“The market remains oversupplied and stock levels have risen above their five-year average, we are hopeful that the industry will see a more balanced oil market in 2016”
OPEC Secretary General HE Abdalla S. El-Badri delivered a speech at the Executive Plenary Session of the Kuwait Oil and Gas Show and Conference, 11 October 2015, Kuwait. Beginning by thanking he said, “I think we can all appreciate that the three key themes of this session – ‘Innovation, Technology and Opportunities’ – are not only vital to developing the industry’s future hydrocarbon reserves and other related activities, they have also been central to its past. Looking back to 1960, the year OPEC was founded; global crude oil production was just 21 million barrels a day. Today, it is around 75 million barrels a day. This is an increase of over 250 per cent. On top of this, we also need to factor in the rise of other liquids, which currently add up to close to 18 million barrels a day. In terms of natural gas, production was close to 445 billion standard cubic metres in 1960. Today, it has risen to almost 3.6 trillion standard cubic metres. This is an increase of over 700 per cent. This growth has been driven by innovation, human ingenuity and technology. They have helped to continually transform and reinvent the industry by turning challenges into opportunities. 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 structures 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 per cent of oil in place in the early history of the industry to more than 70 per cent 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. Looking ahead, there is no doubt that the world will need more energy in the decades to come – as the global population expands, economies grow, and countries seek to provide the energy poor with access to modern energy services. We need to remember that many billions of people still rely on biomass for their basic needs and more than a billion still have no access to electricity. To 2040, global energy demand is expected to expand by around 50 per cent. In this regard, all forms of energy will be needed – wind, solar, hydro, nuclear and of course fossil fuels, which will continue to play the major role in meeting demand. This growth will require some major investments. In terms of oil, with demand projected to grow to 110 million barrels a day by 2040, oil-related investment requirements are estimated to be around $10 trillion between now and then. Stressing there is no doubt that the world has enough oil and energy resources to meet these expected future needs, El-Badri continued, “The most recent analysis for the remaining ultimately recoverable oil resources puts the figure at 2.8 trillion barrels. And for natural gas, it is over 420 trillion standard cubic metres.It should be underscored that despite the continuing cumulative production, these numbers have increased over the past five decades. Moreover, these numbers do not take into account the large amounts of available unconventional oil and gas resources. The industry’s past successes are a reminder that innovation and new technologies are key to unlocking the abundant sources of oil and energy in an ever more sound, secure and responsible manner. In the coming years and decades, the industry can expect to see additional new technologies shift perceptions and prospects once more.
This will be achieved through such developments as carbon capture and storage, advancements in enhanced oil recovery and the development of new oil-based materials for various industry sectors. It all points to the simple facts that the industry’s future will require more R&D; it will need more investment; and it will need more people. Here allow me to focus on the most important element that will determine the industry’s future: the human one. At its heart, the oil business is about people. All the innovation, technology and opportunities that are generated in the industry depend to a great extent on the availability of talented and skilled people. Of course, we need to appreciate that the development of future hydrocarbon resources is directly linked to the short-, medium- and long-terms. None of these timeframes can be looked at in isolation. Here, it is essential to appreciate the delicate balance between prices, the cost of the marginal barrel and future supplies. This balance is vital in making sure the right enabling environment is in place and the necessary future investments are made. If the right signals are not forthcoming, there is the possibility that innovation will dry up, that technological breakthroughs will not materialize and that not enough new capacity and infrastructure will be in place in time to meet future rising demand levels.Yes, we need to keep our eyes firmly on the future, given the fact that oil is expected to be fundamental to the lives of many more people in the years ahead. But we also need to focus on the immediate challenges as the market searches for more stability during the current period of volatility. Stability is paramount. It is essential to have clarity in terms of our oil and energy future – whether this is 1, 5, 10 or even 20 years ahead. It is quite clear that the past 16 months or so have been an extremely challenging time for the oil industry. Prices fell almost 60 per cent between June 2014 and January 2015, although we do not believe that actual market fundamentals warranted this huge drop. Prices this year have fluctuated mainly in the $40 to $60 per barrel range. But again there has been significant volatility with the market seeing price spikes and falls that have been very loosely connected withchanges in fundamentals. The market remains over-supplied and stock levels have risen above their five-year average. However, it should be noted that we have recently seen a contraction in production from some non-OPEC producers and an uptick in demand growth.Developments over the past year or so have led to a number of projects being cancelled or put on hold. Investment plans have been revised. Rig counts have fallen dramatically. And redundancies have being made. These changes certainly offer up questions for this session: How might the current industry cycle impact the development of future hydrocarbon resources? And more specifically, what might this mean in terms of innovation,technology and opportunities? Some cost cutting and efficiency measures will make the industry a little more nimble and agile. But with less investment, fewer project developments and reduced manpower on the scale that we have witnessed recently, the industry will no doubt be impacted in the short- and medium-term – and potentially, in the long-term too. However, as my speech today has emphasized, we need to keep investing. It is essential for our industry’s future. It is essential to all those consumers around the world who rely on hydrocarbon resources for their everyday needs. And it will be essential to the future of those currently without access to modern energy services. I remain confident that our industry’s best days are yet to come. We have an abundance of hydrocarbon resources.And oil and gas demand continues to grow. All of this points to tremendous opportunities. To turn existing and future challenges into promising opportunities, however, requires strength, resilience and vision. And this means working towards more stability in the market. El-Badri, OPEC Secretary General, concluded, “At OPEC, we are hopeful that the industry will see a more balanced oil market in 2016. But we should keep in mind the fundamental importance of ensuring that the people in our industry continually push for innovation and the development of new technologies, that can help discover, extract, produce and supply more hydrocarbons in an ever more cost effective and sustainable manner.”