It is always a great pleasure to return to Kuwait, my second home, a founding member of OPEC, and a country that is fondly called jewel of the Gulf.
On behalf of the OPEC family, I would like to thank our esteemed Emir, His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah for his personal and active engagement in the ‘Declaration of Cooperation’, not only in reaching out to other Heads of State during the initial consultations, but in the implementation process too. His exemplary leadership and unparalleled wise guidance has been a key part of the success we have achieved.
HE Al-Rashidi, Kuwait’s Minister of Oil and Minister of Electricity and Water, a true friend and advocate of OPEC, extended to me a personal invitation to speak here today. I greatly appreciate the gesture and I am delighted to speak at the 5th Kuwait Oil & Gas Show (KOGS).
Given that this event is organized by CWC, I also feel it is apt to say a few words about a great man, Dr. Alirio Parra, who sadly recently passed away.
He was an OPEC and oil industry legend, having been involved in the setting up of the Organization and for a number of years he was Venezuela’s Minister of Mines and Hydrocarbons. And in more recent times, he served as a Member of the Board of CWC, helping put on industry exhibitions and conferences around the world, such as this one here today.
He was a proud son of Venezuela, a citizen of the world, a scholar, a real oil man, and above all, a great friend. He will be greatly missed by all of us in OPEC and the industry.
Excellencies, ladies and gentlemen,
The overall theme of this conference is – ‘New Energy Era: Transformation, Diversification and Integration’. I am sure there will be many ideas, concepts and views shared on this topic over the next couple of days, but please allow me to initially offer some from OPEC’s perspective as a means to help set the scene for the sessions to come.
There has been much talk of a ‘new energy era’, or what some might term an ‘energy transition’ at recent events I have attended, including last week’s 16th International Energy Forum Ministerial in New Delhi.
It begs the question: what does this actually mean?
I think one thing that all of us can agree on is the fact that the world will need more energy in the decades to come for the foreseeable future. It is easy to appreciate why.
In OPEC’s World Oil Outlook 2017, published in November last year, the global economy is estimated to more than double by 2040. And over the same timeframe, world population is projected to reach around 9.2 billion, an increase of around 1.8 billion.
We should also not forget that today around 3 billion do not have clean fuels for cooking, and 1.1 billion have no access to electricity, something that we take for granted.
When we start up our cars, switch on a light, turn on our mobile phones, we need to recognize that these everyday things are still unknown to billions of people across the world who continue to suffer from energy poverty. It is a universal obligation to address this major challenge.
We expect global energy demand to increase by 35% in the period to 2040.
At the same time, however, we need to recognize the threat posed by climate change to our environment. Let me stress here that OPEC remains fully engaged and supportive of the Paris Agreement. We believe a global consensus out of the multilateral process remains the best and most inclusive way for all nations to collectively tackle climate change in a fair and equitable manner.
So while the world will need more energy, it also needs to use it more efficiently and continually look to develop, evolve and adopt cleaner energy technologies.
To put it simply, the basic energy challenge of the ‘new energy era’ can be summed up in two questions:
The first is how can we ensure there is enough supply to meet expected future demand growth?
And the second is how can this growth be achieved in a sustainable way, balancing the needs of people in relation to their social welfare, the economy and the environment?
What is clear is that all forms of energy are required. The world of energy will be more diversified in the years ahead.
Renewables are projected to record the fastest annual growth rate, averaging 6.8% per annum in the period to 2040.
However, by 2040, the combined contribution of renewables, hydro, nuclear and biomass are expected to account for just 26% of the global energy mix, an increase of 7% from today.
In terms of oil and gas, combined they are still expected to provide more than half of the world’s energy needs by 2040, with their combined share relatively stable between 52–53% over the almost 25-year forecast period.
In terms of oil, we expect it to reach over 111 mb/d by 2040, an increase of around 15 mb/d. We are expected to hit 100 mb/d during the course of this year, much earlier than initially forecast. On top of this, we should also remember that oil producers and companies must invest heavily simply to offset the impact of natural decline rates, which is annually around 4 mb/d.
For oil, it means that there is no expectation for a peak in oil demand over the forecast period to 2040. This is not only the projection of OPEC, but the International Energy Agency (IEA) too.
To put this into an investment perspective, in the period to 2040 the required global oil sector investment is estimated at a huge $10.5 trillion. This also needs to be placed in the context of the fact that globally more than a trillion dollars of frozen capex or cuts were witnessed during 2015 and 2016.
In this regard, I commend Kuwait and its able and visionary leadership for its laudable investment plans announced earlier this year for the country to spend more than half a trillion dollars by 2040 to boost its oil and gas output and refining capacity.
