Organization of the Petroleum Exporting Countries
OPEC’s perspective
on
oil market developments
Dr Adnan Shihab-Eldin
Acting for the Secretary General
7th APEC Energy Ministers’ Meeting
19 October 2005
Gyeongju, Republic of Korea
1
World economic growth & APEC economies
Rates of economic growth Contribution of APEC economies
Rates of economic growth
Contribution of APEC 80
(real terms, at 1995 PPP) economies
10
USA China Japan APEC
(real terms, at 1995 PPP)
70
8
10 80 China 60
12
USA China Japan APEC
70 50 24
6
40
3
6
12
8 China
(% )
(%)
APEC
4 60 World
30 24 61
13 56
USA 20 37
2 50 Japan 10 17 21 24
6
3 0
0
40
t
P
P
en
D
D
(%)
6
em
G
G
APEC
(% )
ld
C
cr
or
E
in
AP
W
-2
4 30
P
61 2005
D
24 2003 World
G
2001
2000 2002 2004 2006
13 56
USA
20 37
2 Japan
in
Strong growth17 APEC economies
10 As
21 the most economically dynamic
(e.g, China): growing faster than the region in the world, the Asia-Pacific
world 0 significant contribution to
0 with now accounts ~ 60% of global energy
the global GDP demand.
t
P
P
en
D
D
em
Globalization process (export-led The first 3 largest oil consumers are
G
G
ld
C
cr
-2
growth, increasing role of FDI) within APEC
or
PE
in
W
P
A
2000 2001 2002 2003 2004 2005 2006
D
G
2
Oil demand growth
(mb/d)
demand, barrelsthedemand capita per year
Oil 2004 was the%highestofoilperwordl : growth in 25 years.
APECbarrels gas profile highest oil demand growthavg: years.
APEC oil & per capita per year in 25 1.9
Oil demand,shares of the world: 2004 2004 Last 10 years avg: 1.4
2004 was 2004
oil & gas profile: the
APEC oil & & gas profile
APEC oil gas profile: 2004 Last 3 years
3.0 4.0 % % shares of the wordl : 2004
shares of the world: 2004
4.0
80
% shares
Reserves Production Demand
3.0
2.5 3.0
70
80 2.0 Last 20 years avg: 1.2
27
60
Reserves 1.0
Production Demand
mb/d
50
2.0 70
mb/d
24 2.0 0.0
(%)
40
Per capita oil demand ratios -1.0
21 1.0
30
60 59 58
India 54
China -2.0 Last 3 years avg: 1.9
1.5
20
37 38 Last 10 years avg: 1.4
18 50 Brazil 6 3 -3.0
mb/d
10
Last 20 years avg: 1.2
mb/d
13
150 0.0
-4.0
1.0 UK 14 7
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
(%)
Oil N.gas
40 USA 34 16
12 -1.0
3.0 Last 3 years avg: 1.9
Last 10 years avg: 1.4
Oil demand, barrels per capita per year
Oil demand, barrels per capita per year
2.5
0.5 Last 20 years avg: 1.2
9 30 59
27
58
2.0
-2.0
24
54
Last 3 years avg: 1.9 Per capita oil demand ratios
6 20
1.5 0.0
18
21
Brazil
India
6
China
3
37 38
15Last 10 years avg: 1.4 UK 14 7
1.0
3 -3.0
-0.5 10 2000 2001 2002 2003 12 2004 2005 2006* USA 34 16
0.5 Last 20 years avg: 1.2
9
0 13 6
-4.0
0.0
Brazil
Brazil
Brazil
Brazil
India
India
India
India
China
China
China
China
UK
UK
UK
UK
USA
USA
USA
USA
3
2000 02001 2002 2003 2004 2005 2006*
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
-0.5
USA China
0 Others
Brazil
India
China
China
China
China
UK
USA
USA
USA
USA
USA China Others
Oil N.gas
3
Non-OPEC supply
year-on-year change, mb/d
losses production
2005: estimated production 2005: estimated(mb) losses (mb) 120
120 Russian oil supply growth 100
100
81
It would equate to ~ 650tb/d.
