By Saidu Abubakar
Supply chains have struggled to adjust to the realities of the COVID-19 pandemic, Secretary General of the Organisation of Petroleum Exporting Countries, OPEC, Dr. Mohammad Sanusi Barkindo has said.
Delivering a keynote address today at the MedGas Event Dinner in Athens, Greece, he noted that three decades of intensified globalization risk is going into reverse.
According to him “I have reflected on how best to synthesize the many strands and facets of these changes, and perhaps an illuminating gateway to explain the trajectory is the World Economic Forum Annual Meeting, that took place in Davos, Switzerland between 22 and 26 May 2022, the first such meeting since the outbreak of the COVID-19 pandemic.
It is important to view the recent meeting in the context of the history of the event. The World Economic Forum in Davos, founded by Klaus Schwab, represents more than a meeting in the popular imagination. It is the platform for and exemplification of the virtues Schwab has extolled for the past half century: an interconnected world with the free flow of goods, services, ideas and people contributing to shared prosperity, stability and peace.
He also emphasized that the lexicon of de-globalization reverberated in the corridors in Davos. There was a lot of discussion on nearshoring, onshoring and reshoring, as well as on the impact of rising interest rates and an end to the era of cheap borrowing.
Barkindo further stated that isolationism and protectionism, once confined to the fringes of political discourse, have received new prominence in elections across the world.
“I was delighted to visit the Acropolis of Athens as part of this mission. But more importantly, I am thrilled to have the opportunity to appreciate Mediterranean Gas with its forward oriented strategy and timely investments in LNG and Natural Gas systems as a significant contribution to the major diversification and energy security strive in Greece and in the region. It is particularly of importance at this time, given the current heightened uncertainties and volatility that we all face in energy markets.
“I commend and congratulate congratulate Mr. Theodore Theodoropoulos for the visionary leadership in Mediterranean Gas group of Companies, and Mr. Basilio Petkidis, President & CEO, Mediterranean Gas for the ARGO FSRU (Floating import of liquefied natural gas, storage, and regasification unit) project is a pioneering advanced technology application across the industry and a stimulating factor in the economy,” the OPEC scribe pointed out further.
Below is the full text of the keynote address:
MedGas Event Dinner
14 June 2022
Athens, Greece
Opening Keynote address by
HE Mohammad Sanusi Barkindo,
Secretary General, OPEC
Excellencies, distinguished delegates, ladies and gentlemen,
Kali Spera
It is a great pleasure to be back in Athens to address this prestigious event. As
ever, I have been overwhelmed and touched by that legendary Greek
hospitality – your philoxenia. I would like to thank the event organizers for their gracious invitation to attend today.
On a personal note, let me say at the offset, I am a proud philhellene; I love
Greece, your unique culture, history and warm and kind-hearted people. Indeed,
the world owes a great debt to this country. My great passion for the study of
history was ignited by reading the works of Herodotus and Thucydides. I recall as a student being moved by the tragedies of Aeschylus and Euripide. And like countless millions, my understanding of the world and life itself has been shaped by the works of Socrates and Aristotle.
I was delighted to visit the Acropolis of Athens as part of this mission. But more importantly, I am thrilled to have the opportunity to appreciate Mediterranean Gas with its forward oriented strategy and timely investments in LNG and Natural Gas systems as a significant contribution to the major diversification and energy security strive in Greece and in the region. It is particularly of importance at this time, given the current heightened
uncertainties and volatility that we all face in energy markets.
I commend and congratulate Mr. Theodore Theodoropoulos for the visionary
leadership in Mediterranean Gas group of Companies, and Mr. Basilio Petkidis, President & CEO, Mediterranean Gas for the ARGO FSRU (Floating import of liquefied natural gas, storage, and regasification unit) project – a pioneering advanced technology application across the industry and a stimulating factor in the economy.
In a few weeks from now, I will complete my assignment as OPEC Secretary
General, which began six years ago, on 1 August 2016. The pace of change in
world events over that time has been staggering. These changes have had major
ramifications for the energy industry.
I have reflected on how best to synthesize the many strands and facets of these
changes, and perhaps an illuminating gateway to explain the trajectory is the
World Economic Forum Annual Meeting, that took place in Davis, Switzerland between 22 and 26 May 2022, the first such meeting since the outbreak of the COVID-19 pandemic.
It is important to view the recent meeting in the context of the history of the
event. The World Economic Forum in Davos, founded by Klaus Schwab,
represents more than a meeting in the popular imagination. It is the platform for
and exemplification of the virtues Schwab has extolled for the past half century:
an interconnected world with the free flow of goods, services, ideas and people
contributing to shared prosperity, stability and peace.
These aspirations have been shaken to the core by events of the last two years.
