INDIA'S PIVOTAL IMPORTANCE
OPEC - Plenary remarks by OPEC Secretary General at the 2nd annual India Energy Forum by CERA Week
Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the 2nd annual India Energy Forum by CERA Week, 16 October 2018, New Delhi, India.
Your Excellencies, Ladies and Gentlemen,
It is a distinct honour for me to address the 2nd India Energy Forum by CERA Week. I would like to congratulate IHS Markit, supported by the Ministry of Petroleum and Natural Gas of the Government of India, for organizing such a stellar event. Thank you to our host, the Honourable Dharmendra Pradhan, Minister of Petroleum and Natural Gas and Skill Development and Entrepreneurship, for the magnificent hospitality extended to the OPEC team- bahoot dhanyavad!
As ever, I am extremely pleased to share the floor with my Professor, Dan Yergin. Dan has been a tremendous friend of OPEC's over the years and I am looking forward to hearing his remarks.
The theme of this topic, the Indian Energy Transition, is very much bound with the global energy transition, underscoring how interconnected our energy future will be. It was India's Noble Prize winning poet, Rabrindranath Tagore, the first non-European to win that distinguished prize, who foresaw a future,
Where the world has not been broken up into fragments by narrow domestic walls.
The interconnectivity of our world means that the only way we can overcome common challenges is through international cooperation and teamwork. This approach is integral to OPEC and is reflected in our Statute. It receives its modern manifestation in our collaboration with our Non-OPEC partners under the umbrella of the historic 'Declaration of Cooperation.' And a collaborative approach, centered on the principles of mutual respect, transparency and knowledge-exchange forms the basis of the ever blossoming relationship between OPEC and India.
Another defining characteristic of our energy future is that oil will continue to play a critical role in the energy mix. This is one of the foremost conclusions of OPEC's recently launched World Oil Outlook (WOO) for 2018 on which topic there was a dedicated presentation at this forum by the OPEC Research Division yesterday, 15 October.
One of the other key take-aways from this presentation was the pivotal importance that India will play in the future of the global oil industry and economic growth.
We forecast that primary energy demand, globally, is expected to increase by 33%, or 91 mboe/d, between 2015 and 2040. A massive 24% of this anticipated increase will be from India, or 22 mboe/d.
World oil demand is expected to increase by 14.5 mb/d, increasing from 97.2 mb/d in 2017 to 111.7 mb/d in 2040. India will account for oil demand growth of 5.8 mb/d, which represents an astonishing 40% of the overall increase.
Therefore, the WOO concludes that India is projected to see the largest additional oil demand (3.7% per annum) and the fastest growth in the period to 2040.
This impressive growth reflects the remarkable transformation of the Indian economy during the forecast period. We estimate that India's economy will grow at an average annual rate of 6.5% for the period 2017-2040. Real GDP is expected to surpass OECD Europe by 2035, and by 2040, it is anticipated to even surpass OECD America.
Now to meet the future needs of both India, and the world; in the period up to 2040, the required global oil sector investment is estimated at $11 trillion.
Given these investment needs; consider how gravely worrying the situation was during the last market downturn, the most severe in the industry's history. From 2014 to 2016, world oil supply growth outpaced that of oil demand, with world oil supply growing by 5.8 mb/d, while world oil demand increased by 4.3 mb/d.
By July 2016, OECD commercial stock overhang reached a record high of about 403 mb over the five-year average. The OPEC Reference Basket price fell by an extraordinary 80% between June 2014 and January 2016.
Most ominously of all, investments were choked-off, with exploration and production spending falling by an enormous 25% in both 2015 and 2016. Additionally, nearly one trillion dollars in investments were frozen or discontinued, and many thousands of high quality jobs were lost. A record number of companies in our industry filed for bankruptcy.
The multiplier effects of this contagion had the potential to wreak havoc on the future of the global economy, especially in developing countries. There can be no doubt about it, our industry was on the verge of catastrophe; a catastrophe that would have been devastating for producers and consumers.
And when I consider this scenario, I am reminded of just how prescient the great statesman and father of this nation, Mahatma Ghandi, was when he said "the future depends on what you do today."
