As OPEC's Secretary General Abdalla Salem El-Badri has a bird's eye view of the world's oil supplies. After all, his 12-member nations account for 80 per cent of global oil supplies, making it a powerful economic union. Business Today's Anilesh S. Mahajan reached out to him to get his views on the growing discoveries of shale gas and oil sands around the world, and the projections that the United States could be energy-independent in the coming decades. He also batted for closer relations between the buyers and suppliers of oil and gas to maintain the balance between prices and growth rates. Edited excerpts of the e-mail interview:
Q: In the context of North America potentially becoming self-dependent for its energy needs in the next five years, how does OPEC sees the market for oil and gas changing globally?
A: This is obviously a very topical question. It is clear that the development of shale oil and gas is changing the North American energy landscape. In OPEC's most recent Monthly Oil Market Report, oil supply in the US is expected to increase by over 700,000 barrels a day this year. Looking ahead, however, questions remain over how sustainable this type of growth will be in the long term. In OPEC's recent World Oil Outlook 2012, shale oil increases to two million barrels a day (mbd) by 2020 and then to three mbd by 2035. And, of course, we expect to see additional increments coming from Canadian oil sands.
In terms of shale gas, production has increased from about 15 billion cubic feet a day (bcfd) in 2010 to 25 bcfd this year.
We at OPEC recognise that shale oil and gas hold great promise. In fact, a number of OPEC's member countries have significant resources in this regard. We see it as part of diverse energy mix - something we have always welcomed. However, the challenges associated with the environmental impact of hydraulic fracturing still remain, especially on groundwater supplies. While technology and scientific innovation will eventually help solve some of these problems, it will take time. It is also important to highlight the fact that the US still needs to overcome bottlenecks in its domestic oil transportation systems - a factor which may hinder future shale oil production. In terms of North American energy independence, however, I think at the moment we cannot say more than 'let's wait and see'. And I would like to add the simple fact that no country today can fully be energy independent. This is not the world we live in.
Q: Do you see developments in the US having an impact on the pricing of oil and gas?
A: I cannot make predictions on what may or may not impact prices. What I can say is that OPEC has no price target. Our priority is striving for a stable price: at a level that allows producers to receive a decent income and to invest to meet future demand, and at the same time, does not affect global economic growth.
The challenges associated with the environmental impact of hydraulic fracturing still remain, especially on groundwater supplies
On this latter point, I think it is important to highlight the break-even prices for all energies. Obviously these vary and prices that are too low may see some developments put on hold or stopped altogether because they are deemed uneconomic. This happened at the end of 2008 when prices fell to just above $30 per barrel. In turn, prices that are too low may 'sow the seeds' of high prices in the future if investments are not made. Q: In the next five years, we expect emerging markets, such as China and India, to be the main drivers of increased energy demand. How is OPEC reacting to this? Are there specific policies for these countries?
In OPEC's recent World Oil Outlook, published in November 2012, over the period 2010-2035 primary energy demand in the reference case increases by 54 per cent. In terms of oil, demand increases by over 20 mbd for the period 2010-2035, reaching 107.3 mbd by 2035. The region of developing Asia is expected to contribute 87 per cent of this increase.
Allow me to highlight a few other numbers from the World Oil Outlook. In terms of the Middle East and the Asia Pacific regions, crude oil exports from the former to the latter are expected to increase by six mbd between 2011 and 2035. The projected trend over this time period is for a redirection of crude oil exports from Europe, and the region of the US and Canada, to the growing markets of the Asia Pacific. And in terms of products, it is expected that the Middle East region will also meet the largest share of the rising product imports for the region.
I cannot comment on specific country policies. But it is clear, given the demand figures I have just highlighted for developing Asia, that this will be the key region for many OPEC member countries in the future. Q: The sanctions on Iran have impacted the country's oil production and exports. What are your thoughts on these developments? And is there a role that India and China can play in helping to resolve these tensions?
As far as the sanctions against Iran are concerned, I hope that an amicable solution will be reached soon. This region has had more than its fair share of conflicts! In terms of its current oil production and exports, these are communicated by Iran to the OPEC Secretariat and are published in our Monthly Oil Market Report.
As for a role for India and China, this is a decision for them to make as sovereign nations.Q: Do you think there needs to be more cooperation between producers and consumers such as India and China, where the bulk of the increase in energy demand is expected to come from in the future?
We live in an increasingly interdependent world, which makes dialogue between producers and consumers ever more critical. I am an advocate of continually evolving collaboration among producers and consumers. In terms of India and China, and their relationship to OPEC, there are clear benefits. As you mention, India and China are the main drivers of demand, and from OPEC's perspective, member countries hold over 80 per cent of the world's proven crude oil resources.
In addition, there is much we can learn from each other in terms of the challenges and opportunities we may face in the years ahead. OPEC has already held dialogues with China, but none as yet with India. We are open to do so, however. At OPEC, we are always ready to talk.
Prices that are too low may 'sow the seeds' of high prices in the future if investments are not made
In fact, OPEC has long recognised the importance of dialogue and cooperation with producers, as well as with other stakeholders. For example, OPEC continues to maintain a strong and positive relationship with the European Union. Its cooperation with the International Energy Agency also goes back many years and has advanced considerably. OPEC has also been proud to have played an active part in the formation of the International Energy Forum, which was founded as a platform to foster informal dialogue between producers and consumers.
Additionally, OPEC has expanded dialogue with Russia; our most recent meeting took place in September this year. And this past decade we have also seen dialogue with a number of other international organisations, such as the World Bank, the International Monetary Fund and the World Trade Organization.