In the Game

What do the UAE government’s plans to increase oil production to 3.5 million from 2.7 million barrels per day (bbl/d) by 2017 mean for OPEC in terms of maintaining reliability of supply to consumer nations?

For many decades, the UAE has helped supply the world with its oil needs through exploring, producing, refining, and transporting these precious natural resources, both at home and internationally. Today, with around 100 billion barrels of proven crude oil reserves and close to 3% of current global production, the UAE is one of the world’s leading oil and energy hubs. Its current investment plans reinforce its commitment to make sure its consumers’ needs are met. And there is no doubt the world will need more oil in the years ahead, with demand expected to rise by around 19 million bbl/d by 2035. With the majority of this demand increase in Asia, the UAE is also ideally positioned geographically as the global energy axis shifts to the East. Combined with investments in other OPEC member countries, the Organization is demonstrating the seriousness it attaches to the need for adequate production capacity to be in place, not only to meet the demand for its oil, but also to offer sufficient spare capacity.

What are the ramifications of increased North American hydrocarbon production and the development of its tight oil reserves for OPEC’s GCC members in terms of production targets, pricing, and upstream investment over the coming decade?

Over the past couple of years there has evidently been an increasing media focus on North American tight oil production. I think it is important to stress that these supplies are a welcome addition to the global supply outlook, and, at the same time, provide further proof to consumers that the world is not running out of oil. Of course, people have asked how these developments might impact other producers, such as GCC member states. To date, it has been relatively minimal. Yes, the US is producing more and importing less than a few years ago. Yes, some producers have lost some market share in the US. But, we should put these developments into some context. Firstly, we need to remember that global demand is close to 90 million bbl/d, and with demand set to expand further there is room for all producers. And secondly, we need to see how sustainable this type of tight oil production is in the long term. For example, the industry is already seeing tight oil fields reach a production plateau after a year or so and then witness a steep decline rate. There have been reports that shale wells can drop off by more than 60% within the first year. In addition, there are also some environmental concerns, and when looking globally, questions remain as to whether US developments can be replicated elsewhere. As it has done for many decades, OPEC and its member countries will continue to monitor the market on a daily basis, and make sure production and future investments are in-line with how we see the market in the coming months and years.

How important is investment in downstream development in the UAE for meeting current global demand for refined products?

It is clear that many national oil companies are looking to expand their downstream portfolios to establish synergies between their upstream and downstream petroleum businesses, both at home and overseas. This is certainly true in the UAE, where significant downstream developments are taking place. There is the current expansion project taking place at Ruwais, which will make it one of the largest refineries in the world. And there are plans to build a refining complex at Fujairah, as well as plans to boost the refining capacity of the Jebel Ali refinery off the coast of Dubai. These projects will not only help to meet the growing demand for petroleum products in the UAE, they will also increase the country’s ability to export more. Given its closeness to the Asia-Pacific region, it is easy to see the potential benefits. According to OPEC’s latest World Oil Outlook, oil product demand in the Asia Pacific region is seen increasing by around 16 million bbl/d by 2035, over 2012 levels.

Abu Dhabi is spending some $25 billion on LNG projects. How do you see the future of this energy source affecting OPEC’s strategic direction?

At OPEC, we recognize the expanding role of LNG and gas in general. In OPEC’s World Oil Outlook 2013 we anticipate that gas will increase its share of the energy mix from around 22% today to just over 26% in 2035, whereas oil witnesses a fall from 32%, to converge with gas at around 26% by 2035. So what does this mean for OPEC? While oil’s overall share in the energy mix falls, it will still see significant expansion and remain central to the global energy mix. It will thus remain central to member country economies. I do not believe it will alter OPEC’s strategic direction. And let me add that OPEC welcomes the efficient and sustainable development of all energy technologies.

How does OPEC support clean energy initiatives and diversification efforts such as the recently built Shams 1 solar power plant in the Western Region of the UAE?

Obviously, oil and gas remains central to the economies of OPEC member countries and this will be true for the foreseeable future. However, many are now also investing in clean energy initiatives and making huge efforts to protect the environment, as well as diversifying their economies to reduce their reliance on oil and gas. For example, in the petroleum sector, many companies are supplying cleaner projects and investing in technologies such as carbon capture and storage, and in other energies, such as solar and wind power. They are also investing significantly in cleaner energy and the UAE is a great example of this. Its Masdar Initiative, which is focused on R&D, pilot projects, and technology testing for renewable energies and clean technologies, has gained worldwide fame. It is an initiative that OPEC fully supports. Moreover, OPEC recognizes that it is becoming increasingly crucial for oil producers who still depend heavily on oil revenues to look to other sources of income. Diversity, in this regard, is vital.

How important a role does the UAE play in OPEC?

Every OPEC member country is important to the Organization. In terms of the UAE, it has of course hosted a number of OPEC Ministerial Conferences, seen its ministers sit as OPEC Conference President on many occasions, and afforded OPEC a Secretary General in the 1980s. It has also provided staff to the Secretariat and been actively involved in the Organization’s meetings and activities. We respect and appreciate the UAE’s support and input.

How important is it for OPEC, and its member countries, to expand dialogue and further cooperation with consumers?

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 fact, OPEC has long recognized 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 EU. 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 is located in a GCC member, Saudi Arabia. Additionally, OPEC has had dialogues with both Russia and China, and with a number of other international organizations, such as the World Bank, the IMF, and the World Trade Organization.

© The Business Year – September 2013