To safeguard a future which has the interests of consumers and producers at its core, decisive action was necessary. For as Rabindranath Tagore also said, "you can't cross the sea merely by standing and staring at the water."
OPEC, in cooperation with a group of 10 other non-OPEC producers, held extensive consultations about the portentous situation in the latter half of 2016. These efforts eventually culminating in an historic decision in December 2016 of voluntary production adjustments under the name of the 'Declaration of Cooperation,' aimed at reintroducing stability to the market; stability essential for creating conditions conducive to attracting investment back to our industry.
Since 2016, the 'Declaration of Cooperation' has evolved from a noble vision to a transformative force-for-good, a permanent feature of the energy landscape – one that has had a profoundly positive impact on the global oil industry and beneficial multiplier effects for global economic growth.
A long-absent element of stability has been reintroduced to the market, the rate of inventory drawdowns has been reversed and industry optimism and confidence abounds.
The importance of the Declaration has also received backing from other producers, as well as from consumers. Without the collective efforts of the 'Declaration of Cooperation' strategic partners, the oil industry and the global economy would have easily slid into a major crisis.
Throughout the entire 'Declaration of Cooperation' process, we have solicited the views of consumers, incorporating and responding to them within our strategy. The OPEC-India dialogue, the Third High Level Meeting of which will take place tomorrow, has been extremely important in this regard.
While a broad and inclusive consultative process has yielded results; it continues to remain necessary because of current conditions in the global economy and in the oil industry.
Non-fundamental factors, beyond the control of any individual stakeholder, can have a particularly strong influence on our industry. Geopolitical events, natural catastrophes, technological breakthroughs or other critical uncertainties, these can feed into the financial markets, thus amplifying their impacts on oil. This has been particularly apparent in recent months.
OPEC's recently published Monthly Oil Market Report (MOMR) acknowledged this in its most recent publication on 11 October. While global economic growth remains solid, it faces potential headwinds.
Following a period of relatively synchronized growth, the economic growth trends between, and within, major regions are increasingly diverging. While growth in the major OECD economies remains well supported, decelerating trends have become visible in some emerging markets and developing countries (EMDCs).
A combination of monetary tightening of the G4 central banks, weakening financial situations in some EMDCs, rising trade disputes and ongoing geopolitical challenges in some parts of the world are thus challenging the growth trend. Hence, OPEC's global economic growth forecast for 2018 was revised down slightly by 0.1 percentage points to now stand at 3.7%, while the 2019 forecast remains unchanged at 3.6%.
Other reporting agencies draw similar conclusions. The IMF, in advance of the recent 2018 Annual Meetings of the IMG and World Bank Group, 12-14 October in Bali, Indonesia, in a similar manner, downgraded its 2018 estimate for global growth to 3.7%, which although robust, is down from an earlier forecast of 3.9%. Furthermore, the IMF conclusion from its Annual Meetings noted that "policy uncertainty, historically high debt levels, rising financial vulnerabilities and limited policy could further undermine growth prospects."
Of course, a downward revision for global economic growth has serious repercussions for global oil demand. Consequently, OPEC has revised down its world oil demand growth forecast for 2018 and 2019. According to the October edition of the MOMR, world oil demand is projected to increase by 1.54 mb/d in 2018, a downward revision of around 80 tb/d from the previous month's report. In 2019, world oil demand is anticipated to grow by 1.36 mb/d to average 100.15 mb/d, a downward revision of 50 tb/d from last month's report.
There have also been concerns expressed by consumers with regard to the outlook for supply, including from some of our friends in India.
However, our current view is that the market is at the moment adequately supplied and well-balanced, though in a fragile state. For 2019, there is a growing potential for an imbalance, due to larger growth in supply. Naturally, this prognosis is subject to the critical uncertainties mentioned earlier.