900 100 80 11%
100 10%
800 It would equate to ~ 650tb/d. 60
81 40 32 9%
700
80 20 12
8%
600 4 3
7%
2
y-o-y growth, %
0
500 6%
a
a
o
ia
S
Z
r
60
Se
o
ad
ic
U
K
d
ad
In
ex
mb/d
an
th
cu
5%
M
C
or
E
N
400
4%
40 Russian oil supply growth 32
900
300 11%
3%
800
200
10%
9%
2%
While growth in non-OPEC supply up to 2003
700
20 8% 12 were exceeding that of demand, since then1%
600 7%
100 had been 4significantly below demand growth
Dec-04 y-o-y growth, %
500 6% 3 2 0%
mb/d
400
5% However, Non-OPEC supply in 2005 has been
300
0 0 4%
3% -1%
affected by unplanned shut-downs & a lower
rate of growth from Russia
t Jan-04
Aug-05 Sep-04
Jan-05
May-05
Jul-05
E Sep-05
Dec-05
2%
Jun-04 Feb-04
Mar-04
May-04
Jun-04
C Jul-04
Oct-04
Feb-05
Mar-05
Apr-05
Jun-05
Nov-05
Oct-04 Apr-04
Jun-05Aug-04
MNov-04
Aug-05
Oct-05
200
a
a
o
a
S
Z
or
1%
Se
ad
di
100
ic
U
K
0% Gradual recovery & growth in West Africa,
ad
In
ex
an
0 -1%
Apr-04 h
Brazil, Canada & FSU
cu
Jan-04
Sep-04
Jan-05
May-05
Jul-05
Sep-05
Dec-05
Feb-04
Mar-04
May-04
Jul-04
Feb-05
Mar-05
Apr-05
Nov-05
Aug-04
Nov-04
Dec-04
Oct-05
or
Volume % growth
N
Volume % growth
4
OPEC response:
higher production leading to significant stock build up
Cumulative increase:
Cumulative increase: 8.0
Demand, OPEC, Non- OPEC (mb/d)
OECD commercial oil (mb/d)
Demand, OPEC, Non- OPEC stocks 7.0
8.0 Closing levels, mb 6.0 Days of forward cover
2900 2900 58 58
5.0 4.6
7.0 4.1
mb/d
4.0
2800 2800 3.0
6.0 56
2.0 1.7
56
1.0
5.0
2700 2700 0.0 4.6
4.1 54 2003 2004 2005 54
mb/d
2005 Avg. 00-04 Demand OPEC (Crude + NGLs) Non OPEC Total Supply
4.0
2600 2600 Source: OPEC
Avg.00-04
OECD commercial oil stocks
52 52
3.0 2900
Closing levels, mb
2900 58
Days of forward cover
2004 58
2500 2500
2.0 2800 1.7 2800
56
2003 56
51
2004 50 50
2400 2700
2400
2700
1.0 Min-Max range: 1994-2004
Avg. 00-04
54 54
2005
2600 2600
Avg.00-04
2300 2300 48 48
0.0 Feb Mar Apr May Jun Jul 52 52
Jan 2500 Aug Sep Oct Nov Dec 2500 Jan Feb Mar Apr May2004 Jul Aug Sep Oct Nov Dec
Jun
2004
2003 2004
50 2003 2005 51 50
2400 2400
Demand OPEC (Crude + NGLs)
Min-Max range: 1994-2004 Non OPEC Total Supply
2300 2300 48 48
Source: OPEC Mar Apr May Jun
Jan Feb Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
5
OPEC capacity additions: lighter streams
OPEC Crude, Production and Requirements in the
OPEC Crude, Production and Requirements in the
Short term
34,000 Short term
OPEC gross & net capacity additions by type 34,000
33,000 33,000
34,000 34,000
32,000 32,000
100% 1400
31,000 31,000
33,000
90% 33,000
30,000 30,000 1200
80%
32,000
29,000 29,000 32,000
70% 1000
28,000 28,000
60%
31,000
27,000 27,000 31,000
800
1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06
50%
