1 Organization of the Petroleum Exporting Countries OPEC: Vision, Mission and Development World Oil Outlook to 2025 Dr Maizar Rahman Indonesian Governor for OPEC Acting for the Secretary General Indonesian National Committee, World Energy Council Jakarta, Indonesia 29 July 2004
2 OPEC Member Countries Islamic Republic of Iran 1960 Iraq 1960 Kuwait 1960 Saudi Arabia 1960 Venezuela 1960 Qatar 1961 Indonesia 1962 Socialist People s Libyan Arab Jamahiriya 1962 United Arab Emirates 1967 Algeria 1969 Nigeria 1971
3 OPEC Statute The Organization shall devise ways and means of ensuring the stabilisation of (oil) prices in international markets, with a view to eliminating harmful and unnecessary fluctuations Due regard shall be given at all times to the interests of the producing nations and to the necessity of securing: a steady income to the producing countries; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on their capital to those investing in the petroleum industry
4 OPEC s landmark declarations Declaratory Statement of Petroleum Policy in Member Countries Vienna, 1968 Inalienable right, as expressed by the UN, of all countries to exercise permanent sovereignty over their natural resources in the interests of their national development Conference of Sovereigns and Heads of State of OPEC Member Countries (First Summit) Algiers, 1975 First Solemn Declaration. Led to establishment of: OPEC Fund for International Development US $7.0 billion committed* US $4.7 billion disbursed* *Since 1976 Second Summit of Heads of State and Government of OPEC Member Countries Caracas, 2000 Second Solemn Declaration
5 OPEC s development 1960 Five Founder Members OPEC formed to safeguard legitimate national interests, when petroleum industry dominated by established industrial powers Intervening years New Members OPEC faced formidable challenges, impacting across spread of pricing spectrum and compounded by factors far removed from simple market economics Today Vast experience of petroleum issues Acute awareness of realities and sensitivities of performing on world stage Production agreements make major contribution to market stability
6 Cooperation within OPEC OPEC founded on premise of cooperation The principal aim of the Organization shall be the unification of petroleum policies for the Member Countries and the determination of the best means for safeguarding the interests of Member Countries, individually and collectively
7 OPEC/non-OPEC cooperation Big advances since mid-1980s Support for OPEC s market-stabilisation measures Many other benefits for oil industry
8 Producer-consumer dialogue Big advances since 1990 International Energy Forum OPEC s prominent role in development Saudi Arabia hosts 7th Forum Secretariat in Riyadh OPEC Member of Executive Board Joint Oil Data Initiative International Energy Agency Closer working relationship between OPEC and IEA First joint press conference in 2002 Two Joint Workshops on Investment Informal discussions calmed oil market in early 2003
9 Cooperation will better prepare the industry to meet the challenges that lie before it in the early 21st century
10 Today s oil market OPEC concerned about high oil prices Market well-supplied with crude, but higher-than-expected demand geopolitical tensions downstream bottlenecks speculation OPEC seeking to restore order and stability 2-stage OPEC-10 output ceiling rise 25.5 mb/d from 1 July 26.0 mb/d from 1 August Support needed from non-opec and other parties
11 G-7 Economic Growth Rates (Y-o-Y % change) 6 4 USA JAPAN GERMANY G7 2 0-2 -4 World economic growth rates (%): 2001 2.4 2002 2.8 2003 3.8 2004 4.8 2005 4.3 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05
12 Regional economic growth rates (percentage change from previous year) Revisions Estimate Forecast from Jun '04* 2001 2002 2003 2004 2005 2003 2004 OECD 1.0 1.7 2.2 3.5 3.0 0.0 0.0 N.America 0.6 2.2 2.9 4.3 3.6 0.0-0.1 Europe 1.4 1.3 1.2 2.4 2.5 0.0 0.0 Pacific 1.2 1.2 2.8 4.2 2.7 0.0 0.0 Japan 0.4-0.3 2.7 4.0 2.0 0.0 0.2 DCs 2.7 2.7 4.4 5.3 5.1-0.1 0.1 OPEC 2.7 2.4 3.2 5.4 5.2-0.3 0.3 China 7.5 8.0 9.1 8.8 7.7 0.0 0.0 Russia 5.1 4.7 7.3 7.0 5.7 0.0 0.0 World 2.4 2.8 3.8 4.8 4.3 0.0 0.0 Source: OPEC Secretariat */ As presented to the 131 st (Extraordinary) Conference in June, 2004.