Our recent meeting of the OPEC and non-OPEC Joint Ministerial Monitoring Committee (JMMC), which met in Algiers, Algeria, on 23 September 2018, explicitly acknowledged and addressed some of the concerns of consumers with regard to supply. I would like to quote from the meeting's conclusions:
The JMMC noted that, despite growing uncertainties surrounding market fundamentals, including the economy, demand and supply, the participating producing countries of the 'Declaration of Cooperation' continue to seek a balanced and sustainably stable global oil market, serving the interests of consumers, producers, the industry and the global economy at large.
The Committee urged countries with spare capacity to work with customers to meet their demand during the remaining months of 2018.
This underscores the commitment of OPEC Member Countries to accommodate anxiety over supply interruptions.
Ladies and gentlemen,
In the midst of critical uncertainties, downside risks to the global economy and issues related to future demand, international cooperation and multilateralism are, quite simply, indispensable.
For this reason, OPEC and its non-OPEC partners in the "Declaration of Cooperation," continue to explore further means of institutionalizing our cooperation. In this spirit, I wholeheartedly endorse the sentiment and conclusions of World Bank Group President Jim Young Kim, when he recently said,
"Challenges can turn into crisis if we don't face them together. The strongest tool that we have to battle those challenges is the kind of solidarity that is embedded in multilateralism."
Ladies and gentlemen,
It would be remiss of me to omit the climate change challenge from any discussion on the energy transition. This is particularly relevant given the launch on 8 October 2018 of an IPCC special report on the impacts of global warming of 1.5 °C above pre-industrial levels and related global greenhouse gas emission pathways.
Allow me to share some observations: the report indicates that there are multiple pathways to a 1.5°C warmer world; however, climate-related risks are unevenly distributed and the impact of 1.5°C global warming will disproportionately affect disadvantaged populations, especially in the Developing World.
Given the scale of this challenge to eliminate 42 billion tonnes of carbon dioxide in annual emissions, a collective and comprehensive response is not only essential, but urgently needed. The key word here is emissions. We cannot afford to disregard the positive contributions of any one energy source or industry. We in OPEC are unwavering believers that the global oil industry has a critical role to play in meeting the challenge. For our industry, we need to recognize that the environmental challenge is not oil and gas in-and-of themselves. It is the emissions that come from burning them.
This is not about choosing one energy source over another. It has been suggested in some quarters that renewables are our only energy future. Not only is this line of thinking misguided, it overlooks the critical role the oil industry can play in being part of the solution.
And I believe that solutions can be found in technologies that reduce and ultimately eliminate these emissions.
OPEC remains fully engaged with and supportive of the Paris Agreement. We firmly believe that a global consensus from the multilateral process remains the best and most inclusive way for all nations to collectively counter climate change in a fair and equitable manner.
Alongside this challenge, energy poverty, as the IPCC report acknowledges, remains a scourge of our age. Today around 3 billion do not have clean fuels for cooking, and approximately 1 billion have no access to electricity. The link between climate change and sustainable development appears to be rather complex; and the IPCC report concludes that maximising synergies and limiting trade-offs should be the goal when planning future actions to reduce climate change and pursuing sustainable development promoting equitable societies.
Reducing the development and climate policy implementation gap depends on an enabling international governance and financial architecture that allows access to finance and technology and helps address trade barriers.
It is important to recognize that in order to reach such a temperature target, it is important to ensure a Party-driven process, recall different national circumstances; evoke the principles of equity and of common but differentiated responsibilities and respective capabilities; balance mitigation, adaptation and the means of implementation; and take into account the overriding priority of sustainable development.
With regard to the energy transition, it should be stressed that it is vital to use energy efficiently and constantly develop and adopt cleaner energy technologies, such as Carbon Capture Utilization and Storage. Coordinated action should also be enhanced, supporting research and development, innovation and technology transfer; while providing sufficient financial support.
Ladies and gentlemen,
Another Indian Noble Prize winner, Kailash Satyarthi, once said, India is a place for a billion solutions.
Given the rapid development of this great nation, and the great potential of its young people, we will all surely agree with this statement. May this wonderful country; a land of ceaseless innovation, cultural diversity, and boundless ingenuity, inspire us all to continue to work together in the interests of consumers and producers.
Once again, I thank you for your hospitality and Jai Hind!
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