Opening address for dinner-debate Mohammed Barkindo Acting for the OPEC Secretary General European Parliament Strasbourg, France 4 July 2006 1
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 2
OPEC Reference Basket price (nominal and real) and non-energy commodity prices 100 90 Nominal ($/b) 80 70 Real ($/b base May 2006) 60 50 40 30 20 10 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 The real price is still well below historical highs 400 350 OPEC Basket Aluminium Copper Lead Nickel Gold Non-energy commodity prices have also risen 300 250 200 150 100 Jan 2001 = 100 50 Jan- 01 Jul- 01 Jan- 02 Jul- 02 Jan- 03 Jul- 03 Jan- 04 Jul- 04 Jan- 05 Jul- 05 Jan- 06 3
High volatility in oil prices, US $/b Strong global economic and, in turn, oil demand growth ( 03-05 increase: 5.4 mb/d) High capacity utilization in the supply chain, tightness in the refining sector Heightened geopolitical concerns fears of supply disruptions Increasing activity in futures market (new wave of capital movement by funds) 80 WTI 74 OPEC R. Basket (ORB) 73.8 59 74 68 67 67.1 62 60.8 56 52.9 50 53 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 1- Dec 21- Dec 10- Jan 30- Jan 19- Feb 11- Mar 31- Mar 20- Apr 10- May 30- May 19- Jun 9- Jul 4
Recent oil market developments: high demand growth % mb/d 6 5 4 3.9 5.2 2.9 4.7 4.7 4 3 3 1.5 1.4 2 2 1.0 1 1 0 2003 2004 2005 2006 North America China Middle East Other Asia Others World GDP 0 5
Supply chain tightness: downstream bottlenecks Refinery capacity utilization rates 100 95 90 % 85 80 75 Jan 04 May 04 Sep 04 Jan 05 May 05 Sep 05 Jan 06 May 06 EU** USA Asia* */ Asia = Japan, South Korea, China, India and Singapore EU**/ Data reflects only sixteen countries due to availability. 6
Increasing activity in futures market Open interest surpassed 1 million contracts recently, reflecting sustained high interest by funds in oil futures! EU-OPEC Workshop on financial markets (Dec 06) 75 65 June 30, 2006 NYMEX WTI open interest & price OPEN Interest Price 1200 1050 (US$/bbl) 55 45 900 750 600 ('000 contracts) 35 450 25 300 Jan- 03 May- 03 Sep- 03 Jan- 04 May- 04 Sep- 04 Jan- 05 Jun- 05 Oct- 05 Feb- 06 Jun- 06 7
OPEC crude oil supply has risen by 4.5 mb/d since 2002 31 30 Call on OPEC crude OPEC crude production 29 mb/d 28 27 26 25 2003 2004 2005 8
OECD commercial oil stocks 2750 million barrels 58 days of forward cover 2700 2006 2005 57 2650 56 2600 2550 2500 2450 2400 2350 2300 Jan Feb Mar Apr 2004 2001-2005 Max/Min May Jun Jul Aug Sep Oct Avg. 01-05 Nov Dec 55 54 53 52 51 50 49 48 Jan 2006 Feb Mar 2005 2004 2001-2005 Max/Min Apr May Jun Jul Aug Sep Oct Avg. 01-05 Nov Dec 9
Commercial oil stock levels in the USA week-ending, mb 370 Crude oil 740 Total Products 350 2006 720 330 310 2005 Avg. 01-05 700 680 660 2005 2006 Avg. 01-05 290 640 270 250 1 5 2004 9 13 17 21 2001-2005 Max/Min 25 29 33 37 41 45 49 620 600 580 1 2004 5 9 13 17 21 2001-2005 Max/Min 25 29 33 37 41 45 49 10
OPEC crude capacity continues to expand 40 38 36 34 32 mb/d 30 28 26 24 22 20 2006 2007 2008 2009 2010 11
Rising project costs: indicative cost rises 3D seismic costs have doubled in the last 24 months Deepwater 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. 50 40 30 (%) 20 35 35 45 40 30 10 15 0 Exploration Infrastructure Drilling SURF Personnel Facilities Source: Goldman Sachs, OPEC Secretariat 12
