The Future of International Energy Cooperation in the Light of New Concepts of Sovereignty

Published on 18th June 2019

Given the great importance of energy to our everyday lives it is something we have to get right.  We need to think carefully about what an energy transition actually means; and we all need to follow the right path to lead us to a sustainable energy future.

We need to all work together, step-by-step, find issues of commonality and appreciate what is at stake. One thing we can all agree on is the world will need a great deal more energy in the decades to come.  It is easy to appreciate why.The total size of the global economy in 2040 is expected to be 214% that of 2017.  And over the same timeframe, world population is projected to reach around 9.2 billion, an increase of over 1.5 billion from today’s level.

We should also not forget that energy poverty remains a scourge of our time: even though, in a sign of great progress, the International Energy Agency recently reported that the total number of people with access to electricity fell below one billion in 2017, there is much work still to be done.  Moreover, three billion people still lack access to clean fuels for cooking.

We need to transition to a more inclusive world in which every person has access to energy – whether young or old, whether poor or rich.  We want to see a world where no one is left behind.

In OPEC’s World Oil Outlook (WOO) 2018, we expect global energy demand to increase by around 33% by 2040.  Energy will be required to power more homes, more services, more businesses, more cars, more planes, more ships … I could go on. I should also reference that almost 95% of the increase in energy demand is forecast to come from developing countries, with China and India continuing to lead the way. At the same time, however, we need to comprehend the threat posed by climate change to our environment.

OPEC remains fully engaged and supportive of the UNFCCC and the Paris Agreement, which remains the only viable global framework to address climate change. As I mentioned at COP 24 in Katowice, Poland, last December, the oil industry must be part of the solution to the climate change challenge.  We are all responsible citizens of this planet.  We also believe that ‘there is no Planet B.’

So while the world will need more energy and many billions still need to be lifted out of energy poverty, it also needs to use energy more efficiently and continually look to develop, evolve and adopt cleaner energy technologies.This major challenge is what the World Energy Council has called the ‘Energy Trilemma’, which involves balancing these three seemingly conflicting yet interwoven objectives.

To put it simply, the basic challenge of the ‘energy transition’ can be summed up in two questions. The first is how can we ensure there is enough supply to meet expected future demand growth? The second is how can this growth be achieved in a sustainable way, balancing the needs of people in relation to their social welfare, the economy and the environment?

I feel it is important to point out that when we talk of an energy transition, the word ‘transition’ can be misleading.  The dictionary definition of ‘transition’ focuses on the process of changing from one thing to another, but the energy transition does not necessarily mean moving from one energy source to another.

The majority and balanced consensus is that all forms of energy are required.  A diverse mix of sources is the best way forward.  It is also vital we appreciate just what each energy source can provide in the decades ahead.

Renewables are coming of age, with wind and solar expanding fast, but even by 2040 in our WOO they are only estimated to make up around 19% of the global energy mix. With nuclear expected to be at just over 6% and coal at around 22% by 2040, it means that oil and gas combined are forecast to still supply over 50% of the world’s energy needs by 2040, with oil at around 28% and gas at 25%.

Some may dispute these percentage shares, suggest that OPEC Member Countries are against renewables, and of course, you may say to me, well you would say this – you are the OPEC Secretary General. Let me counter these arguments. Firstly, many OPEC Member Countries have great sources of solar and wind, and we are seeing huge investments being made in the field of renewables.  And secondly, we do not see any reputable outlook projecting that renewables will come anywhere close to overtaking oil and gas in the decades ahead.

Given our Outlook, as well as many others carrying similar forecasts, it is also important to broach the issues of policies and technologies. We need to continually look to develop, evolve and adopt cleaner energy technologies, as well as all-inclusive and non-discriminatory energy policies, that enable us to meet expected future energy demand, in a sustainable and ever more efficient manner.

For oil and gas, we need to recognize that the environmental challenge is not oil and gas themselves.  It is the emissions that come from burning them. We are believers that solutions can be found in technologies that reduce and ultimately eliminate these emissions.We should not limit ourselves by putting all our eggs in one basket.  We need to look for technology solutions everywhere, across all available energies.

The oil industry’s capacity for technological innovation must be harnessed within this process. We welcome coordinated action within the industry and through various research and development platforms, such as the Oil & Gas Climate Initiative.

Allow me here to highlight one key detail from our WOO.  In the period to 2040, fuel efficiency improvements are expected to result in a far greater reduction in oil demand, than the increasing penetration of alternative fuel vehicles.

On the policy front, it is important to stress that if our industry is concerned about policies that detrimentally impact investments, with talk of stranded assets and declining values; then we have a potentially dangerous scenario where the necessary investments may not be made, one that could increase volatility significantly and lead to a future energy shortfall.

Moreover, if those billions of people in the developing world that suffer from a lack of energy access feel they are being sidelined from energies that have helped fuel the developed world, then this could sow further divisions and expand the divide between the haves and have nots.

This is all brought home by the scale of the oil-related investment requirements that are estimated at around $11 trillion in the period to 2040. We also need to recall that exploration and production spending fell by an enormous 27% in both 2015 and 2016, and only increased by 8% in both 2017 and 2018.

The issue of investments is critical in any talk of an energy transition and diversification.  For all investments, the focus has to be on a stable environment and a level playing field. From OPEC’s perspective, we fully identify with the fact that the foundation for investment, growth and economic diversification can only come through balance and stability in the market.
In this regard, OPEC Member Countries remain fully committed to investments across the whole industry value chain, and the issue of returning global investments is a core focus of the ‘Declaration of Cooperation.’

It is also important for me to underscore here that the commitment of OPEC and its non-OPEC partners in the ‘Declaration’ to a balanced market and a sustainable stability remains our key objective. We are responsive and alert to shifting market dynamics, and adaptable to ensure that we remain on track. We realize that that many underlying risks remain. We are closely monitoring oil market developments and the economic bearishness that has been prevalent in markets in recent weeks, with major challenges and uncertainties related to ongoing trade negotiations, monetary policy developments, as well as geopolitical issues.

This will all be discussed in detail at the upcoming OPEC Ministerial Conference and the OPEC and non-OPEC Ministerial meeting, where our minds will be focused on market balance and stability, in the interests of producers, consumers, and the world at large.

This historic commitment to cooperate and make a difference, for the benefit of all, underscores how OPEC sees the future. We can no longer work in silos; we can no longer operate on divergent paths; we can no longer see our futures in polarized terms. As the great Scottish born inventor Alexander Graham Bell, a man who invented the first practical telephone that enabled us to all communicate more; once said: “Great discoveries and improvements invariably involve the cooperation of many minds.”

As an industry we need to highlight the great benefits that oil has brought to billions, and the future positive impact it can have on billions of others. We need to stress that the scale of the climate challenge means that no single energy source is a panacea; nor can the contribution of an entire industry or group of countries be overlooked.

We also need to continue to attract young people to the industry, and emphasize that it is a dynamic, creative and expanding global sector, and that the challenges and the innovation required gives plenty of scope to push the boundaries of where technology, such as Artificial Intelligence, can take us. We need to look to work with all stakeholders, including those with divergent opinions, to ensure sustainable growth, development and prosperity for ourselves, for our children and for our children’s children.

By HE Mohammad Sanusi Barkindo,

OPEC Secretary General.

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