Isolationism and protectionism, once confined to the fringes of political
discourse, have received new prominence in elections across the world. Supply chains have struggled to adjust to the realities of the COVID-19 pandemic.
Three decades of intensified globalization risk going into reverse.
The lexicon of de-globalization reverberated in the corridors in Davos. There was a lot of discussion on nearshoring, onshoring and reshoring, as well as on the impact of rising interest rates and an end to the era of cheap borrowing.
Perhaps nothing has challenged the Davos worldview more than the war in Ukraine and the subsequent geopolitical fallout. Dan Yergin, vice chair of the S&P Global, said that he had not seen such a focus on geopolitics in his 25 years of coming to the annual meeting in Davos.
It was a view echoed on another occasion by Larry Fink, Chief Executive of
BlackRock, in his annual letter to shareholders. The world’s largest asset
manager said that recent events have “put an end to the globalization we have
experienced over the last three decades.”
Certainly, there have been a lot of column inches and boardroom discussions
devoted to questions regarding the future of globalization. Investment patterns
that have dominated the last three decades, such as the idea of corporations
opting for cheap offshore manufacturing and slick global supply chains holding
costs down and keeping inflation levels low, are being put to the test. The
question now is whether the momentum behind globalization is shifting
towards local sourcing. Attention in public discourse has gravitated towards
issues such as so-called ‘supply chain sovereignty’ and domestic production
facilities.
The deployment of sanctions and attempts to sever some countries from the
global economic system has seen fractures in geopolitics spill into the economic sphere. And we should not be under any illusion that the attempt to ‘decouple’ economies or reverse globalization is a product of the 2020s. Indeed, it has been a mantra for many politicians over the last few decades. Many communities have expressed grievances at missing out on the opportunities that come from globalization, or feel they have been aggrieved as a result of it. This has fed into a skepticism of multilateralism and the multilateral system.
Some commentators have suggested the global economy may fragment into
economic blocs, as financial flows and supply chains re-organise and reorientate themselves.
The reasons for this trend are multifaceted. Of course, geopolitics plays a role, but the prospect of trade wars between the world’s largest two economies cast a long shadow over the global economy during the last six years, the impact of the pandemic, even the blockage of the Suez Canal last year, all made a contribution to this sentiment. Currently, supply chain disruption has been
intensified by severe caseloads of COVID-19 in certain areas of the world that
are manufacturing hubs.
The fate of globalization or at least the globalization in the form that we have
known for the last three decades has consequences for the oil industry that are
complex and manifold.
Also high on the agenda at Davos was talk of a possible food crisis. Kristalina
Georgieva, the IMF’s Managing Director, said global “anxiety around access to food at reasonable prices is hitting the roof.” She also spoke of the risk of ‘geo-economic fragmentation.’
The ramifications of China’s zero-covid policy continue to be felt throughout
global supply chains. Indeed, there were only a handful of Chinese delegates in
Davos, due to the COVID-19 situation.
The mood, therefore, at Davos can be described as ‘sombre.’
OPEC, in its Monthly Oil Market Report (MOMR) published today, which
is our overview of short-term developments in the market, has revised our forecasts to reflect these developments.
World economic growth in 2022 was revised down to 3.5% from 3.9% in
previous assessments. World oil demand in 2022 is forecast to increase by 3.4
mb/d y-o-y, representing a downward revision of 0.3 mb/d. Non-OPEC
liquids supply growth in 2022 was revised down by 0.3 mb/d y-o-y to 2.1 mb/d.
Against the backdrop of a fragile situation for the global economy, oil market
stability is absolutely essential. For this reason, OPEC’s cooperation with 10
non-OPEC oil producing countries under the ‘Declaration of Cooperation’is
absolutely pivotal.
Signed on 10 December 2016, the ‘Declaration of Cooperation’ between
OPEC and 10 non-OPEC Producing Countries is a pioneering framework for
multilateral energy cooperation and continues to contribute greatly to the postpandemic economic recovery as a vital stabilizing force in the global oil
industry.
Indeed, the ‘Declaration of Cooperation’ has enabled the oil industry to
withstand and recover from both the severe oil market downturn of 2014-2016
and the unprecedented oil market contraction following the outbreak of the
COVID-19 pandemic.
The objective of the ‘Declaration of Cooperation’ can be summarized in just
four words: sustainable oil market stability. OPEC does not seek stability for
stability’s sake: rather we are acutely conscious of the broader social and
economic benefits for all which come as a result of sustainable oil market
stability. This is particularly the case for a global economy still reeling from the
devastating effects of the COVID-19 pandemic.
The ‘Declaration of Cooperation’ continues to be a beacon and a bastion of stability, dependability and responsibility in a world of uncertainty. We remain true to the core principles at the heart of multilateralism.
