Wed 21-02-2018 18:09 PM
LONDON, 21st February, 2018 (WAM) -- The collapse in global oil prices between June 2014 and January 2016 led to nearly one trillion US dollars in investment being frozen or discontinued with "many hundreds of thousands of jobs" being lost throughout the industry, according to UAE Minister of Energy and Industry, Suhail bin Mohammed Faraj Faris Al Mazrouei. Now it is time to plan for future investment, he says.
The Minister was addressing the International Petroleum Week conference in London yesterday, on the topic on the "Return of oil investments to the world market."
Al Mazrouei, who is also the President of the OPEC Conference for 2018, added that spending on exploration and production had fallen by 27 percent in both 2015 and 2016. At the same time, with low prices, he added, "it was also a period that saw major stock builds, with the OECD stock overhang increasing to a level of 380 million barrels above the five-year average at the end of July 2016."
With the oil market being out of balance, "there was a necessity for action to alleviate this imbalance," he said. These developments, which he described as a "devastating cycle," led to the efforts by OPEC to reach out to non-OPEC producers.
Following an extensive programme of consultations, with what he described as a focus "on rebalancing the global oil market; and, over time, ensuring that the necessary investments return to our industry, to mitigate future volatility," 24 OPEC and non-OPEC producers had reached the historic ‘Declaration of Cooperation’ which was signed at the end of 2016. It was renewed for a further year, with the participation of six more countries, in November 2017, he recalled.
During the November meetings, Al Mazrouei said, "30 oil producers affirmed their commitment to restoring stability to the oil market on a sustainable basis, in the interests of producers, consumers, and the global economy. This commitment to cooperation is unparalleled in the history of the oil industry." There is global recognition, he added, that "without such adjustments, the market would have experienced further extreme volatility, which would have had far-reaching negative consequences for producers, consumers, investors, the industry, and the global economy at large."
So far, the Minister told his audience of top oil industry figures, there has been a "positive impact" on the oil market, with the stock overhang against the five-year average dropping by around 260 million barrels since the beginning of last year.
At the end of January 2018, the overhang had fallen to 74 million barrels while oil in floating storage had dropped by almost 50 million barrels since June 2017. This, he noted, had been achieved by what he described as "the unprecedented conformity levels" attained by signatories to the Declaration of Cooperation. Over the whole of last year, conformity levels were 107 percent, while December last year saw a record conformity level of 129 percent. The figure for January 2018 is expected to be even higher, the Minister added.
At the same time, the growth in global oil demand has strengthened. In December 2016, estimated growth for 2017 was 1.15 million barrels a day, mb/d, but that has now been revised upwards to 1.6 million barrels a day, he noted. A forecast of over 1.6 mb/d has been made for 2018.
OPEC’s World Oil Outlook 2017, WOO, he said, had predicted that global oil demand will pass 100 mb/d in 2020, reaching over 111 mb/d by 2040, over 15 mb/d above present levels. With an industry consensus that there is an annual global decline rate of five percent in production, it will also be necessary for over four mb/d in production to be added each year, just to maintain current levels. The WOO forecasts that global oil sector investment of US$10.5 trillion will be required between now and 2040, Al Mazrouei said "When the current market rebalancing is completed, it is critical that the necessary investments are being made to maintain market stability," he continued.
Looking ahead, as the Declaration of Cooperation made clear, the short, medium and long-term aspects of the industry are all interlinked, Al Mazrouei stressed, adding that stability and balance across all timeframes are required to ensure that future demand growth is met. "Central to this," he said, "is future investments." The UAE believes, he said, "that the time is right to invest to maintain and grow our future capacity."
The expanded growth strategy of ADNOC up to 2030, he reported, involves "an anticipated capital expenditure of over AED400 billion, around US$109 billion, in the next five years."
In the upstream sector, "ADNOC is investing in innovative technologies to improve performance and maximise recovery from the UAE’s oilfields," while work will continue to develop gas resources with the ultimate goal of self-sufficiency.
In the downstream sector, "ADNOC is pursuing an ambitious expansion programme that will grow crude refining capacity by 60 percent and more than triple its petrochemical production to 14.4 million tonnes per year by 2025."
The UAE and other OPEC member countries, he said, "continue to show their commitment to the oil market rebalancing, and to maintain their leading roles as reliable suppliers to economies around the world."