years ahead. We are doing everything we can, in OPEC, to abide by this mandate.