Organization of the Petroleum Exporting Countries (OPEC) Secretary General HE Abdalla Salem El-Badri addressed an audience at the 11th International Energy Forum (IEF), held in Rome April 21, where he spoke earnestly about the need for demand security in an "increasingly interdependent energy world."
The oil is there, said Badri, particularly in OPEC's Member Countries, but "minimizing uncertainty" by ensuring "appropriate demand conditions" is necessary to alleviate the investment fears of operators.
OPEC estimates the annual average rate increase of world energy demand to be 1.7%. Fossil fuels will constitute more than 85% of the world's energy needs, because so-called alternative fuels do not have the wherewithal to maintain energy needs of this magnitude.
"There are no viable substitutes in such quantities on even the most distant horizons," said Badri. Badri added that oil and gas will make up more than 60% of the energy needs of the world as the increase persists. The aforementioned annual average growth rate will bring worldwide production to 118 million bbl/d by the year 2030.
"Scenarios we have prepared, based on plausible higher and lower world economic growth assumptions, show that, even by 2020, there is an estimated range of uncertainty for required investment upstream by OPEC producers of around $270 billion," said Badri. " Without the confidence that additional demand for oil will emerge, and without the market signals that long-run prices are supportive, the incentive to invest can be affected.
"Just like anyone else, oil producers do not want to invest in capacity that will not be used."
Such a "security for demand" is dependant upon the implementation of policy, said Badri, which will bring about "greater predictability, consistency, stability and transparency." The Joint Oil Data Initiative has been a step in the right direction, he added.
Second-guessing in exploration and production investments is underscored by the cost of adding capacity. Badri noted that upstream costs have increased two-fold since 2005. Also, the graying of the workforce in the oil and gas industry is creating a shortage of skilled personnel, as much of the workforce rapidly approaches retirement.
However, Badri does not doubt the abundance of resources. "There is no doubt that the world has enough resources of oil to satisfy consumers for decades to come.
"Estimates from the US Geological Survey of ultimately recoverable reserves have practically doubled since the early 1980s, from just under 1.7 trillion barrels to over 3.3 trillion barrels -- while cumulative production, during the same period, has been less than one-third of this increase."
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