This includes plans to more than double refining capacity by 2035 and to boost oil production to 4.75 mb/d by 2040. These developments are not only important for Kuwait, but they will be vital to the industry and consumers in the years and decades ahead. The longevity of oil as a desirable energy source can only be guaranteed by such bold and visionary investment plans.
Excellencies, ladies and gentlemen,
Thus, in looking ahead, we need to be realistic about what each energy source can provide, and continually look to transform how we extract, process, supply and use all the energies needed in the future.
This should not only be through the concerted and continued development of renewable energies. It also needs to be through the development of technologies in the oil & gas industry to enhance efficiencies, in both production and use, streamline working practices, and further improve their environmental footprint.
This requires innovation and human ingenuity, just as it has in the past.
For example, our industry has seen technological innovation move E&P opportunities from onshore to offshore, then to deep water and frontier regions, and most recently to unconventionals.
Improvements in the quantity and quality of information about different geological formations have meant we have been able to find more oil and gas.
When looking at recovery rates, technological developments have helped increase these from less than 10% of oil in place in the early history of the industry to more than 70% in some fields today.
Advancements have also improved the safety of our industry; for those working in it, and also in terms of exploration, production and supply.
And they have allowed us to continually improve the environmental credentials of oil and gas, both in production and use.
The industry’s past successes are a reminder that innovation and new technologies are the key to unlocking the abundant sources of oil and energy in an ever more sound, secure and responsible manner.
And as an industry, the challenge of emissions is one that we need to face head on. I am a firm believer that solutions can be found in technologies that reduce and ultimately eliminate these emissions.
In this regard, the world has made little progress. Therefore more work and collaboration are urgently required. We need to continually look at the development and use of cleaner technologies, such as carbon capture utilisation and storage and many others in the future.
At OPEC, we welcome coordinated action with the industry and through various research and development platforms.
It is vital that we collectively develop and adopt technologies, as well as all-inclusive energy policies, that would address carbon emissions, not to crowd out investments in oil.
We truly believe we need to work towards a more integrated industry, at all levels. We need to continually break down barriers; we cannot work in silos. This is vital in an increasingly interdependent and complex world.
This is readily apparent in the historic ‘Declaration of Cooperation’ between 24 OPEC and non-OPEC producers.
This integrated approach to tackle the oil market downturn and return balance and stability to the market is unparalleled in the history of the oil industry.
Moreover, the past 15 months or so has shown it to be a great success, driven by the unprecedented conformity levels voluntary production adjustments. In 2017, it averaged 109%, and for the most recently reported months, February saw a level of 138% and in March the figure is expected to be even higher.
In looking at the current oil market situation, there is no doubt that the industry is starting to feel a much warmer glow. The overall market fundamentals have not been this strong since the onset of the current cycle.
In 2017, the global economic recovery gathered momentum. This positive trend is expected to be maintained in 2018 with an extremely healthy growth forecast of 3.8%.
Correspondingly, global oil demand growth has been robust and strengthening. It is expected to grow by 1.63 mb/d in 2018, following a similar trend in 2017.
And the OECD stocks overhang has fallen from around 400 million barrels (mb) against the five-year average in February 2016, to a level below 40 mb, a trend that will continue in the coming months.
We have not only turned a historic page, but a new chapter is being authored in the history of the industry by OPEC and its non-OPEC partners, who continue to demonstrate the power of cooperation and dialogue to restore stability and growth in the global oil market, and the knock-on positives of this for the global economy.
Moreover, in the months ahead we will look to institutionalise this long-term framework for continuity with an inclusive and broad-based participation, to look at some of the pertinent challenges, as well as opportunities, I have highlighted in this speech.
Excellencies, ladies and gentlemen,
In talking of a ‘new energy era’ I earlier put forward two questions.
In looking at these, it is clear that we will need a diversified energy mix; the transformative use of technologies across all energy sources; and a more integrated and holistic industry.
Diversification, transformation and integration – all three are inter-connected. And the over-arching issue for all of these is ‘stability’.
Stability for investments and energy output expansion to flourish;
Stability to provide access to modern energy services for those currently without;
Stability for economies around the world to grow;
And stability for producers, in terms of security of demand, and stability for consumers, in terms of security of supply.
Stability is the key ingredient to a sustainable global energy future for us and the coming generations.
– Being Keynote Address by OPEC Secretary General, delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the 5th Kuwait Oil & Gas Show. Theme: “New Energy Era: Transformation, Diversification and Integration”, 16 April 2018, Kuwait City, Kuwait.