1
Opening address for dinner-debate
Mohammed BarkindoActing for the OPEC Secretary General
European ParliamentStrasbourg, France
4 July 2006
2
Outline
• Importance of EU-OPEC Energy Dialogue
• Current oil market developments
• Longer-term outlook
• Energy security
• EU Green Paper
• Cleaner oil and gas technologies
• Poverty eradication
3
OPEC Reference Basket price (nominal and real) and non-energy commodity prices
The real price is still well below historical highs
Non-energy commodity prices have also risen
Jan 2001 = 10050
100
150
200
250
300
350
400
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
OPEC Basket Aluminium CopperLead Nickel Gold
0102030405060708090
100
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Nominal ($/b)
Real ($/b base May 2006)
4
High volatility in oil prices, US $/b
Strong global economic and, in turn, oil demand growth (’03-’05 increase: 5.4 mb/d)High capacity utilization in the supply chain, tightness in the refining sectorHeightened geopolitical concerns –fears of supply disruptionsIncreasing activity in futures market (new wave of capital movement by funds)
53
74
59
67
50
56
62
68
74
80
Dec
-05
Jan-
06
Feb-
06
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
WTI OPEC R. Basket (ORB)
60.8
73.8
52.9
67.1
1-Dec
21-Dec
10-Jan
30-Jan
19-Feb
11-Mar
31-Mar
20-Apr
10-May
30-May
19-Jun
9-Jul
5
Recent oil market developments:high demand growth
1.5
2.9
1.0
1.4
5.2
3.9
4.7 4.7
0
1
2
3
4
5
6
2003 2004 2005 20060
1
2
3
4
North America ChinaMiddle East Other AsiaOthers World GDP
% mb/d
6
Supply chain tightness: downstream bottlenecksRefinery capacity utilization rates
75
80
85
90
95
100
Jan04
May04
Sep04
Jan05
May05
Sep05
Jan06
May06
%
EU** USA Asia*
*/ Asia = Japan, South Korea, China, India and Singapore
EU**/ Data reflects only sixteen countries due to availability.
7
Increasing activity in futures marketOpen interest surpassed 1 million contracts recently, reflecting sustained high interest by funds in oil futures!EU-OPEC Workshop on financial markets (Dec 06)
25
35
45
55
65
75
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
Jun-05
Oct-05
Feb-06
Jun-06
300
450
600
750
900
1050
1200OPEN InterestPrice
(US$
/bbl
)('000 contracts)
June 30, 2006NYMEX WTI open interest & price
8
OPEC crude oil supply has risen by 4.5 mb/d since 2002
25
26
27
28
29
30
31
2003 2004 2005
mb/
d
Call on OPEC crude
OPEC crude production
9
2004
2005
Avg.01-05
2300
2350
2400
2450
2500
2550
2600
2650
2700
2750
Jan
Feb
Mar Apr
May Jun
Jul
Aug
Sep Oct
Nov
Dec
2001-2005 Max/Min
2006
OECD commercial oil stocks
million barrels
2004
2005
Avg.01-05
48
49
50
51
52
53
54
55
56
57
58
Jan
Feb
Mar Apr
May Jun
Jul
Aug
Sep
Oct
Nov
Dec
2001-2005 Max/Min
2006
days of forward cover
10
Commercial oil stock levels in the USAweek-ending, mb
2004
2005
Avg.01-05
250
270
290
310
330
350
370
1 5 9 13 17 21 25 29 33 37 41 45 49
2001-2005 Max/Min
2006
2004
2005Avg.01-05
580
600
620
640
660
680
700
720
740
1 5 9 13 17 21 25 29 33 37 41 45 49
2001-2005 Max/Min
2006
Crude oil Total Products
11
OPEC crude capacity continues to expand
20
22
24
26
28
30
32
34
36
38
40
2006 2007 2008 2009 2010
mb/
d
12
3D seismic costs have doubled in the last 24 monthsDeepwater drilling day rigs up at least 50% in 12 months. Contracts at $500k/d for 2008. Wage pressure is escalating with growing shortage of skilled labor (~15% rise in 2005)Steel is a major component of infrastructure & facilities, with prices up 40% since 2004.
