Organization of the Petroleum Exporting Countries 1
Global Oil Outlook up to 2025
Presented byDr. Hasan M. Qabazard
Director, Research Division, OPEC
Vienna June 22, 2006
Annual General Assembly of theInternational Chamber of Commerce - Austria
Organization of the Petroleum Exporting Countries 2
The real price is still well below historical highsNon-energy commodity prices have also risenNon-fundamentals are highly influential in shaping sentiments and play a role in prices.
Rising oil prices to unexpectedly high levels (OPEC reference basket & WTI in $/bbl)
0
20
40
60
80
100
2000 2002 2004 2006*
WTI OPEC R. Basket (ORB)
* year-to-date avg. up to June 13.
Nominal prices
80 82 84 86 88 90 92 94 96 98 00 02 04 06
Average ORB R Nominal Real*
*/ inf lation & exchange-rate adjusted. (Base: May 2006=100, US$/b)
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Break in conventional stock/price relationship in crudeWTI vs US crude oil stocks
R2 = 0.7
0
10
20
30
40
50
60
70
80
255 270 285 300 315 330 345 360
1994 - 2003 2004 2005 2006
(US
$/b
)
(million barrels)
Oil prices more disconnected from stocks than beforeSince 2004, the flat move in stocks & prices has shifted to a higher level.
2006
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2004
2005
Avg.01-05
2300
2350
2400
2450
2500
2550
2600
2650
2700
2750
Jan
Feb
Mar Apr
May
Jun
Jul
Aug
Sep
Oct
Nov Dec
2001-2005 Max/Min
2006
OECD commercial stocks are at comfortable levels, yet prices remain high!
Million barrels
2004
2005Avg.01-05
48
49
50
51
52
53
54
55
56
57
58
Jan
Feb
Mar
Apr
May Jun
Jul
Aug Sep
Oct
Nov Dec
2001-2005 Max/Min
2006
Confluence of factors: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 downstream refining sectorHeightened geopolitical concerns –fears of supply disruptionsIncreasing activity in futures market (new wave of capital movement by funds)
Days of forward cover
Organization of the Petroleum Exporting Countries 5
High OPEC production accommodates demand surgeEffective use of its spare capacity
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2000 2001 2002 2003 2004 2005 2006
Demand growth OPEC spare capacity Cum. OPEC production increase
OPEC have increased production by 4.5 mb/d since 2002Accelerating capacity expansion to maintain adequate spare capacity
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Continued steady growth in world economy% growth in GDP
2.9
5.6
9.5
4.7
0 2 4 6 8 10
OECD
DCs
China
World
2006F2005E2004
Recent revisions confirm resilient world economic growth with forward momentumGrowth in 2006 is steadily broadening beyond North America & China Chinese economy remains robust: 1Q 06 growth at 10.2% above expectationsDCs economy in ‘06 expected to consolidate similar to ’05Impact of higher oil prices on global GDP have been so far limited (< 1% since ’02)Delicate balance between interest rates & inflation: interest rates will now be the focus!
China economic growth (%)
5
7
9
11
13
15
92 94 96 98 00 02 04 06
> 10%
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World energy demand by fuel type (mtoe)
0
1000
2000
3000
4000
5000
6000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Oil
Coal
Hydro/nuclear/renewable
Gas
Oil will remain single largest fuel in primary energy mix.
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Conventional liquids resource base is sufficient
Date of assessment release
0
500
1000
1500
2000
2500
3000
3500
1984 1987 1991 1994 2000
billi
on b
arre
ls
USGS estimates ofremaining resources
Cumulative production
Source: USGS
Resources are plentiful…but prices can affect estimatesTechnology blurs distinction between conventional and non-conventional oilResource base likely to continue to grow …especially with non-conventional oilBroad agreement among international agencies on this idea
Organization of the Petroleum Exporting Countries 9
OPEC’s longstanding commitment to oil market stability
“…ensuring the stabilisation of prices in international oil markets, with a view to eliminating harmful and unnecessary fluctuations.
“…securing a steady income to the producing countries, an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on their capital to those investing in the petroleum industry.”
OPEC Statute, 1961
“…there is a need to support fair and stable prices, sustainability of supply, and security of demand.”
The OPEC Long-Term Strategy, 2005
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Global energy security: shared responsibility
Global energy security is fundamental to lifein 21st Century
The basis for global energy security is a balanced and mutually supportive supply and demand network at reasonable price levels to both consumers and producers
Organization of the Petroleum Exporting Countries 11
-100 200 500 800 1100 1400 1700 2000
Venezuela
UAE
Saudi Arabia
Qatar
Nigeria
Libya
Kuwait
Iran
Indonesia
Algeria
2006
2007
2008
2009
2010
OPEC 10 capacity expansion plans, (tb/d)
Source: based on projects and other assumptions including secondary sources
Over 100 projects with cumulative investments of more than $100 billion!50% of these projects are in partnership with IOC’sOPEC-10 cumulative capacity increase > 4 mb/d by 2010, with Iraq: 5-6 mb/dProduction of other liquids + NGL is also expected to increase by 2 mb/d
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Oil demand outlook, mb/d
Oil demand increases by 30 mb/d by 2025, or 1.5 mb/d annuallyFour-fifths of the increase in demand comes from developing countriesTransportation continues to be the dominant source of growth (~60 %)Many uncertainties: GDP, technology, policy.
