Energy supply and demand security

by

Mohammed Barkindo Acting for the Secretary General

Delivered by Mohamed Hamel Head, Energy Studies Department

EUROPIA Conference 15-16 February 2006 London, England

© 2006, Organization of the Petroleum Exporting Countries 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”

The OPEC Statute was first adopted in 1961.

© 2006, Organization of the Petroleum Exporting Countries Crude oil production, mb/d

Iraq 31 OPEC-10 29.9 5 OPEC-11 cumulative change (since 2002) Call on OPEC 29.1 4.5 29 28.8 4 28.3 27.0 3.7 27 26.9 3

25.4 25 2

1.6 23 1

21 0 2002 2003 2004 2005

© 2006, Organization of the Petroleum Exporting Countries Accelerated capacity expansions — 2005–06 • Several projects in 2004/05 delivered ahead of scheduled • Capacity increase of 2 mb/d – end 04 to end 06

End 2004 to end 2005 End 2005 to end 2006 70 80 100 70 Algeria 110 198 Indonesia 100 278 Iran Kuwait Libya 70 1.2 Nigeria 1 Qatar KSA 28 UAE 200 238 Ven

(‘000 200 25 300 94 b/d)

© 2006, Organization of the Petroleum Exporting Countries Medium term — OPEC expansions up to 2010 Upstream: global supply in excess of expected demand

mb/d mb/d

50 50

46 46

42 42

38 38

34 34

30 30

26 26

22 22 2004 2005 2006 2007 2008 2009 2010

Crude NGL Estimated required OPEC crude

Source: OPEC. © 2006, Organization of the Petroleum Exporting Countries World oil supply demand balance (mb/d) 2004 1Q05 2Q05 3Q05 4Q05 2005 05/04 1Q06 2Q06 3Q06 4Q06 2006 06/05

Demand (a) 82.1 83.7 82.1 82.6 83.9 83.1 1.0 85.3 83.4 84.0 85.8 84.6 1.6

Non-OPEC (b) 49.9 50.3 50.5 49.7 50.0 50.1 0.2 50.7 51.2 51.5 52.7 51.5 1.4 OPEC NGL (c) 4.1 4.2 4.3 4.3 4.4 4.3 0.2 4.5 4.6 4.7 4.8 4.6 0.3 OPEC Crude oil 29.1 29.5 29.9 30.2 29.9 29.9 0.8 29.8 29.9 29.9 a-(b+c) 28.1 29.2 27.3 28.6 29.5 28.6 0.5 30.2 27.6 27.9 28.3 28.5 -0.1 Balance (Actual) 1.0 0.3 2.7 1.6 0.4 1.3 0.3 -0.4 2.3 2.1

Seasonal stock chg (2000-2004) -0.7 0.9 0.3 -0.6

Stock change: OECD Commercial 0.1(e) -0.1 0.9 0.2 -0.5 OECD SPRf) ( 0.1 0.1 0.4 0.0 -0.1 Oil in Water (g) 0.1 0.3 0.0 -0.1 0.4 Remaining to Balance 0.6 0.1 1.4 1.5 0.7 (d-e-f-g)

Scenario Actual: OPEC Crude oilproduction assum ptions: Aso f February 2005, OPEC-11prod uction isass umed to be at 4Q05level of 29.9 mb/d

© 2006, Organization of the Petroleum Exporting Countries The price of oil: in nominal and real terms Base: January 2006

100.00

90.00

80.00

70.00

60.00

50.00

40.00

30.00

20.00

10.00

0.00 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94

Nominal Real

© 2006, Organization of the Petroleum Exporting Countries But other commodity prices have also risen strongly recently 400

Crude Oil Copper Nickel Rubber Uranium Steel 350

300

250

200

150

100

50

4 7 1 4 7 1 4 M 10 M 10 2M 002M1 02M 04M 005M 2 2002 200 2003M 2003M 2003M7 2004M1 2004M4 2004 2 2005M 2005M7 20 2003M10 20 2005M10

© 2006, Organization of the Petroleum Exporting Countries World energy demand by fuel type (mtoe)

6000

5000 Oil

4000

3000

Coal 2000 Gas

1000

Hydro/nuclear/renewable 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

© 2006, Organization of the Petroleum Exporting Countries Oil demand outlook, mb/d

Reference 2005 2010 2015 2020 2025 OECD 49.8 51.4 52.7 53.8 54.7 DCs 29.0 34.4 40.3 46.4 52.8 Transition economies 4.8 5.1 5.4 5.7 5.9 Total World 83.6 90.9 98.4 105.9 113.4

World economic growth averages 3.5% p.a. over next two decades “Dynamics-as-usual”: observed patterns, no new strong policy drives Oil demand increases by 30 mb/d by 2025, or 1.5 mb/d annually Four-fifths of the increase in demand comes from developing countries Transportation continues to be the dominant source of growth (~60 %) Many uncertainties: GDP, technology, policy

© 2006, Organization of the Petroleum Exporting Countries Oil production outlook, mb/d

Reference (DAU) 2005 2010 2020 2025 OECD 20.9 20.9 19.9 19.3 DCs excl. OPEC 16.1 18.2 19.4 18.9 Russia & Caspian 11.7 13.1 14.9 15.3

Non-OPEC 50.5 54.3 56.8 56.4 OPEC (incl. NGLs) 33.1 36.6 49.1 57.0

World 83.6 90.9 105.9 113.4 OPEC market share % 40 40 46 50

© 2006, Organization of the Petroleum Exporting Countries But there is considerable uncertainty over how much oil OPEC will need to produce mb/d60 Dynamics-as-usual 55 Lower growth

50 Higher growth

45

40

35

30

25

20 2003 2005 2007 2009 2011 2013 2015 2017 2019

© 2006, Organization of the Petroleum Exporting Countries Cumulative OPEC investment requirements: how much is needed to provide market stability?

400 $200-370 billion 350 If OPEC balances the market, the huge uncertainties in future oil demand 300 translate into huge uncertainties and risks for future OPEC investment higher growth

n 250 DAU illio

) b 200

lower growth

$(2004 150

100

50 $130-240 billion $70-130 billion 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

© 2006, Organization of the Petroleum Exporting Countries Security of demand

Energy security: to be seen from both supply and demand perspectives

Uncertainty over future demand translates into large uncertainties over the amount of oil that OPEC will eventually need to supply

Investment requirements are large, subject to long lead-times

The call for a "road-map" for oil demand

The need for security of demand is a legitimate concern of producers

More transparency in the evolution and implementation of policies

Lends support to making appropriate capacity expansion decisions, while at the same time not wasting precious financial resources.

© 2006, Organization of the Petroleum Exporting Countries Distillation Capacity Additions vs Incremental Crude Runs

16

Low Growth Reference case High Growth optimistic realistic 12 d / 8 mb

4

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Bars: additional crude runs; Lines: distillation capacity additions

© 2006, Organization of the Petroleum Exporting Countries Dialogue and cooperation

OPEC has encouraged dialogue and cooperation over the past two decades

2005 — launch of formal Energy Dialogues between OPEC and: European Union; China; and Russia

April 2006 — 10th International Energy Forum, Doha

Dialogue and cooperation are the way forward for the industry to evolve in an orderly manner in the early 21st century with security of supply and demand

© 2006, Organization of the Petroleum Exporting Countries www.opec.org

© 2006, Organization of the Petroleum Exporting Countries