13 Range of quarterly oil demand estimations (year-on on-year change, mb/d) 5 4 5 4 OPEC Max Min Mean (exc. OPEC) 3 3 2 1 2 1 2.1 1.7 0 0 1q04 2q04 3q04 4q04 1q05 2q05 3q05 4q05 1q04 2q04 3q04 4q04 1q05 2q05 3q05 4q05
14 Regional oil demand growth (year-on on-year change, mb/d) 3.0 2.4 Others Asia Total 3.0 2.4 1.8 1.8 1.2 1.2 0.6 0.94 0.76 0.95 0.96 0.90 0.98 0.70 0.6 0.0 0.0-0.6-0.6-1.2 94 95 96 97 98 99 00 01 02 03 04 05-1.2
15 Growth in global oil demand and non-opec supply in 2005 mb/d 3 2 Range of forecasts Mean (exc. OPEC) OPEC 3 2 1 1 0 0-1 Demand Non-OPEC Supply Demand - Non-OPEC Supply -1
16 World oil demand & supply balance (adjusted) (mb/d) 2003 1Q04 2Q04 3Q04 4Q04 2004 04/03 2005 05/04 Demand (a) 78.8 81.0 79.0 80.6 82.9 80.9 2.1 82.6 1.7 Supply 79.3 81.7 81.9 Non-OPEC (b) 48.7 49.7 49.6 49.9 50.9 50.0 1.4 51.2 1.2 OPEC NGL (c) 3.7 3.9 3.9 3.8 3.8 3.9 0.2 4.0 0.1 OPEC Crude oil 27.0 28.1 28.4 a-(b+c) 26.4 27.4 25.5 26.9 28.2 27.0 0.6 27.4 Balance 0.5 0.7 2.9 Seasonal stock chg (1999-2003) -0.5 1.0 0.3-0.6
17 OPEC production versus capacity mb/d 34 32 30 28 Capacity Production 26 24 */ 2004 production reflects the 1 st half '04, while the ranges for '04 & '05 are based on required OPEC crude production for the balance from the survey of forecasts. 1998 1999 2000 2001 2002 2003 2004* 2005*
18 70 60 50 40 30 20 10 0 Real oil price assumption, $(2003)/b 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
19 Underlying assumptions: Oil Outlook to 2025 Prices: initial years see the OPEC basket price at $ 25/b, long-term real oil price $20/b (2003 prices). Imply fundamental perceptions: sufficient oil resources sustainable price level (does not generate boom-bust supply cycles) sufficient to mobilise necessary resources would be supportive of the prospects for robust economic growth (both for producers & consumers) GDP growth rates: average world economic growth of 3.6% pa over the period 2003-2025, uncertainties over OECD productivity growth and the Chinese economy.
20 Average annual real GDP growth rates (PPP), % pa Reference 2003-05 2006-10 2011-15 2016-20 2021-25 2003-25 OECD 2.6 2.6 2.5 2.4 2.3 2.5 DCs 5.6 5.3 5.1 4.9 4.5 5.0 China 8.0 6.8 6.4 6.0 5.5 6.4 FSU 5.2 3.8 3.4 3.2 3.0 3.6 World 3.9 3.8 3.7 3.6 3.4 3.6 Average growth in the OECD economies of 2.5% pa over the period 2003 2025 For developing countries, with low capital stock bases and considerable technological catch-up potential, GDP growth rates are expected to be higher, but large uncertainties exist China is a significant uncertainty but expected to remain fastest growing region Developing countries expand at an average 5% pa Economies in transition have considerable scope for productivity catch-up Thus, economic growth in the reference case is relatively optimistic regarding the long-term health of the world economy
21 World oil demand outlook in the reference case million barrels a day 2002 2010 2020 2025 OECD 47.7 51.2 54.5 55.8 DCs 24.7 32.3 45.3 52.5 Transition economies 4.5 5.3 6.0 6.3 World 77.0 88.7 105.8 114.6
22 Growth in oil demand 2002-25 million barrels a day DCs incl. China OECD Transition economies 0 5 10 15 20 25 30
23 Annual global growth in oil demand by sector million barrels of oil equivalent a day 1 0.8 0.6 0.4 0.2 0-0.2-0.4-0.6 Transport HH/Comm Industry Elec. Gen. 1971-1980 1980-1990 1990-2000 2000-2010 2010-2025
24 World oil production outlook in the reference case million barrels a day 2002 2010 2020 2025 Non-OPEC 47.8 54.6 56.9 56.3 OPEC (incl. NGLs) 29.2 34.1 48.9 58.3 World 77.0 88.7 105.8 114.6 OPEC market share % 37.9 38.4 46.2 50.9
25 OPEC and non-opec oil production million barrels a day 70 60 History Projection non-opec 50 mb/d 40 30 OPEC non- OECD 20 10 OECD 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
26 More investment in production capacity needed: to meet forecast rise in demand to replace exhausted reserves to cover sudden, unexpected shortages
27 Uncertainties over future economic growth, government policies and technological progress raise questions over scale of investment
28 Cumulative OPEC investment requirements: how much is needed to provide market stability? 450 400 350 If OPEC balances the market, the uncertain volume requirements translate into huge ranges of anticipated capital outlay needs $258-382 billion $(2003) billion 300 250 200 150 Already by 2010 an estimated gap of $25 billion exists between the reference case and the low economic growth case This a central concern: where lies the onus of maintaining sufficient spare capacity? Reference Low economic growth 100 50 $70-95 billion $122-173 billion 0 2000 2005 2010 2015 2020 2025
29 Estimated annual upstream investment requirements 2000-2025, $bn (2003) 2005-2010 2010-2015 2015-2020 2020-2025 100 90 80 70 60 50 40 30 20 10 0 OPEC non-opec World
30 Starting-point for sound investment strategy is market order and stability today, with reasonable, predictable prices
31 Collective responsibility OPEC s agreement are necessary for healthy market present and future Non-OPEC must actively support OPEC s measures All parties benefit from cooperation
32 World s oil resource base sufficient to meet forecast rise in demand in early 21st century Increasing reliance upon OPEC oil OPEC committed to meeting demand in orderly manner stable markets reasonable prices steady revenues secure supply fair returns for investors
33
34 BACK UP SLIDES
35 Commercial oil stock levels in the USA week-ending, mb Crude Oil Products 370 Min-Max range: '94-'03 800 Min-Max range: '94-'03 340 740 Avg. 99-03 310 Avg. 99-03 680 2004 2003 280 2004 620 2003 250 J F M A M J J S O N D 560 J F M A M J J S O N D
36 Comparisons of world oil balance: supply demand, (mb/d) 4 4 3 3 2 2 1 1 0 0-1 -2 Min-Max range Mean (exc. OPEC) OPEC uncertainty range 1q04 2q04 3q04 4q04-1 -2