Third OPEC International Seminar Hofburg Palace, Vienna, 12-13 September 2006 Energy outlook: Challenges and opportunities for OPEC Mohammed Barkindo Acting for the Secretary General, OPEC 1
Oil and non-energy price behaviour 100 90 80 70 60 50 40 30 20 Nominal ($/b) Real ($/b base August 2006) The real price is still well below historical highs 10 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 500 400 OPEC Basket Lead Gold Copper Nickel Non-energy commodity prices have also risen 300 200 100 0 2001 2002 2003 2004 2005 2006 2
What has been behind the recent oil price movements? Current high stock levels would normally point to falling prices Convergence of factors: Strong economic growth Slowdown in expansion of non-opec supply Dwindling levels of spare capacity Tightness in refining sector Speculation Perceived and real impacts of: Natural disasters Geopolitical concerns 3
Strong growth in paper-oil markets,000 Contracts 1200 1100 1000 900 800 700 600 NYMEX Open Interest WTI $/b 80 70 60 50 40 30 20 500 2004 2005 2006 10 Speculation is an additional source of price volatility 4
Changing dynamics of demand Geographic shift in growth patterns Resilient economic and oil demand growth in the face of higher oil prices: More efficient use of oil Rising wealth Switching away from oil has already largely taken place where viable Importance of trade to developing countries Need to resume Doha Round negotiations 5
Changing dynamics of supply The resource base debate Technological developments Future relative role of OPEC and non-opec supply Expanding role of National Oil Companies Protection of the environment Possible role of alternatives Tightness in the downstream sector Cost issues: infrastructure, skilled labour 6
Conventional liquid resource base is sufficient 3500 3000 USGS estimates of remaining resources 2500 Cumulative production billion barrels 2000 1500 1000 500 0 1984 1987 1991 1994 2000 7
Alternative fuels OPEC acknowledges that alternatives have a role to play But it will be decades before alternatives have a significant share of global energy mix Biofuels receiving attention, but there are many drawbacks: Biofuels provide only one per cent of the world s liquid transport fuels Expensive, unsustainable fiscal incentives and short-sighted policy initiatives Energy balance debatable Replacing food production with biofuels can mean a significant increase in food prices 8
Cleaner oil and gas technology Key question: How to make increased fossil fuel use consistent with the third pillar of sustainable development: protection of the environment Huge progress made in improving air quality Carbon capture and storage (CCS) is a promising technology to address climate change concerns Industrialised countries should take the lead in this area by promoting large-scale demonstration projects OPEC commitment demonstrated through: IEA Greenhouse Gas R&D Programme EU-OPEC Roundtable on CCS CDM conference in Riyadh, Saudi Arabia 9
The downstream is also important mb/d 16 12 8 Total investment needs to 2015: $310 billion (2005 prices) Investment gap: $100 billion? Range of additional required crude runs 4 Current expectations for distillation capacity expansion 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 10
Infrastructure and human resource constraints Cost inflation along the entire oil and gas chain Upstream costs have increased by 50 per cent since 2003 Rig rates and the costs of steel and other raw materials are shifting significantly upwards Petroleum industry worldwide is suffering from a serious shortage of skilled labour for engineering, procurement, construction and operations During 2005 wages alone increased by about 15% Significant fall in petroleum engineering enrollment Efforts required to facilitate education and training Easier enrollment in universities across national borders 11
Long-term oil demand and supply outlook Reference case (mb/d) 2005 2010 2015 2020 2025 World demand 83.2 90.7 98.0 105.6 113.1 Non-OPEC supply 50.1 55.8 58.3 59.4 58.9 OPEC supply* 33.1 34.9 39.7 46.2 54.3 * incl. NGLs 12
OPEC crude capacity continues to expand 40 38 36 34 32 mb/d 30 28 26 24 22 20 2006 2007 2008 2009 2010 13
Cumulative investment in OPEC: three scenarios 500 450 400 Uncertain future demand translates into a broad range of possible OPEC investment needs 350 $(2005) billion 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 14
The way forward OPEC better understood The challenges and opportunities need to be addressed collectively OPEC very much believes in enhanced dialogue and communication However, extreme poverty, still widely plaguing the world, needs to be urgently addressed 15 th Session of UNCSD is of key significance 15
www.opec.org 16