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WorldDecember 10 2014

Looking at the bigger energy security picture

A holistic view and a coordinated approach: both are needed with regards to the global energy security situation if future demand is to be met, says OPEC secretary-general Abdalla Salem El-Badri.
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Looking at the bigger energy security picture

Concerns about local, regional and global energy security are at the top of the agenda for many countries around the world. With the focus not just on oil, but on the entire energy value chain, it is essential to better understand the needs and requirements of each and every stakeholder – whether they be individuals or large multinationals, national or international energy companies, or upstream or downstream players.

To do this we need to view the entire energy system holistically, especially given the ever-increasing linkages between local, regional and global levels. It is crucial that we try to better appreciate each other’s viewpoints, seek to be pragmatic in our discussions, and strive to be realistic in setting our targets and goals. Understanding the inter-related nature of the challenges and opportunities that face us all will help us to improve our responses, and achieve the goals of enhancing energy security, advancing market stability and delivering a sustainable energy future.

Projected demand

The importance of these issues is evident when we look at the expected future energy outlook. In the coming years, demand for energy will grow significantly – as the world's population grows, the global economy will continue to expand and more people will demand modern energy services. In the reference case in OPEC’s World Oil Outlook [WOO] 2014, energy demand increases by 60% between 2010 and 2040, with fossil fuels remaining central to the energy mix. Through the initial part of that projection period, oil is expected to continue to have the largest share of all energy types. But after 2030, the individual shares of the three fossil fuels – coal, gas and oil – are seen converging towards similar levels of about 25% to 27%. 

In terms of non-fossil fuels, renewable energy grows fast over the projection period in the reference case. But it starts from a low base and its share will be still only 4% by 2040. Hydropower, nuclear and biomass in 2040 are expected to be at levels similar to today.

In the past some might have questioned whether there were enough resources to meet these future energy growth patterns. It is clear today that there are sufficient resources – both from fossil fuels and non-fossil fuels. The main focus is on issues related to deliverability and sustainability.

In terms of the oil industry in particular, the issues include developing a better understanding of the factors that could have both medium- and long-term impacts on both supply and demand. Central to this is the issue of energy security.

The energy security circle

The concept of energy security should be viewed as a full circle: on one side there is security of demand, which is important to producers, while on the other side there is the issue of security of supply, which is just as important to consumers. 

For producers, it is critical to have a better understanding of demand-side developments, particularly those policies in consuming countries that provide an unclear picture of their potential impact on future oil consumption levels and overall energy demand. If such policies and their potential impacts are not understood and predictable, the situation can lead to investment uncertainty – and, in turn, to future market instability. Put simply: producers do not want to waste precious financial resources on infrastructure that might not be needed.

At the same time, however, if timely and adequate investments are not made now then future consumer needs might not be met – which could threaten the security of supply. The importance of this is further underscored when looking at assessments for oil-related investments. In the WOO 2014, it is estimated that oil-related investment requirements will approach $10,000bn (in 2013 dollars) between 2014 and 2040, $7300bn for the upstream, $1100bn for the midstream and $1600bn for refining.

All of this underlines the significance of the link between security of supply and security of demand.

Working to improve

It is thus important that both consumers and producers actively take advantage of opportunities such as the Joint Organisations Data Initiative (JODI), which can help to enhance the transparency, quality, timeliness and flows of oil market data from both the demand and supply perspectives.

Additionally, there is a need to continually improve our understanding of other oil industry-related matters. These include the effects of excessive market volatility, and the role and impact of financial market speculation on the oil market, as well as human resource requirements and potential manpower shortages.

In addition, there are other broader issues to be considered by the energy industry’s stakeholders – as well as by world leaders – in the years ahead. Environmental protection, climate change and sustainable development are among these.

There are the ongoing UN climate change negotiations. OPEC recognises the importance of being part of these negotiations in order to develop common, shared solutions that safeguard the legitimate interests of all parties involved. However, it is also essential that these multilateral negotiations reach an agreement that is comprehensive, balanced, fair and equitable.

At the same time, it is essential that we all continue to work hard to make sure everyone has access to reliable and sustainable modern energy services. With an estimated 1.3 billion people without access to electricity in the world, and some 2.7 billion relying on biomass for their basic needs, energy poverty needs the urgent and critical attention of world leaders. It is extremely positive that goal seven of the UN’s Sustainable Development Goals calls for countries to “ensure access to affordable, reliable, sustainable and modern energy for all”.

Sustainable development is also a high priority for OPEC member countries. It is the main goal of the financial and technical assistance they provide to other developing countries, whether directly through their own aid institutions or through their participation in the OPEC Fund for International Development.

The power of dialogue

To help meet some of the challenges and uncertainties facing the global oil market, and the world in general, we at OPEC believe it is important to continually explore ways to develop and expand our dialogue and co-operation with other stakeholders. We recognise the value of strong and mutually beneficial relationships.  

A prime example of this is OPEC’s proactive participation in the International Energy Forum, which plays an important role in strengthening energy co-operation and dialogue between producers and consumers. Our involvement in this includes being a partner organisation in JODI. In addition, we regularly participate in various other dialogue processes, such as those between OPEC, the International Energy Forum and the International Energy Agency. Over the past year, these have included workshops and conferences on energy outlooks, the interactions between physical and financial markets, and gas and coal market outlooks.

OPEC has also been closely involved in several of the G20’s energy-related work streams, including one on the role of the oil-price-reporting agencies and another which examined ways to enhance JODI-related activities.

In addition, as part of the well-established EU-OPEC energy dialogue, there have been a number of co-operative activities undertaken this past year. These include the 11th ministerial-level meeting and the development of a joint study on the ‘Petrochemical outlook: challenges and opportunities’ and a subsequent roundtable discussion. The past year has also seen the third high-level meeting of the Russia-OPEC energy dialogue, as well as technical meetings with experts from both OPEC and Russia on energy outlooks, tight oil and shale gas, and global refinery developments.

Such dialogue and co-operation are essential elements in our ongoing efforts to maintain stability and confidence in the industry. Those of us who are in the energy business have a responsibility to engage in such activities, and to do everything we can to enhance the security and stability of the energy system on which we all depend.

While each stakeholder will obviously have differing agendas and face different challenges, and even though we can never expect to find complete agreement and consensus on everything, it is important to continue working towards finding common ground around issues of mutual concern. Thus, we need to look for shared solutions, wherever and whenever appropriate. We need to have an environment that is conducive to reaching constructive end results. And we need to make sure that we have input from each and every stakeholder.

These are all important tasks. And they are especially relevant to the work that we all do, since we all have one shared common objective: ensuring a secure, stable and sustainable energy future for the world.

Abdalla Salem El-Badri is the secretary-general at the Organisation of the Petroleum Exporting Countries.

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