It was the great Greek philosopher, Aristotle, who said, “You will never do anything in this world without courage. It is the greatest quality of the mind next to honor.”
The ‘Declaration of Cooperation’has truly taken courage. It has also been
adaptable. This was shown most recently at the 29th OPEC and non-OPEC
Ministerial Meeting, held on 2 June 2022. The Meeting noted the most recent
reopening from lockdowns in major global economic centers and that global
refinery intake is expected to increase after seasonal maintenance. For this reason, Participating Countries agreed to advance the planned overall production adjustment for the month of September and redistribute equally the 432 tb/d production increase over the months of July and August 2022. Therefore, July production will be adjusted upward by 648 tb/d.
Distinguished Ladies and gentlemen,
In recent years, public discourse around energy, climate and sustainable
development has become noisier and more forceful. This greater attention on
the energy transition is warranted, given the pressing need to reduce global
emissions, alleviate energy poverty, counter the impacts of the COVID-19
pandemic and find a sustainable way forward that leaves no one behind.
Unfortunately, the conversation has become less global and inclusive, with
some voices all but excluded. The narrative is often overtaken by emotion, with rational discussions based on facts, hard-data and science, taking a back seat.
Our industry is at an inflection point and has never before faced so many
challenges across multiple fronts in its long history. Put simply, we are under
siege.
In the courts, there are currently over 1,200 litigation cases against oil companies worldwide. Environmental NGOs, investors and even some corporate boards are pressuring oil companies and governments to pursue aggressive policies and initiatives that could, in the end, be more disruptive than productive for the global energy industry, especially given current concerns related to energy security.
We need to be cognizant of how oil and gas industry investments are being
impacted by Environmental Social Governance (ESG) requirements and the
climate disclosure drive from the financial community. ESG criteria can present a series of questions to investors. As several commentators have noted, there is no universally accepted objective and rigorous framework for ESG. Indeed, the ESG moniker is evolving into a catch-all term for a multitude of approaches to investment. There is an ongoing debate as to whether ESG represents an objective assessment around risk and opportunity or whether it advances into the territory of values and ethics.
We are concerned about the ESG footprint and stranded asset risk of the industry. There are also issues arising from the decision to combine E, S and G
in one moniker. Recent developments, particularly the war in Ukraine, have
pitted the E, S and G against each other, after years when the environmental
aspect of ESG was perhaps outweighing the need to address the social and
development issues.
The parameters of the public discourse often seem reduced to the question: are
you for, or against fossil fuels? It is perhaps the ultimate false dichotomy. It
erroneously limits what options are available. It should not be a question about
‘one or the other’.
The challenges before us are enormous, and we have seen recently that the
strains and conflicts related to energy affordability, energy security and the
need to reduce emissions require a delicate balancing act, comprehensive and
sustainable solutions, and with all voices heard, and listened to.
The recent geopolitical developmentsin Europe are a stark reminder of the
pressing issues related to the energy security. There is a critical need for all
forms of energy to be used in the transition.
In this context, I would like to reiterate my earlier words of praise for the
Mediterranean Gas leadership in proceeding with foresight and undertaking
such a timely and prestigious project. It demonstrates beyond doubt full faith in
the hydrocarbons industry and its essential role in our everyday life.
Mediterranean Gas deserve our sincerest commendation for contributing to
energy security and a smooth energy transition.
Ladies and gentlemen,
Recent experience has shown that focusing on only one of component in the
energy transition, while ignoring the others, can and has led to unintended
consequences, such as market distortions and price volatility.
The prevailing narrative does not correlate with the future trajectory of the
world’s energy needs. One cannot help but be reminded of the old quote: “Never theorize before you have data. Invariably, you end up twisting facts to suit theories, instead of theories to suit facts.”
Let us turn then to the data. According to OPEC’s World Oil Outlook, our flagship publication which looks at the longer term projections for the industry, the global economy in 2045 will be more than double the size it was in 2020, from around $125 trillion in 2020 to almost $270 trillion in 2045, based on 2017 purchasing power parity (2017 ppp). The global population is expected to reach 9.5 billion people by 2045, an increase of 20%.
As a result of these phenomenal demographic and economic changes, global energy demand is set to increase from 275 million barrels of oil equivalent a
day in 2020 to 352 mboe/d by 2045, growth of approximately 28%. No single
source of energy can meet this demand growth alone.
Demand for ‘Other renewables’ – combining mainly solar, wind and
geothermal energy- rises from 6.8 mboe/d in 2020 to close to 36.6 mboe/d in 2045. This means renewables’ share of the energy mix is predicted to rise from
2.5% in 2020 to 10% in 2045.