Reference 2005 2010 2015 2020 2025 OECD 49.8 51.4 52.7 53.8 54.7 DCs 29.0 34.4 40.3 46.4 52.8 Transition economies 4.8 5.1 5.4 5.7 5.9 Total World 83.6 90.9 98.4 105.9 113.4
Organization of the Petroleum Exporting Countries 13
0
100
200
300
400
500
600
700
800
900
50% of the countries in the World have fewer than 80 vehicles per 1000
China: 16South Asia: 10 or lower
USA: 822
Most West European countries have 400-600
Latin America, S. E. Asia and Middle East: typically 50-200
Most countries below 10 are in Africa
Russia and East European countries tend to be 200-400
Probably >40% below 50
Japan: 581
Vehicle ownership per 1000 inhabitants in 2003In DCs: structural change in the economy - growing faster than the rest of the world, fueled by strong growth in oil
Long-way to go: in line with rising per capita income levels, low per capita oil demand is yet to approach levels of other countries!
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Taxation of oil productsDiesel prices & taxes, December 2005
60%
44%
50%
48%
34%
25%
19%
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40
UK
Italy
Germany
France
Japan
Canada
USA
US$/litre
Crude CIF PriceIndustry MarginTax
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There is considerable uncertainty overhow much oil OPEC will need to produce, (mb/d)
Significant uncertainties with substantial downside risks.Considerable implications on the scale & timing of investments!“Road-map” for oil demand is called for!
Reference 2005 2010 2020 2025 OECD 20.9 20.9 19.9 19.3 DCs (exc. OPEC) 16.1 18.2 19.4 18.9 Russia & Caspian 11.7 13.1 14.9 15.3 Non-OPEC 50.5 54.3 56.8 56.4 OPEC (inc. NGLs) 33.1 36.6 49.1 57.0
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Uncertain future demand translates into a broad range of possible OPEC investment needs
0
100
200
300
400
500
2006 2008 2010 2012 2014 2016 2018 2020
$(20
05) b
illio
n
Reference case
Low growth
$150-290 billion
$230-470 billion
$80-130 billion
High growth
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Distillation capacity additions vs. incremental crude runs
0
4
8
12
16
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
mb/
d
Cumulative increase in crude runs
Optimistic cumulative capacity additions
Realistic cumulative capacity additions
Cumulative increases from 2005
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Refining investments in the reference case2005-2015,
0
20
40
60
80
100
USA/Canada
Latin America
Africa Europe FSU Middle East
Asia/Pacific
$(20
05) b
illio
n
maintenance/capacity replacement
required additions
under construction
Total investment requirement 2005-2015: $311 billion (2005 prices)
Organization of the Petroleum Exporting Countries 19
0
5
10
15
20
25
30
1972 1976 1980 1984 1988 1992 1996 2000 2005
CO
HC+ NOx
> 70 g/km
Huge progress has been made in addressing local pollution concerns: evolution of pollutant emissions (individual cars)
g/km 2000 2005
CO 2,3 1Gasoline 0,2 0,1
0,15 0,08
CO 0,5Diesel NOx 0,5 0,25
HC+NOxPM 0,05 0,025
HCNOx
0,64
0,56 0,3
Source: IFP
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Carbon capture and storage
Cost to sequester 750 gigatonnes CO2 is small relative to Gross World Product
CO2 Capture issues
CO2 Transport & storage
CO2 EOR
CCS demonstration projects exist
But large scale demonstration projects are needed to push this technological option forward
40 Gt CO2<2% of Emissions to 2050
920 Gt CO245% of Emissions to 2050
400-10,000 Gt CO220-500 % of Emissions to 2050
CO2 Storage
Source: IEA
Organization of the Petroleum Exporting Countries 21
Enhanced & more in-depth Dialogue
“Dialogue… should be widened and deepened to cover more issues of mutual concern…”
The OPEC Long-Term Strategy
2005 — launch of formal Energy Dialogues between OPEC and: EU, China, Russia
3rd EU-OPEC Energy Dialogue (June 7, 2006)
10th International Energy Forum (IEF), Doha
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3D seismic costs have doubled in the last 24 monthsDeepwater 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.
35 35
4540
15
30
0
10
20
30
40
50
Exploration Infrastructure Drilling SURF Personnel Facilities
(%)
Source: Goldman Sachs, OPEC Secretariat
Cost split for a typical deepwater development
Infrastructure20%
SURF 15%
Exploration10%
Personnel10%
Facilities 20%
Drilling25%
Rising project costs: indicative cost rises
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Concluding remarks
Recent market conditions influenced by a convergence of factorsTightness in downstream sector as a potential source of instabilitySecurity of demand and security of supply are mutually supportiveUncertain scale of investment required in OPECInvestment requirements are large, subject to long lead-times and pay-back periodsKey role of energy in supporting the three pillars of sustainable development (social and economic development and the protection of the environment) Recognise the role of technology in addressing climate change: carbon capture and storageThe pressing need to eradicate human poverty: an overriding priority
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www.opec.org
Thank you