OPEC 11 OPEC-11 Production, Av. SS Required OPEC crude
30,000
40% 30,000
600
OPEC gross & net capacity additions by type
30% 400 1400
29,000 100% 29,000
90%
20% 1200
80%
200
28,000
10% 70% 28,000
1000
60% 800
0% 50% 0 600
27,000 2005 2006 2007
40%
2008 2009 2010 27,000
30% 400
1Q05 2Q05 3Q05 4Q05 20%1Q06 2Q06 3Q06 4Q06
Heavy Medium Light
10% Net Capacity Addition (mb/d) 200
0% 0
OPEC 11 OPEC-11 Production, Av. SS 2005 Required OPEC crude
2006 2007 2008 2009 2010
Heavy Medium Light Net Capacity Addition (mb/d)
6
Accelerated OPEC capacity expansion plans
OPEC-10 capacity expansion
Non-OPEC supply(by country) : OPEC-10 capacity expansion
(end 2004 – end 2005)
Increase in non-OPEC supply up to–2010 is expected to be ~5 mb/d, or even more
(end 2005 end 2006)
(by country)
70 80 100 70
according to some other sources.
(end 2004 – end 2005)
198
110
Accordingly, increase in total oil supply capacity is expected to reach ~12 mb/d, or more.
(end 2005 – end 2006)
100
278
50 50 70 80 70 100 70 50 50
48 48 48 48
110 46
28 46 46
238
200 198 100 46
44 278
44 44 44
200 25 300
42 42 94 42
40
70 42
40
Algeria 40 Indonesia Iran Kuwait Libya 40
Nigeria 38 Qatar KSA UAE Ven Source: OPEC Non-OPEC supply : 38
38 Increase in non-OPEC supply up to 2010 is expected to be ~5 mb/d , or even more
38
36 according to some other sources. 36
34 28
36 36
200
Accordingly, increase in total oil supply capacity is expected t o reach ~12 mb/d, or more.
5050 34 50
50
34
32 238 48
46
48
46 32
34 4 8 48
46
46
32 44 32 4 4
30 44
30 44
200 300
4242 42
42
30 30 4 0
28 4040 25 28 40
28 94 38
38
28 3 8 38
26 36
36
34
26 36
36
34
26 2004 2005 2006 200732
34
2008 2009 2010 26 3 2 34
32 32
2004 2005 2006 2007 2008 30
2009 2010 30
Algeria Indonesia Iran Kuwait 3028 Libya
28
28
30
28
26 26
OPEC
Nigeria 10
Qatar KSA Iraq Base NGL
UAE 262004 4 Ven 05
2 00 20 200 6 2 00 7 20 08 2 00 9 20 10
26
OPEC NGL High
2005 2006 2007 Source: OPEC
High2008 NGL)
(in 2009 2010
High High (in NGL) O PE C 10 Iraq Base NGL
High OPEC NGL
High (in NGL) High High (in NGL)
7
Tightness in global refinery system
Refinery utilization trend:
95
Ratio conversion
Refinery of Refining ofand Canada total refinery capacity
Ratio of conversion total trend:
shrinking refinery spare capacity!
Overloading utilizationrefinery capacity Europe
USAIndustry Northern
US A shrinking refinery spare capacity!
80% Mediterranean Asia
90
Shrinking USA and Canada
95
O EC D
Refining Spare
W OR LD
70% Northern Europe
Increasing Refinery Utilization
80%
85 Capacity in key refinery regions
Mediterranean US A
60% Rate in key markets
Asia
8 mb/d
0
50%
O EC D %
90
70%
75
8
W OR LD
40%
100
30%
707
60%
85 20%
95
656 10%
50%
60
50
8 1980
S ourc e: B P S tatis t ic al R eview , 2005.
