'OPEC's View on the Global Energy Scene'

An Energy Debate with OPEC Secretary General, HE Abdalla Salem El-Badri. The event was organized by the German Council on Foreign Relations and Wintershall Holding GmBH, Berlin, Germany, 28 September 2012

[Slide 1]
Ladies and gentlemen,

I would like to thank Wintershall for the invitation to speak to you. It is a pleasure to be here today.

The title of my talk is 'OPEC's View on the Global Energy Scene'. Given that energy is such an important, as well as complex issue, there is obviously much we can cover. I will begin, however, by underscoring the importance of energy to our future, just as it has been to our past.

[Slide 2]
Energy has been central to a great deal of humanity's progress over the centuries. It has positively impacted the lives of billions. And energy will be just as important to our future economic and social progress. It is easy to understand why.

Firstly, world population is expected to reach more than 8.6 billion by 2035, an increase of over 1.6 billion from today's level. To put this into perspective, the world will add more than a combined India and the United States to its population in just over 20 years.

Secondly, the global economy will rebound in the longer term. Of course, I cannot stand here and say the current economic outlook is rosy. But as we have learned from the past, downturns do not go on forever.

And thirdly, with around three billion people living on less than two dollars 50 cents per day, 1.4 billion people having no access to electricity and some 2.7 billion relying on biomass for their basic needs, there is huge potential for socio-economic development.

This latter point also highlights the fact that unfortunately today, billions of people continue to suffer from energy poverty. Let me stress; it is vital that every single one of us in the world has access to modern energy services.

[Slide 3]
What all this underlines is that world energy demand is set to grow. In OPEC's most recent World Oil Outlook, world energy demand in 2035 is expected to be more than 50% higher than it was in 2010.

In a nutshell, this is the industry's key challenge; and not only for producers and investors, but consumers too.

To meet this challenge, we need a stable and predictable market. We need to focus on the efficient and sustainable development of all energies. We need to appreciate just what each energy source can offer to this future. And we need to allow producers and investors to make sure future energy demand can be met.

In OPEC's World Oil Outlook 2011, all energies witness growth, although overall shares shift over time.

Fossil fuels - which currently account for 87% of the world's energy supply - will still contribute 82% by 2035. Oil will retain the largest share for most of the period to 2035, although its overall share falls from 34% to 28%. It will remain central to growth in many areas of the global economy, especially the transportation sector. Coal's share remains similar to today, at around 29%, whereas gas increases from 23% to 25%.

In terms of non-fossil fuels, renewable energy grows fast. But as it starts from a low base, its share will still be only 3% by 2035. Hydropower will increase only a little, to 3% by 2035. Nuclear power will also witness some expansion, although prospects have been affected by events in Fukushima. It is seen as having only a 6% share in 2035.

Some may ask, can we meet this demand? I have no doubt that we can.

At this point, given that I am here representing OPEC, allow me to focus specifically on the oil industry.

[Slide 4]
In OPEC's World Oil Outlook 2011, demand for oil is expected to increase by close to 23 million barrels a day over the period 2010-2035, reaching almost 110 million barrels a day by 2035. This is driven mainly by developing Asia, which is home to 80% of the oil demand growth over this period. In contrast, the OECD region actually witnesses a fall.

To meet this oil demand growth, resources are clearly sufficient. Improved technology and enhanced recovery have over the years increased the resource base to levels well above past expectations. And today we are seeing significant new resources and supplies.

Recent estimates from the US Geological Survey of ultimately recoverable resources are around 3,500 billion barrels. To put this into some context, cumulative oil production has been less than a third of this.

Moreover, we can expect further advances to extend the reach of the industry - helping to reduce costs, unlock additional resources and increase supplies.

So when some people talk about peak oil, let me say, it will not be any time soon. Of course, one day it will come, but that day is certainly not yet.

To push this day further and further into the future we need to continually develop technologies in all spheres of the oil industry, and employ high-calibre people to utilize these to explore for oil in new frontier areas, which are often in remoter, harsher and deeper locations. Above all, however, you need management who has the guts to take risks, because this is the name of the game in the oil industry.

