Caspian Energy (CE): Has the COVID-19 pandemic changed the global oil market, and if so, what are the main takeaways from developments over the past two years?
H.E. Mohammad Sanusi Barkindo, OPEC Secretary General: In various ways, the pandemic has changed the nature of the way we monitor, analyze and take decisions. The often unpredictable aspects of COVID-19, not only its spread, but also the sporadic impact of lockdowns and restrictions, locally, regionally and globally, have underscored the increasing need to be attentive and proactive, which has been exhibited through our regular monthly meetings of participants in the Declaration of Cooperation (DoC).
In general, however, the overall oil market dynamics have changed little and the focus of OPEC and the DoC has remained on the need for market balance and stability, albeit in the face of a devastating pandemic.
Additionally, the implications of the pandemic have also reinforced the importance of cooperation. The value of cooperation was clear during the early stages of the pandemic, when both producers and consumers at the very highest levels, including through the G20, came together to support the actions of the DoC.
Looking back on this time, we showed that we could stare down the horrific situation we faced through the enduring timelessness of the principles and key tenets of international cooperation.
Multilateralism and cooperation has a long history, but it has perhaps never been more important to the world as we look, build and shape today’s architectures for tomorrow. It will also be vital for the energy transition, which is both a massive challenge and an enormous opportunity in the decades ahead.
CE: How does OPEC currently see the oil market outlook for 2022?
Mohammad Sanusi Barkindo: Vigilance remains the key word as we look at the outlook for 2022. There is evidently optimism, but we are also cognizant that uncertainties remain. Optimism is being driven by the vaccine rollout, although this still needs to filter through to more developing countries, improving mobility and the continuing economic recovery. Furthermore, the Omicron variant has proven less severe than previous waves of the virus and less economically disruptive.
Uncertainties relate to COVID developments, although at present we see the impact of the Omicron variant on the oil market to be relatively mild and short-lived. Geopolitical developments, global supply chain issues, the potential effects of rising inflation, and in turn, any consequent rise in interest rates, need to be closely monitored too.
Overall, the Secretariat’s forecast for global economic growth in 2022 is at 4.2%, following 5.6% in 2021. Oil demand growth for 2022 is at 4.2 mb/d, following 5.7 mb/d in 2021. This is a very healthy oil demand growth rate over the two years of close to 10 mb/d. On the supply-side, non-OPEC liquids supply is expected to grow by 3 mb/d in 2022.
The DoC is attentive to changing market dynamics as exhibited by its regular monthly meetings, and we believe this agile approach continues to bring reassurance to the market.
CE: What is the future of OPEC and the Declaration of Cooperation?
Mohammad Sanusi Barkindo: Bringing together so many sovereign producing nations back at the end of 2016 was an unparalleled event in the history of the oil industry. And it is still going strong today, after helping the oil industry to withstand and recover from the severe oil market downturn of 2014-2016 and the unprecedented oil market contraction following the outbreak of the pandemic.
The enhanced relations between participating countries now constitute a fundamental and essential feature of the ‘new world of energy.
The relationships that have evolved at the ministerial level, at the technical level, through the key DoC mechanisms, the Joint Ministerial Monitoring Committee (JMMC) and the Joint Technical Committee (JTC), and with the OPEC Secretariat are strong, supportive and robust. There is great mutual respect and trust.
It is a transparent and fully accessible platform; it is open to all producers. It has evolved into a broader continuity partnership that can work for everyone, across all timeframes, to help deliver the market balance and stability we all desire.
The importance of the DoC has also received backing from other producers, as well as from consumers, as was evidently witnessed during the onset of the pandemic in 2020, with a plethora of stakeholders working together to help return balance and stability to the market.
The impact of the historic cooperation has exceeded even the most optimistic of predictions. Looking ahead, I fully believe that there is more to come. OPEC and the DoC will continue to go from strength-to-strength.
CE: Oil and gas will be needed for decades to come even if demand levels off. Does the investor and political community adequately understand this?
Mohammad Sanusi Barkindo: All reputable energy outlooks have base cases that see oil and gas remaining key to energy security in the decades ahead. There is evidently a massive need to bring energy to the billions of people that continue to go without, but even in developed countries we need to keep in mind affordable, reliable and sustainable energy for all.
The issue of oil and gas industry investments is an extremely important one, and it is clear that Environmental Social Governance and the climate disclosure are driving the financial community. OPEC supports the need to reduce emissions and use energy more efficiently, but we do need to be cognizant of the implications of underinvestment.
This has been exacerbated by the COVID-19 pandemic, with investments declining by over 30% in 2020. This is a shrill wake-up call and this drop exceeds the annual dramatic declines witnessed in the severe industry downturn in 2015 and 2016.
In OPEC’s World Oil Outlook 2021, we see the global oil sector alone needing cumulative investment of $11.8 trillion in the upstream, midstream and downstream through to 2045 to meet future demand.
These investments are essential for both producers and consumers, as we could see demand exceed supply if investments are not made. It is not just crude oil; it is also the plethora of products that are derived from it. A shortfall in investments could affect stability in markets, prices could rise, and we could see product shortages, all of which would have an impact on the global economy.
As an industry, we need to counter the ever-evolving narrative that oil and gas are part of the past. This is wrong- headed given that oil demand continues to grow.
At the end of last year, many parts of the world witnessed the strains and conflicts related to energy affordability, security and reducing emissions.
It is vital that all stakeholders focus on all these issues. We need to remember that focusing on only one of them, while ignoring the others, can lead to unintended consequences. This needs to be central to our thinking as we chart a path out of the pandemic, and view future investments and the energy transition.
CE: What are the key takeaways from last year’s C0P26 meeting in Glasgow? What can the oil industry do to help push a low-carbon future?
Mohammad Sanusi Barkindo: Looking back at the C0P26 meeting in Glasgow, Scotland, while negotiations were tense at times, there were also positive outcomes: for example, the US is back at the head of the multilateral table, all Parties reiterated their commitment to the implementation and full operationalization of the Paris Agreement, and the Glasgow Climate Pact was announced.
This was all encouraging, 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 country, industry, or peoples behind.
However, the event also underlined that the discourse around energy, climate, and sustainable development continues to be extremely emotive with some voices all but excluded, including many from the oil industry.
It needs to be understood that the oil and gas industries are part of the solution; they possess vital resources and expertise that can help unlock a low carbon future. OPEC supports innovation and technological advancement, and the need to look for clean and more efficient technological solutions everywhere, across all available energies.
We agree with the science and are believers that solutions can be found in technologies, such as Carbon Capture Utilization and Storage (CCUS), hydrogen and others, as well as in energy efficiency measures and the promotion of the Circular Carbon Economy (CCE).
It is also vital to understand that the future energy transition has many moving parts and many paths, whether that be for a country or an industry. It needs to be driven by the science, facts and hard data. It is about fairness, inclusivity and mutual benefit.
We need to ensure energy is affordable for all; we need transition to a more inclusive, fair and equitable world in which every person has access to energy as referenced in UN Sustainable Development Goal7; and we need to reduce emissions. Oil has a role to play in each part.
Thank you for the interview.