1984 1988 1992 1996 2000 2004
0%
90 2000 2001 2002 2003 2004
Source: OPEC Secretariat.
4
40% Overloading of Refining Industry
85
Shrinking Refining Spare
35
7 Capacity in key refinery regions
Increasing Refinery Utilization
Rate in key markets
30%
mb/d
2 8 100
%
80
7
1 70 95
20% 6
5
75
90
0
4
10% Jul- Jan- Jul- Jan- Jul- Jan-
6Jan-
35
85Jan- Jul- Jan- Jul- Jan- Jul- Jan-
2 80 02 02 03 03 04 04 05
1
02 02 03 03 04 04 05
60% EU15 Jan- Jul- Jan- Jul- Asia*
0
S ourc e: B P S tatis t ic al R eview , 2005. 75
0
Jan- Jul- & Norway USA Jan-
Jan- EU15 & Norway USA Asia*
Jul- Jan- Jul- Jan- Jul- Jan-
02 02 03 03 04 04 05 02 02 03 03 04 04 05
1980 20001984 1988
2001 1 2002
992 EU
1 9 9 6 orway 2 0 0USA
15 & N 2003 0 20042Asia*
004
EU15 & Norway USA Asia*
*/Asia = Japan, South Korea, China, India and Singapore. For some Asian countries May is estimated.
Source: OPEC Secretariat.
*/Asia = Japan, South Korea, China, India and Singapore. For so me Asian countries May is estimated.
8
Downstream challenges
Investment needs by - 2015
Investment needs in the refinery sector: 2005the refinery is attending to rising product demand both
Refinery Expansion
in OPEC Condensate Splitter Unit Expansion
sector: 2005 - 2015
domestic & Asia-pacific region, as well as to meet
OPEC Member Countries by OPEC Member Countries
higher product specifications
Pursue global downstream investments,
(up to 2010) (up to 2010)
particularly in Asia-pacific region
578 3,838 By implementing of these plans, they would be
4000 able
900 to install over 4.6 mb/d new capacity806
146 (i.e.
about 3.8 mb/d refinery capacity and 800,000 b/d
condensate splitter).
800
3500 1,860 Construction
of these new capacities will be
Major part 660
Construction
invested by Saudi Arabia and Kuwait. Similarly
700
3000 most of these projects would be either in the
Middle East or in Asia.
600
2500
Planning 500
2000 Total
400 Total
1,400
1500 Planning
300
1000 Under 200
Consideration 100
500
0 0
9
Gains from US gasoline price rises
48 120
Components Retail Gasoline Prices
Components of of RetailGasolinePrices
Components of Retail WTI
Componentsof Retail Gasoline Prices
HO - WTI GA - Gasoline Prices oil (HO)
Heating
48
Gasoline (GA)
HO - WTI GA - WTI WTI
Heating oil (HO) Dubai WTI
Gasoline (GA)
120
Dubai
Taxes
$3.50
$3.50$3.11 Mfg/
Mkt 40
Taxes 100
40 $3.11
$2.98 Crude Mfg/Mkt 100
$3.00 $0.31
$2.98 Crude
(per gallon constant 2005 $)
$0.46 32 80
$2.50 $3.00 $0.31
$0.88
(US$/bbl)
(per gallon constant 2005 $)
32 $0.46
24 80 60
$2.00 $1.00
$2.50
$1.50 $0.88
(US$/bbl)
16 40
24
$2.00
$1.00 $1.92 $1.00 60
$1.52 8 20
$0.50
$1.50 0
16
$0.00
Source: API statistics
40 0
1-Aug 8-Aug 15-Aug 22-Aug 29-Aug 6-Sep 13-Sep 20-Sep 27-Sep 4-Oct
March 1981 3-Oct
$1.00 $1.92
8 $1.52 20
The Washington Post issue of 25 September 2005 calculated that, in the USA, when the average
$0.50
price of a gallon of regular gasoline peaked at $3.07 recently, the nation’s refiners were getting more
than three times the amount they earned the year before, when the same gasoline sold for $1.87. 0
0
$0.00
However, the companies that pumped oil from the ground gained only 46 %. 27-Sep 4-Oct
1-Aug 8-Aug 15-Aug 22-Aug 29-Aug 6-Sep 13-Sep 20-Sep
