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Wed 23 Jun 2010 04:00 AM

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OPEC’s Mid East message

Abdalla El-Badri tells Doha conference that upstream energy projects are back on track.

OPEC’s Mid East message
OPEC Secretary General, HE Abdalla Salem El-Badri.
OPEC’s Mid East message
Through continued project investment OPEC member countries have managed to increase production capcity, and reserve wealth by a huge margin.

Abdalla El-Badri tells Doha conference that upstream energy projects are back on track.

OPEC Secretary General, HE Abdalla Salem El-Badri has delivered a cautious but upbeat message to the 9th Arab Energy Conference in Doha, Qatar.

His speech, entitled International Developments in the Oil and Natural Gas Markets and their impact on Arab Countries, outlined that potential instability in the global economic recovery puts the 2020 OPEC outlook demand figure anywhere between 29 million barrels a day, or as high as 37 million barrels a day. He warned that this translates into an uncertainty gap for upstream investments in OPEC Member Countries of over 250 billion dollars.

However, the Secretary General did says that key projects which had been shelved during the crisis were being restarted throught the OPEC member states, and that oil demand would grow during 2010.

"The changes that the energy scene has witnessed over the last few years have been dramatic. They stem from two main causes: the global financial crisis, and the subsequent economic downturn, and the inefficient functioning of oil markets in terms of price discovery," said the secretary general.

"The world has faced its longest, deepest and most-widespread contraction in more than six decades. This, in turn, adversely affected the energy sector."

Between 2008 and 2009 was the first time since 1981 that global oil demand declined in two successive years. The cumulative impact was a fall of 1.8 million barrels a day. The price of a barrel of crude lost almost 100 dollars in less than six months from mid-2008, explained El-Badri.

"The resulting supply adjustment by OPEC Member Countries led to a significant increase in unused production capacity. Today, this figure is 6 million barrels a day."

El-Badri pinpointed some of the tell-tale signs of the global recession hitting the Middle East, citing reduced trade, declines in the value of stock markets and investments portfolios values and lower economic growth. He also said these effects illustrated just how deeply interconnected Arab economies are with the rest of the world.

"It underlines the need for even more diversified economies and the importance of policies to mitigate the effects of economic cycles and volatility in commodity markets," he warned.

However, El-Badri was also keen to shine a light on the strengths of the region, and outiline the beneficial role OPEC still plays today.

"We should also remember that while there is a richness and diversity about the economic culture of the Arab world, in both the traditional and modern sectors, it is an undeniable fact that a viable petroleum industry provides an important economic stimulus for the area as a whole. Regarding oil exports revenues, the crisis demonstrated once again the positive role that OPEC plays as a producer organization in contributing to stable oil markets, for the benefit of all."

OPEC's top man told the Doha crowd that thanks largely to massive monetary and fiscal stimulus packages, the global economic recovery is proceeding at a satisfactory pace, in particular in developing countries. He said oil demand is in fact growing again, albeit at an expected modest rate of 900,000 barrels a day for 2010. "And prices are at a reasonable level that is satisfactory to both producers and consumers."

An area of significant remaining risk was the inefficient oil markets, he said.
"Oil markets have over the past few years been characterized by excessive volatility and large price swings. Many recognize that the emergence of oil as a financial asset traded through a diversity of instruments in futures exchanges and over-the-counter markets may have helped fuel excessive speculation to drive price movements and stir up volatility. It led to a situation where futures prices were, to a certain extent, detached from the fundamentals of the underlying commodity."

Economic growth, expanding populations and higher standards of living mean that energy demand is set to rise in the future, despite significant improvements in energy efficiency.

El-Badri said he expects energy use to increase by more than 40% by 2030, according to OPEC's World Oil Outlook reference case. Fossil fuels, and in particular, oil and natural gas, will continue to satisfy most of the world's energy needs. This means that the Arab world, with considerable petroleum resources, will continue to play a leading role in the energy scene, far into the future.

However, while it is known that energy use is set to grow over the long-term, the actual pace of this growth remains highly uncertain. OPEC's World Oil Outlook shows that as early as 2020, demand for OPEC crude could be as low as 29 million barrels a day or as high as 37 million barrels a day. "This translates into an uncertainty gap for upstream investments in OPEC Member Countries of over 250 billion dollars. There is, therefore, the very real possibility of wasting financial resources on unneeded capacity." El-Badri took the opportunity to point the customary finger of blame at the policies of consuming countries which are geared towards reducing oil demand, subsidizing alternatives and putting heavy tax burdens on the use of oil.

"Inconsistent, unrealistic and wishful-thinking policy announcements can only provide the wrong signals to markets and investors, creating a lack of certainty and predictability that undermines the ability of the oil industry to invest to meet future energy demand."

Of the Arab countries, the secretary general said it is clearly evident that huge and successful efforts have been undertaken by many countries to diversify their economies. "This includes investing in industries that bring more added-value energy-intensive products, developing tourism and creating logistical port hubs. Many have also recognized the importance of human capital and have invested in advanced universities and research centres in cooperation with some of the best global institutions. This also includes investing in solar and nuclear."

All these efforts and achievements are to be praised, he said. "Nevertheless, these economies often remain highly sensitive to both price volatility and to the uncertainties surrounding future energy demand. This underscores the importance of continuing to push economic diversification, especially given the needs of a younger population and the ensuing huge need for job creation in many countries.

Heralding the organisation's 50th anniversary El-Badri said OPEC is more important than ever. "OPEC reserves have increased by a factor of five to reach one trillion barrels and its daily production has multiplied by nearly four, to reach 29 million barrels a day. Its production capacity exceeded 35 million barrels a day in 2009."