OPEC keeping the energy industry going in its 60th year

Mohammad Sanusi Barkindo, OPEC Secretary General spoke exclusively to Julian Walker about the challenges of responding to COVID-19, embracing energy transition and the significance of OPEC turning 60 this year

This year marks OPEC’s 60th anniversary, which is an important milestone. What does it mean for you as the Secretary General?

OPEC’s 60th is indeed a milestone and this year will be remembered as a defining moment for the Organisation. OPEC’s leadership in confronting the unparalleled market conditions caused by the COVID-19 crisis has been accompanied by an outpouring of global support and unprecedented levels of cooperation. This recognition and support are a great tribute to OPEC and all its Member Countries. As Secretary General, it is humbling to follow in the footsteps of the visionary and transformational leaders who helped make this Organisation what it is today.

What do you think have been OPEC’s major achievements during its history?

OPEC’s exceptionalism stems from the idealism and visionary principles of its five Founder Members -- Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. From our beginning, we have helped stabilise an inherently volatile commodity in order to provide an efficient, economic and regular supply of crude oil in the interests of producing countries, consumers and the global economy at large. Today, in the midst of one of the worst humanitarian and economic crises of our times, OPEC and its Member Countries are honouring these founding principles by working to ensure that the world has a stable and sustainable supply of oil. This is a very noteworthy achievement and a source of pride for our Member Countries.

Do you see any green shoots of recovery in the global oil and gas sector?

The markets at the moment are overshadowed by the resurgence of COVID-19 and the slower-than-expected pace of economic recovery. I can speak best about oil, and for this year we expect global crude oil demand to be slightly more than 90 mb/d, which represents a staggering 10 per cent drop this year. Despite the current gloom, we are optimistic that the global economy will bounce back by around 4.6 per cent next year, generating oil demand recovery in the neighbourhood of 6 mb/d to 7 mb/d.

The outlook for next year is much brighter in China and India, with economic growth in each country rising by nearly 7 per cent. Oil demand should grow by 14 per cent in India and nearly 9 per cent in China compared to this year, translating into a 1.7 mb/d increase in the two countries combined. Globally, we anticipate a lot of pent-up demand, for instance in road transport, aviation and industrial activity. This should help drive oil demand in the medium-term. While we now believe the worst is over, we will continue to do what it takes to support a stable and balanced oil market.

How do you see the continued impact of COVID-19 on future oil demand?

The prospects may look anaemic now, but we anticipate a gradual normalisation of demand growth as the world recovers from the COVID-19 shock. Our analysts foresee global oil demand returning to relatively robust annual growth and reaching a level of nearly 104 mb/d by 2025. In the longer term, there are a number of factors that will drive demand, such as population and economic growth, especially in developing and emerging economies. We expect the global economy to more than double from 2019 to 2045 and the population to grow by at least 20 per cent.

This means that our world will continue to thirst for energy. Our latest World Oil Outlook, OPEC’s flagship annual publication, anticipates that oil will remain the dominant fuel in the global energy mix for the foreseeable future, accounting for a nearly 28 per cent share in 2045, followed by gas at around 25 per cent. In absolute terms, we see oil demand rising by almost 10 mb/d from 2019’s levels to around 109 mb/d in 2045. The non-OECD will be the growth powerhouse, with oil demand rising by 22.5 mb/d to around 74 mb/d in 2045.

COVID-19 has not spared anyone, rich or poor. But it adds a new layer of vulnerability for the 800 million people in the world who lack access to electricity. The pandemic has brought to the fore the need to close the gap on energy poverty and thus help achieve one of the UN’s Sustainable Development Goals. The sheer magnitude of the access challenge calls for all available energy options, including oil and gas.

How has OPEC responded to COVID-19 and how has it changed you working ways?

Our top priority has been the safety of the OPEC Secretariat staff and their families. We have a very strong relationship with the Austrian government, our hosts since 1965, and we have been working closely with the Austrian authorities to provide a safe, flexible and productive work environment. As a result, we have successfully maintained uninterrupted services to our Member Countries and other stakeholders throughout this crisis.

The OPEC Secretariat quickly adopted the use of videoconferencing and the timing was fortuitous, for it has allowed us great flexibility in organising meetings and conferences to address the rapid changes in market conditions. Virtual meetings are likely to become a permanent option for OPEC, but they can never replace the inherent value of human interactions. We look forward to holding in-person meetings when it is safe and practical to do so.

