Exclusive interview: OPEC leader sees oil demand growth from emerging markets
OPEC Secretary General, Abdalla Salem El-Badri, explains how OPEC will develop its markets in the growing economies of China and India. In an exclusive Question and Answer interview with Geopolitical Information Service AG, he says demand for electric cars will not impact OPEC as the demand for oil will rise in line with global car ownership especially in China and India where booming economies will attract far more people to buy cars.
What would you describe as OPEC’s major task and how has that shifted over the years?
Abdalla Salem El-Badri: When OPEC was set up in 1960 its goal was to ensure the stabilisation of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.
The focus then was on stability – and this remains true today. Of course, the market has evolved over the past 50 years or so. For one thing, it is significantly bigger today.
In 1960, total liquids supply was just over 22 million barrels a day (mb/d). By 2012 it had increased to close to 90 mb/d. In terms of OPEC crude, supply grew from close to 8.3 mb/d in 1960 to around 30 mb/d in 2012. In addition, with this market expansion, we have seen our inter-linkages expand.
Today, the oil market is characterised by interdependence – with producers and consumers, international oil and gas companies, national oil and gas companies, independents, service companies, traders, financiers and regulators all playing an important role.
Moreover, we have also seen developments and changes in other areas. For example – and this is not an exhaustive list – improvements in technology have enabled us to continually push the boundaries of what is possible, extending the reach of the industry, reducing costs and unlocking additional resources.
Additionally, the emergence and expansion of the ‘paper oil’ markets has, on occasion, led to excessive speculation and resulted in extreme price volatility. At the end of 2012, for example, the total number of open interest contracts on the NYMEX (the New York Mercantile Exchange) and the ICE (the IntercontinentalExchange) was more than 40 times greater than actual daily oil demand. And we have made significant advancements in the producer-consumer dialogue, which back in 1960 was almost non-existent.
Over the years, we have seen a cooperative and coordinated approach to dialogue evolve as we aim to bring about market stability in both the short-and long-term. For example, OPEC has dialogue with the European Union, the International Energy Agency, the International Energy Forum, Russia, as well as other stakeholders. The importance of this cooperation can only grow in the years ahead.
In short, while the market has seen some significant shifts, developments and changes since 1960, in general, the overall goal for OPEC remains the same - a stable market for all parties.
Repeatedly there have been tensions within OPEC as some members consider cutting production to maximise revenues while others go for a lower price to discourage fuel switching. How is OPEC dealing with these?
Abdalla Salem El-Badri:
Throughout the history of the organisation there have been differences of opinion. This is only natural for an organisation of 12 member countries. In fact, it is true for any organisation of this nature. OPEC is like a family - we cannot always agree on everything.
However, we are able to discuss, deliberate and debate, in order to reach a consensus. We do not walk away from challenges and difficulties; we work hard to overcome them. It all underlines OPEC’s strong foundations.
And, as I mentioned in my response to your previous question, in terms of the oil market the goal for OPEC and all its member countries is stability, and a healthy balance between supply and demand.
Given that transportation drives the economies of OPEC members, what impact will the growing sector of electric or alternative fuel cars have on OPEC members?
Abdalla Salem El-Badri: It is clear that the road transportation sector, in particular, has huge growth potential, especially in developing countries.
In China, we see car ownership increasing from just 34 cars per 1,000 people in 2009 to 213 per 1,000 by 2035. And in India, we see average annual growth of more than 10 per cent, with the level jumping from just one car per 100 people in 2009 to a little more than one in 10 people by 2035.
These are tremendous growth figures. And given that car ownership per capita in OECD countries in 2009 averaged 478 per 1,000 people, there is evidently much further potential for developing countries.
At OPEC, we recognise that there will be developments and advancements in areas such as electric and hybrid vehicles, and that some of the growth in the transportation sector will be driven by these technologies. However, these developments are starting from a low base and we expect these new technologies to take time to increase their penetration in the sector.
Overall, we believe that the internal combustion engine is still the best option around in terms of efficiency, cost-effectiveness, accessibility and performance. Thus, oil and increasingly efficient conventional powertrain technologies will remain central to the transportation sector for the foreseeable future.
In general, do you see the rise of new sources of energy such as unconventional gas as a threat to OPEC members?
Abdalla Salem El-Badri: Generally, we think shale gas and tight oil holds promise. In the US, for example, shale gas production has jumped from 15 billion cubic feet a day in 2010 to 25 billion cubic feet a day in 2012, and projections are for this to increase to 45 billion cubic feet a day in 2020.
With regard to shale oil, our recent World Oil Outlook sees production increasing from around one mb/d in 2012 to two mb/d by 2020, and then to three mb/d by 2035.
However, shale resources outside of the US remain in very early stages of development and there appears to be a general consensus that it will be difficult for other countries to simply replicate the US experience with shale resources. A diversity of other factors – such as costs, water availability, regulation and concerns over potential environmental impacts – will also help determine the future of these new resources.
Many questions remain as to how sustainable their growth will be in the long term, particularly when we look at decline rates. We do not view shale gas and tight oil as a threat to OPEC. We welcome energy diversity and an expanded energy mix, and shale gas and tight oil are positive additions to this. However, we see shale more as an ‘evolution’ than a ‘revolution’.