Long-term oil demand outlook, mb/d 2005 2010 2015 2020 2025 OECD 49.8 51.5 52.8 53.8 54.6 DCs 28.7 34.2 40.0 46.3 52.9 Transition economies 4.7 5.0 5.3 5.5 5.7 World 83.2 90.7 98.0 105.6 113.1 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 13
Conventional liquid resource base is sufficient 3500 3000 USGS estimates of remaining resources 2500 Cumulative production billion barrels 2000 1500 1000 500 0 1984 1987 1991 1994 2000 Date of assessment release 14
Long-term oil supply outlook, mb/d 2005 2010 2015 2020 2025 OECD 20.5 20.6 20.7 20.5 19.5 DCs, excl. OPEC 16.1 18.6 19.7 20.0 19.9 Transition economies 11.7 14.4 15.5 16.1 16.5 Total non-opec 50.1 55.8 58.3 59.4 58.9 OPEC (incl. NGLs) 33.1 34.9 39.7 46.2 54.3 World 83.2 90.7 98.0 105.6 113.1 Non-OPEC increases: Latin America, Africa, Russia, Caspian 15
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 16
Cumulative investment in OPEC: three scenarios 500 450 400 Uncertain future demand translates into a broad range of possible OPEC investment needs 350 $(2005) billion 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 17
EU Green Paper Excellent platform for sharing views, ideas and visions Should address interests of non-european countries Interdependence rather than dependence Should recognise importance of security of demand Downstream investment issue should be addressed Emphasis on carbon capture and storage welcomed 18
Cleaner oil and gas technology Increased fossil fuel use can be consistent with the protection of the environment Carbon capture and storage is a promising technology to address climate change concerns Developed countries should take lead in providing cleaner oil and gas technologies 19
Poverty eradication Access to modern energy services must be improved upon Poverty eradication: first UN Millennium Development Goal Comprehensive and balanced approach to the three pillars of sustainable development: economic growth, social progress and protection of the environment Energy security applies to all nations 20
www.opec.org 21
Taxation of oil products Diesel prices & taxes, December 2005 USA Canada 19% 25% Crude CIF Price Industry Margin Tax Japan 34% France 48% Germany 50% Italy 44% UK 60% 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 US$/litre 22
US gasoline stocks and demand cover 240 Gasoline Stocks. Week ending (mb) 27 Days of gasoline demand cover 230 2006 2006 220 Avg. 01-05 25 Avg. 01-05 210 23 2004 200 2004 21 2001-2005 Max/Min 2005 190 2005 180 1 2001-2005 Max/Min 5 9 13 17 21 25 29 33 37 41 45 49 19 1 5 9 13 17 21 25 29 33 37 41 45 49 23
OPEC 10 capacity expansion plans, (tb/d) Over 100 projects with cumulative investments of more than $100 billion! 50% of these projects are in partnership with IOC s OPEC-10 cumulative capacity increase > 4 mb/d by 2010, with Iraq: 5-6 mb/d Algeria Indonesia Iran Kuwait Libya Nigeria Qatar 2006 2007 2008 2009 2010 Saudi Arabia UAE Venezuela Source: based on projects and other assumptions including secondary sources -100 200 500 800 1100 1400 1700 2000 24
OPEC Downstream expansion plans: 2005-2011 mb/d 3.0 2.5 2.0 1.5 Condensate Conversion+treating Distillation Investment $billion $billion 20 18 16 14 12 10 1.0 8 6 0.5 4 2 0.0 0 Algeria Indonesia IR. Iran Iraq Kuwait Libya Nigeria Qatar Saudi Arabia UAE Venezuela 25
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 Pool North 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 26
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 27