March 1981 3-Oct
Source: API statistics
10
Refinery expansion lagging behind demand growth
Incremental product demand compared with crude and
refining capacity expansion
mb/d Lag in investment will allow capacity build up only as of 2007 mb/d
3.0 3.0
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
After Katrina
0.0 0.0
2005 2006 2007 2008 2009 2010
Crude Demand (reference)
Demand (tight market) Refining Capacity
Sources: Capacity estimates based on published reports by different sources as well as Secretariat assessment
11
Increasing activity in the Futures market
NYMEX open interest (futures) vs. WTI price
71 1000
Open interest WTI
64 920
Open interest (futures)
(US$/bbl)
'000 contracts
57 840
50 760
43 680
36 600
5-Oct-04 30-Nov-04 25-Jan-05 22-Mar-05 17-May-05 12-Jul-05 6-Sep-05
Growing use of oil futures as a form of financial instrument
NYMEX hit a record high in 2005 surpassing the record in 2004.The average volume of contracts
rose in 2005 to 237 million contracts compared to 179 million contracts in 2003
OPEN interest also shows a higher record in 2005 of 792 million contracts compared to 542
million contracts in 2003
12
The price of oil:
distinguishing between nominal and real, (US$/b)
100 100
100 Average Nominal Real*
100
Oil intensity
Average
*/ inflation & exchange-rate adjusted.
Nominal Real*
(Base: August 2005=100, US$/b)
80
*/ inflation & GDP
boe / PPP -$1,000 (1995) exchange-rate adjusted.
80
1.6 (Base: August 2005=100, US$/b)
?
80
60 60 80
1.4 Although reaching historical
highs in nominal terms, the real
40 40
?
value are still well below levels
1.2
60 60
20 20 reached in early 1980s.
1.0 APEC
0 0
Jan-80
Jan-81
Jan-87
Jan-88
Jan-93
Jan-94
Jan-99
Jan-00
Jan-01
Jan-02
Jan-05
Jan-82
Jan-83
Jan-84
Jan-85
Jan-86
Jan-89
Jan-90
Jan-91
Jan-92
Jan-95
Jan-96
Jan-97
Jan-98
Jan-03
Jan-04
40
0.8 Oil intensity
40
boe / PPP -$1,000 (1995) GDP
1.6
0.6 1.4
1.2
20 20
0.4 Steady decline in oil intensities! 1.0 APEC
0.8
0.2 0.6
0
W orld USA Japan China APEC 0
0.4
0.0
Jan-80
Jan-81
Jan-87
Jan-88
Jan-93
Jan-94
Jan-99
Jan-00
Jan-01
Jan-02
Jan-05
Jan-82
Jan-83
Jan-84
Jan-85
Jan-86
Jan-89
Jan-90
Jan-91
Jan-92
Jan-95
Jan-96
Jan-97
Jan-98
Jan-03
Jan-04
0.2
W orld USA Japan China APEC
1975 1980 1985 1990
0.0
1975 1980
1995
1985 1990
2000
1995 2000
13
OPEC Long-Term Strategy 1/2
The strategy recognises important role of oil:
in world economy
for socio-economic development of OPEC Member
Countries
It defines specific objectives, identifies key
challenges and explores scenarios for energy scene
It is designed to be robust and adaptive
It provides coherent and consistent vision and
framework for OPEC’s future
14
OPEC Long-Term Strategy 2/2
Objectives relate to:
long-term petroleum revenues of Member Countries
fair and stable prices
role of oil in meeting future energy demand
stability of oil market
security of regular supplies to consumers
security of oil demand
legitimate interests of Member Countries in multilateral
agreements
The identified key challenges concern:
uncertainties surrounding future oil demand (world economy,
consuming countries’ policies, technological developments, etc.)