Clearly, multiple forms of energy are required to meet this rise in demand. Oil
is forecast to remain the fuel with the largest share of the global energy mix
up to 2045. In 2020, oil accounted for 30% of global energy requirements. By
2045, it is expected to account for approximately 28%. Oil and gastogether are still expected to account for more than 50% in this time horizon. We need to transition to a more inclusive, fair and equitable world in which every person has access to energy as referenced in UN Sustainable Development Goal 7; and we need to reduce emissions.
The challenge of tackling emissions has many paths, as evidenced by the
Intergovernmental Panel on Climate Change, the United Nations
Framework Convention of Climate Change (UNFCCC) and the Paris Agreement. It is not just one path for all, whether that be a country or an industry.
The capacities and national circumstances of developing countries must be
taken into account in all actions. In order to not render countries already
struggling even more besieged, it is necessary to carefully consider the
adverse socio-economic impacts on these countries due to mitigation activities,
in order to identify remediation measures and share best practices.
Investments are the life-blood of this industry. Cumulative oil-related
investment requirements amount to $11.8 trillion in the 2021-2045 period. Of
this, 80%, or $9.2 trillion is in the upstream, with another $1.5 and $1.1 trillion needed in the downstream and midstream, respectively.
Creating the stability in the oil market necessary to attract the required levels of
investment has been one of the primary motivations behind OPEC’s collaborative efforts with 10 non-OPEC countries under the ‘Declaration of Cooperation’ umbrella.
The investment requirements clearly underline that any talk of the oil and gas
industries being consigned to the past is misguided. Any shortfall could have
severe consequences. We could see crude oil and product shortages, all of which would have an impact on the global economy. The consequences of
underinvestment as a result of the supply-driven market downturn in 2015-
2016 and the COVID-19 pandemic is already been felt in the low spare capacity
we see today.
More energy, more investments are required. However, we also hear
conflicting statements on these issues as exhibited most recently by the G7
Ministers of Climate, Energy and the Environment.
They called for oil and gas producing countries, including reference to OPEC,
to play a key role in ensuring stable and sustainable global energy supplies, but
at the same time committed themselves to end financing for most overseas fossil
fuel projects by the end of 2022.
I believe there is an idiom here in Greece: ‘You want the entire pie and the dog
fed,’ or as the English saying goes, “You can’t have your cake and eat it.”
To put it simply: if investments are not made globally, if the capital does not
flow, and at the same time if consumers are still demanding the product, we
could see major market distortions, price volatility and energy insecurity.
At OPEC, we believe we need multilateralism at the centre of our energy,
climate and sustainable development future. OPEC and its Member Countries
have been directly involved in the evolution of the multilateral UNFCCC, whose core elements, particularly equity, common-but-differentiated responsibilities and national circumstances must remain central to all processes moving forward.
We are ready, willing and able to play a key role. This is not a race to renewables alone. Rather it is a race to reduce greenhouse gas emissions and in doing so, use energy more efficiently.
There is no doubt that the oil and gas industry can foster its resources and
expertise and help unlock a low-emissions future, through its role as a powerful
innovator in developing clean and more efficient technological solutions to help
reduce emissions. For example, carbon capture utilization and storage
(CCUS), blue hydrogen and others, as well in the promotion of the Circular
Carbon Economy to improve overall environmental performance.
Investing in technologies such as blue hydrogen and CCUS while harnessing
the ‘reduce, reuse, recycle and remove’ carbon principles are all critical paths
towards a sustainable society. These principles not only minimize the
environmental impacts of GHG emissions, but also contribute to achieving
socio-economic development and prosperity.
Access to affordable, reliable,sustainable and modern energy, is a right for all, not a privilege of the few. We must bear in mind that climate change and energy poverty are two sides of the same coin.
The unfortunate reality for developing countries is that a staggering 759 million
people worldwide did not have access to electricity in 2019, with three out of
four of them in Sub-Saharan Africa. Moreover, there were roughly 2.6 billion
people or 34% of the global population who did not have access to clean cooking fuels and technologies — and this includes a massive 70% of Africans, exposing them to high levels of household air pollution.
What can be viewed in the current energy market turmoil is what can occur if
we do not see the bigger picture. We need to connect all aspects of the energy
trilemma. This means working with each other, and not against each other. It is
in the interests of each and every one of us to evolve a sustainable energy future
that works for all.
Ladies and gentlemen,
Over the last six years, the oil industry and OPEC have confronted a range of
challenges, complex and confounding in equally measure. Yet, we never
wavered from the core values at the heart of OPEC: respect among nations;
cooperation; dialogue; and working towards collective solutions. I have no
doubt that these values can carry us forward to a brighter tomorrow. Here in
Athens, we take comfort from the wisdom of all the great Greek philosophers
and sages, including Epicurus, when he said: “The greater the difficulty, the more the glory in surmounting it.
Thank you for your kind attention