Speaking of guts; let me say a few words about Wintershall and its operations in my home country, Libya.

Wintershall has had a local exploration and production presence in Libya since 1958, but until the 1980s it was only a very small producer in the country. Most people at that time knew little of the company's operations, but in the late 1980s and early 1990s the company's management changed its thinking and policy. They decided to take some risks, and invest considerable resources into new exploration and developments. It proved to be a successful decision as it led to significant new discoveries and production. As of 2011, the company had drilled over 150 wells and become one of the largest oil producers in the country.

It is an example of how investment can yield significant new resources and supply, and position a company as a significant producer.

[Slide 5]
Of course, this type of risk taking only tells part of the story. We need to remember that all investments require certain conditions. These obviously vary, but in general the focus for producers is on stability. 

At the heart of this is security of demand. This is just as important to producers, as security of supply is to consumers. Energy security should be viewed as a full circle.

For producers, it is critical to have a better understanding of demand side developments, particularly policies that discriminate against oil. If not, it can lead to investment uncertainty, and in turn, future market instability.

To put it simply: producers do not want to waste precious financial resources on infrastructure that might not be needed. At the same time, however, if timely and adequate investments are not made, then future consumer needs might not be met.

This is brought home when looking at the investments OPEC Member Countries are making today. For the five-year period 2012-2016, there are currently 116 upstream projects in OPEC's portfolio. Should all projects be realized, this could translate into an investment figure of close to $280 billion. These are major investments; none of which our Member Countries want to see as wasted.

There are, of course, many other challenges and uncertainties too.

[Slide 6]
Evidently the one most talked about today is the global economy.

The Euro-zone continues to struggle with such issues as sovereign debt, the banking crisis and high unemployment. The Euro-zone's economy is expected to contract this year.

The US is one of the more resilient developed economies, but the most recent indicators offer a somewhat mixed picture.

In China, while economic growth remains around 8%, recent data suggests the economy has slowed. However, it is unclear whether this is a long-term trend, or just a short-term issue.

And in developing countries, in general, there are concerns as to whether problems in the OECD will spill over into their economies, particularly in terms of reduced demand for their exports.

There is also the human resource challenge, the importance of which I have already touched upon. Looking ahead, the industry needs to make sure it is attractive to prospective graduates, keep talented people and transfer knowledge to the next generation. They will be the ones that push the industry's boundaries in the years ahead.

There is also the challenge of protecting the environment, both locally and globally.

In this regard, it will be essential to promote the early development and deployment of cleaner energy technologies. And given the continuing dominance of fossil fuels in the energy mix, we need to look at options that allow the continued use of fossil fuels in a carbon-constrained world. In this regard, Carbon Capture & Storage is a proven one that can be cost effective, and has the potential to contribute significantly to emissions reductions.

[Slide 7]
Before I finish, I feel it is appropriate to provide a little background on the current oil market.

For this year 2012, OPEC forecasts world demand to grow by 900,000 b/d. In 2013, growth is 800,000 b/d. Non-OPEC supply is expected to increase by 700,000 b/d this year, and 900,000 b/d next. And demand for OPEC crude in 2012 is projected to average 29.9 mb/d, and 29.5 mb/d in 2013.

In addition, OPEC spare capacity remains at relatively comfortable levels and total commercial stock levels are healthy.

It is clear the market is currently well-supplied. Supply and demand fundamentals point to a stable market. We see no shortages.

As I have already highlighted, however, the global economic situation remains a major uncertainty in these short-term forecasts.

From a price perspective, while there have been both ups and downs in 2012, this volatility has not been because of market fundamentals. Speculation has been behind much of the price volatility.

[Slide 8]
To conclude, when looking to the future we need clarity to understand each other's viewpoints. We need to develop a common understanding and positive dialogue. And we need to find the right balance in handling the uncertainties and challenges before us in a manner that allows us to achieve the overall objectives of energy for economic growth and social progress.

This is true for producers and consumers; NOCs, IOCs and service companies; in fact, all stakeholders.

A committed, cooperative and coordinated approach aimed at fostering market stability in both the short- and long-term is something OPEC places much value on.

[Slide 9]
Thank you for your attention.

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