OPEC chief says oil market stability to drive long-cycle project investments

The positive sentiment in the oil industry will translate into increased industry investment in the years to come, especially in the long-cycle projects, OPEC Secretary-General Mohammed Sanusi Barkindo told Argaam in an exclusive interview.

"All our member countries continue to be focused on investing in both upstream and downstream projects and operations in order to ensure that the requirements of their respective consumers are met in a timely and efficient fashion,” he added.

While the oil industry needs nearly $11 trillion worth of investments over the period to 2040 in order to meet the growing global appetite for crude, Barkindo revealed that OPEC and non-OPEC participating producers , part of the Declaration of Cooperation, continue to focus on providing the necessary conditions - a sustainable market stability - in which investment can thrive.

Excerpts from the interview

Q: Why is OPEC calling on its members and non-members to increase upstream investments?

A: To answer this question, it is helpful to reflect back on the events of the last five years. All oil-producing countries, OPEC and non-OPEC alike, were adversely impacted by the price crash of 2014 and the resulting volatility that virtually shook the industry to its core. Stakeholders across the value chain and around the world suffered from lost revenues, massive layoffs and, in some cases, bankruptcy. It was one of the worst industry price cycle crises we have seen in history. Since then, the industry has steadily climbed back to stability, thanks in no small part to the significant contributions of the 24 OPEC and non-OPEC oil-producing nations of the landmark Declaration of Cooperation, which was agreed upon in December of 2016 as a mechanism to bring the industry back from the brink of destruction. 

Today we see a much healthier and more balanced global oil market with OECD inventory levels having come back down to the five-year average. This, in turn, has fostered a long-absent balance and stability in the market and set the groundwork for renewed optimism and confidence in the industry. 

My hope is that this positive sentiment will translate into increased industry investment in the years to come, especially as relates to long-cycle projects, which are the backbone of this growth industry.

When we look at the current industry investment figures, however, we are clearly not where we need to be. In the wake of the 2014 crisis, exploration and production spending dropped by a massive 27 percent in both 2015 and 2016, and has since increased by only eight percent in both 2017 and 2018. To adequately meet increasing future demand, we estimate that roughly $11 trillion in oil investments will be required over the period to 2040.  So, looking ahead, timely and adequate investments must be a clear priority issue that is placed at the top of the industry agenda in order to avoid any supply shortfalls in the future. It is about economic growth and prosperity for all stakeholders.

For OPEC’s member countries, this is also about promoting the ongoing development and growth of their countries for the benefit of future generations. This issue will continue to be a top priority within our ongoing efforts through the Declaration of Cooperation. We will remain focused on our vision for a stable, healthy and growing oil market that will benefit producers, consumers and the global economy at large.

Q: Do you have projections for OPEC member country investments over the next five years?

A: All our member countries continue to be focused on investing in both upstream and downstream projects and operations in order to ensure that the requirements of their respective consumers are met in a timely and efficient fashion. The communication of such planning is done only by the member countries themselves and is based on their sovereign national decisions. In this regard, many of the members publish their investments and project planning as part of their long-term national strategy initiatives.

Saudi Arabia, for example, has outlined its ambitious long-term strategy for the Kingdom in the Vision 2030 document, which, of course, encompasses the way forward for its vital energy planning and investments.

Similarly, the United Arab Emirates has its Vision 2021 mapping out its future path, and other Member Countries have done the same. This is just a confirmation of the importance the member countries are placing on continuous investment, not only in the short-term delivery of its energy projects, but with a strategic eye towards what potential the future may hold for their national development and for the prosperity of current and future citizens. 

Q: Why would OPEC invest in oilfield exploration and production if OPEC+ is adjusting supply to support oil prices?

A: As we have experienced first-hand over the last five years, investment can only occur when you have predictability and stability in the oil market. Volatility, on the other hand, scares off investors and freezes any movement in growth.  The efforts of the OPEC and non-OPEC participating producers of the declaration have been and continue to be focused on providing the necessary conditions − a sustainable market stability − in which investment can thrive. This encompasses beyond short-term considerations all time-frames.

And, even though we have not seen long-term investment growing as quickly as we would like, we must stay the course and remain steadfast to our objectives until we see the industry growing at robust and sustainable levels. This will then provide fertile ground for our member countries to progress their longer-term development and growth planning.

Write to Parag Deulgaonkar at parag.d@argaamplus.com