What is OPEC doing in terms of looking at new technologies?

OPEC’s Member Countries, like the oil industry in general, have always been at the forefront of developing and deploying technologies to drive efficiency in exploration, production and logistics. At the same time, we put a lot of resources into advancing the skills, capacities and education of the industry’s employees. You can’t have one without the other.

As I noted earlier, the COVID-19 crisis has ushered in a digital era that has brought tremendous changes to our way of working. In fact, we have used virtual platforms to host numerous workshops and discussions to share knowledge and expertise on innovation and technology. We have had numerous dialogues with leaders in government, the energy industry and academia to foster cooperation and harness the power of data. All these interactions have involved important partners such as the International Energy Forum, the International Energy Agency, the Gas Exporting Countries Forum, African Energy Commission as well as other well-established agencies in the industry. We are eager to participate in ADIPEC’s virtual sessions this year to learn more about the latest industry expertise, applications, products, solutions and services.

What do you see as the main energy challenges going forward?

Investment is one challenge that immediately comes to mind. The loss of investor appetite was a concern of ours before the current crisis. We will need financial firepower to grow out of the COVID-19 crisis, to sustain technological development and human capacity, and to help provide a stable, economic and secure energy supply for the future.

The latest assessments show that upstream capital expenditure could fall by more than 30 per cent in 2020, exceeding the annual dramatic declines seen in the industry downturn of 2015 and 2016. We need to compensate for this blow and be in a position to grow in the future. Our World Oil Outlook shows that investment of around $12 trillion will be needed in the upstream, midstream and downstream between now and 2045. To get there, it is essential that the policy discussions on energy and investment remain inclusive and supportive of a diverse portfolio of energy options.

How is OPEC adapting to the new energy landscape? Are you looking more at ways to work with the energy transition?

OPEC and its Member Countries are fully supportive of an energy transition that draws on the strengths of all energy forms, including oil and gas, the workhorses of our global energy system. In fact, many of our Member Countries are ahead of the curve and are already diversifying their own energy portfolios. A good example is the UAE, our ADIPEC hosts, which has become a leader in expanding the use of carbon capture, utilisation and storage to harness the full potential of its natural resources.

Another example is Saudi Arabia, which holds the rotating presidency of the G20 this year. It has used this important multilateral platform to drive the global discussion on the circular carbon economy and its ‘4Rs’ – reduce, reuse, recycle and remove. Examples like these demonstrate that OPEC is setting a new standard for global cooperation on how technology and innovation can help address the world’s energy and environmental needs in an inclusive and sustainable way.

Do you feel that the Declaration of Cooperation (DoC) in April was a key moment for OPEC? How important is future co-operation going forward?

There were those who doubted the Declaration Cooperation (DoC) would survive when it was signed on December 10, 2016, at the apex of a severe market downturn. Four years later, we are stronger than ever and continuing to do what we know best in the face of unprecedented market conditions. The actions taken by the DoC in April of this year to collectively adjust down production over a two-year period, starting with almost 10 mb/d, or around 10 per cent of the world’s supply, was a bellwether moment for the DoC. This bold and proactive decision has helped stabilise the markets and restore confidence.

The DoC participating countries remain vigilant given the continued uncertainties about economic growth prospects and the oil demand and supply picture. All 23 participating country recognise that the attainment of 100 per cent conformity is not only fair and equitable, but vital for the ongoing and timely rebalancing efforts and helping deliver sustainable oil market stability.

In terms for cooperation going forward, these same countries endorsed the Charter of Cooperation in July 2019. The Charter provides a unique and longer-term platform to address important issues beyond the market-balancing efforts -- such as climate change, the energy transition and energy poverty -- in a collaborative and inclusive way. This is another indication of the importance that is given to dialogue and cooperation by the participating countries.

What is the importance of ADIPEC taking place virtually during this year in light of COVID-19?

My colleagues and I at the OPEC Secretariat have been attending ADIPEC regularly and profit each year from the opportunity to share wisdom and experiences with some of the industry’s top professionals. I am grateful to the Ministry of Energy and Industry, the Abu Dhabi National Oil Company, and all those who make ADIPEC possible every year. This year’s ADIPEC is especially timely given the challenges and uncertainties we face in the oil and gas industries, and the energy sector in general. I look forward to participating in this year’s virtual programme, but I anxiously await the day when we can return to the Emirates and Abu Dhabi and do this again in person.