35 35
4540
15
30
0
10
20
30
40
50
Exploration Infrastructure Drilling SURF Personnel Facilities
(%)
Source: Goldman Sachs, OPEC Secretariat
Rising project costs: indicative cost rises
13
Long-term oil demand outlook, mb/d
• Reference case sees oil demand rise by 30 mb/d by 2025• Four-fifths of increase in demand in developing countries • However, OECD remains dominant consumer• Developing countries will consume, on average, five times
less oil per person, compared with OECD countries
2005 2010 2015 2020 2025OECD 49.8 51.5 52.8 53.8 54.6DCs 28.7 34.2 40.0 46.3 52.9Transition economies 4.7 5.0 5.3 5.5 5.7
World 83.2 90.7 98.0 105.6 113.1
14
Conventional liquid resource base is sufficient
Date of assessment release
0
500
1000
1500
2000
2500
3000
3500
1984 1987 1991 1994 2000
billi
on b
arre
ls
USGS estimates ofremaining resources
Cumulative production
15
Long-term oil supply outlook, mb/d
Non-OPEC increases: Latin America, Africa, Russia, Caspian
2005 2010 2015 2020 2025OECD 20.5 20.6 20.7 20.5 19.5DCs, excl. OPEC 16.1 18.6 19.7 20.0 19.9Transition economies 11.7 14.4 15.5 16.1 16.5
Total non-OPEC 50.1 55.8 58.3 59.4 58.9OPEC (incl. NGLs) 33.1 34.9 39.7 46.2 54.3
World 83.2 90.7 98.0 105.6 113.1
16
Energy security• OPEC recognises consuming countries concerns over energy supply security, and attaches great seriousness to this
• Security of demand and security of supply are mutually supportive
• Uncertainty over future demand translates into a broad range of potential levels of demand for OPEC oil
• Investment requirements are large, subject to long lead-times and pay-back periods
• More transparency in evolution and implementation of policies
17
Cumulative investment in OPEC: three scenarios
0
50
100
150
200
250
300
350
400
450
500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
$(20
05) b
illio
n
Uncertain future demand translates into a broad range of possible OPEC investment needs
18
EU Green Paper
• Excellent platform for sharing views, ideas and visions
• Should address interests of non-European countries
• Interdependence rather than dependence
• Should recognise importance of security of demand
• Downstream investment issue should be addressed
• Emphasis on carbon capture and storage welcomed
19
Cleaner oil and gas technology
• Increased fossil fuel use can be consistent with the protection of the environment
• Carbon capture and storage is a promising technology to address climate change concerns
• Developed countries should take lead in providing cleaner oil and gas technologies
20
Poverty eradication
• Access to modern energy services must be improved upon
• Poverty eradication: first UN Millennium Development Goal
• Comprehensive and balanced approach to the three pillars of sustainable development: economic growth, social progress and protection of the environment
• Energy security applies to all nations
21
www.opec.org
22
Taxation of oil productsDiesel prices & taxes, December 2005
60%
44%
50%
48%
34%
25%
19%
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40
UK
Italy
Germany
France
Japan
Canada
USA
US$/litre
Crude CIF PriceIndustry MarginTax
23
US gasoline stocks and demand cover
2004
2005
Avg.01-05
180
190
200
210
220
230
240
1 5 9 13 17 21 25 29 33 37 41 45 49
2001-2005 Max/Min
2006
2004
2005
Avg.01-05
19
21
23
25
27
1 5 9 13 17 21 25 29 33 37 41 45 49
2001-2005 Max/Min
2006
Gasoline Stocks. Week ending (mb) Days of gasoline demand cover
24
-100 200 500 800 1100 1400 1700 2000
Venezuela
UAE
Saudi Arabia
Qatar
Nigeria
Libya
Kuwait
Iran
Indonesia
Algeria
2006
2007
2008
2009
2010
OPEC 10 capacity expansion plans, (tb/d)
Source: based on projects and other assumptions including secondary sources
Over 100 projects with cumulative investments of more than $100 billion!50% of these projects are in partnership with IOC’sOPEC-10 cumulative capacity increase > 4 mb/d by 2010, with Iraq: 5-6 mb/d
25
OPEC Downstream expansion plans: 2005-2011
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Algeria
Indones
ia
IR. Ir
an
Iraq
Kuwait
Libya
Nigeria
Qatar
Saudi A
rabia UAE
Venez
uela
mb/d
0
2
4
6
8
10
12
14
16
18
20
$billion
Condensate Conversion+treatingDistillationInvestment $billion
26
Regional gasoline quality specification (2005-2010)
2005 2010 Sulfur Aromatic Benzene Leaded Sulfur Aromatic Benzene Leaded (ppm) (wt%) (wt%) % of Pool (ppm) (wt%) (wt%) % of PoolNorth America 70 28 0.9 0 30 28 0.8 0 Latin America 500 36 3 5 220 34 2.4 0 Western Europe 30 34 0.8 0 10 34 0.8 0 Eastern Europe 200 38 1.5 4 80 37 1 0 Asia Pacific 220 35 2 0 180 35 1.9 0 Middle East 500 37 2 15 350 37 1.5 0 Africa 500 36 1.9 35 260 36 1.8 0 Sources: Hart forecast and analysis database
27
Regional diesel fuel quality specification (2005-2010)
2005 2010 Diesel
Sulfur* Centane Diesel Sulfur* Centane
(ppm) Index (ppm) Index North America 330 45 15 46
Latin America 2,000 45
2,000 45 Western Europe 40 51 10 52 Eastern Europe 280 51 140 51 Asia Pacific 1,400 47 930 47 Middle East 1,800 48 250 50 Africa 1,500 49 170 51 *On-road diesel Sources: Hart forecast and analysis database
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