supply side, taking into account: resources, potential non-OPEC
production, extent and timing of required investment, together with
associated uncertainties
15
Oil Demand Outlook, mb/d
Reference 2010 2015 2020 2025
OECD 51.4 52.7 53.8 54.7
DCs 34.4 40.3 46.4 52.8
Transition economies 5.1 5.4 5.7 5.9
Total World 90.9 98.4 105.9 113.4
Tight market scenario 93.1 101.9 111.2
Soft market scenario 89.2 94.4 99.0
“Four-fifths of the increase in demand of 30 mb/d over the period 2005–
2025 comes from developing countries
Transportation continues to be the dominant source of growth (~60 %)
Many uncertainties: GDP, technology, policy – substantial downside risks
16
Oil production outlook, mb/d
Reference 2005 2010 2020 2025
OECD 20.9 20.9 19.9 19.3
DCs excl. 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 (incl. NGLs) 33.1 36.6 49.1 57.0
World 83.6 90.9 105.9 113.4
OPEC M arket S hare % 40 40 46 50
OPEC (incl. NGLs)
Tight market scenario 33. 7 40.4 53.9
Soft market scenario 3 2.6 3 2.7 4 2.6
Key sources of non-OPEC increase: Latin America, Africa, Russia and
Caspian
OPEC increasingly supplies incremental barrel
Significant medium- to long-term uncertainties
17
Oil resources and availability
Proven Crude Crude Oil Proven Gas Gas Marketed
Proven Crude
Oil Resources
Oil Reserves
Oil Resources
Crude Oil
Production Reserves
Proven Gas
Oil Reserves Production Gas
Reserves Marketed
Production
Production
100
21.3
90
100 80 15.0
51.0
21.3 58.5
70
90 83.0
60
80 51.0 c
15.0 58.5 50 63.7 h 9.8
12.4
70 40
39.2
30 83.0
60 29.1
20 c 7.8
50 63.7 10 h 9.8 9.2
40 12.4 0
Proven Crude Crude Oil Proven Gas Gas Marketed
Source : OPEC
OPEC Middle East Production
Oil Reserves
39.2 OPEC Rest
Reserves Production Non-OPEC
30
Proven reserves 891 billion barrels 78% of world figure
29.1
20 7.8
Production > 30 million barrels a day ~ 40% of world figure
10 9.2
Exports > 21 million barrels a day ~50% of world figure
0
Proven Crude
OPEC Middle East
Oil Reserves
Crude Oil
Production
Proven exploit than non-OPEC oil
Cheaper to Gas
OPEC Rest
Reserves
Gas Marketed
Production Non-OPEC
Increasing call on OPEC oil in coming years
Source : OPEC >50% world oil market projected for 2025 18
Dialogue and cooperation
Continued cooperation & genuine dialogue: underlying
consensus on handling major issues of mutual concern for
the benefit of all.
International Energy Forum; International Energy Agency; APEC;
EU-OPEC Energy Dialogue; Euro-Mediterranean Dialogue;
EU-Gulf Cooperation Council; Asian Oil and Gas Ministers Round
Table; Non-OPEC at OPEC Conferences; OPEC & Non-OPEC
experts meetings …
Effective engagement on all interrelated issues
Security of supply and demand
Price stability
Energy policies
Multilateral issues (e.g., Kyoto Protocol, WTO)
Technology (e.g., cleaner oil technologies, CO2 sequestration with EOR)
Shared responsibility
19
Organization of the Petroleum Exporting Countries
20