The year 2020 marks the fifteenth Anniversary of the OPEC-China Energy Dialogue, the first High Level Meeting of which took place on 22 December 2005 in Beijing.
Since then, cooperation between OPEC and China has intensified across a range of fronts, particularly on the technical level. Indeed, we last interacted at our milestone webinar on 14 May 2020.
The COVID-19 pandemic continues to wreak havoc across the world: more than 67 million people sickened; more than 1.5 million have perished; massive economic disruption; millions unemployed; businesses threatened; schools closed; health systems under intolerable strain…the list goes on, as sadly does the heartache and loss. No country has been spared.
This global crisis requires a global response. Multilateralism, international dialogue and cooperation among nations have become more essential than ever. These are the principles that underpin the OPEC-China Energy Dialogue.
In this time of crisis, we must turn to the leading international statesmen to reassure us with clear and concrete plans about how we will overcome these trying times. For this reason, I was truly inspired by the words of wisdom of Chinese President, HE Xi Jinping, especially at Session I of the 15th G20 Leaders’ Summit on 21 November.
In a concise manner, President Xi was able to synthesise the required international response into eight points in that speech, which was entitled, ‘Together, Let Us Fight COVID-19 and Create a Better Future.’
In my remarks, I would like to outline how these eight points align with our own activities and objectives at OPEC.
Firstly, President Xi spoke of the need to ‘build a global firewall against COVID-19.’ He said,
“Several G20 members have made progress in vaccine R&D and production. We should speed up action and support the WHO in mobilizing and consolidating resources and distributing vaccines fairly and efficiently.”
At OPEC, we recognise the important role the oil industry will play in ensuring the speedy distribution of vaccines, particularly through the transportation sector. Additionally, many of the medical supplies, surgical masks and respirators, as well as other equipment essential in the fight against COVID-19 come from petroleum-based products.
In such circumstances, volatility in the oil market is simply unthinkable, and consistently, OPEC and our partners in the ‘Declaration of Cooperation’ (DoC) have taken action to contribute to sustainable oil market stability.
This also relates to President Xi’s second point, ‘ensuring the smooth functioning of the global economy.’ As the President stated, “While containing the virus, we need to restore the secure and smooth operation of global industrial and supply chains.”
Again, the oil industry plays a vital role in lubricating the global economy, allowing the smooth functioning of the supply chain and acting as the engine for sustainable industrialization.
These two points were at the forefront of the minds of the DoC partners when the COVID-19 pandemic and its resultant impacts severely imperilled our industry. The month of April 2020 was ghastly. Large-scale oil demand destruction, at a level never seen before; a massive supply and demand imbalance; and, global storage capacity filling quickly.
Perhaps the nadir of this was April 20, or what some have called ‘Black Monday’, when the WTI May contract went negative, ending the day at close to minus $40/b.
To help counter the situation, OPEC and our DoC partners agreed at two Extraordinary Meetings on April 9 and 12 to new voluntary production adjustments, beginning with 9.7 mb/d, in May and June 2020, which was extended to July. Moreover, the tailored adjustments would also run two years until April 2022.
These are the largest and longest in the history of OPEC and the oil industry.
They were subsequently ‘tweaked’ at the 11th OPEC and non-OPEC Ministerial Meeting on 6 June, indicative of our flexibility and adaptability. We also agreed to a compensation mechanism for Participating Countries for underperformed volumes.
Just last Thursday, December 3, 2020, at the 12th OPEC and Non-OPEC Ministerial Meeting, Participating Countries unanimously agreed to a further tweak of the DoC voluntary production adjustments. In light of the current oil market fundamentals and outlook for 2021, we reconfirmed the existing commitment under the DoC decision from 12 April 2020, then amended in June and September 2020, to gradually return 2 mb/d, given consideration to market conditions. We decided to voluntary adjust production by 0.5 mb/d from 7.7 mb/d to 7.2 mb/d beginning in January 2021. We agreed to hold monthly OPEC and non-OPEC ministerial meetings starting January 2021 to assess market conditions and decide on production adjustments for the following month, with further monthly adjustments being no more than 0.5 mb/d; and extended the compensation mechanism to the end of March 2021.
President Xi also emphasized the importance of ‘harnessing the role of the digital economy.’ He said,
“We could foster an enabling environment for the development of the digital economy, enhance data security cooperation.”
Enhancing data transparency has long been a priority for OPEC. We are actively involved as members of the Joint Organisations Data Initiative; we regularly meet with Secondary Source institutions and other reporting agencies in order to improve the accuracy and timeliness of data sharing. The OPEC Secretariat is also developing its own Big Data platform, which contains easily accessible oil and gas data from multiple sources for the use of OPEC Member Countries’ representatives.
President Xi’s fourth point called on the G20 to pursue more inclusive development: “We should keep our support for developing countries and help them overcome the hardships caused by the pandemic.”
OPEC is unequivocal in its supports of the Sustainable Development Agenda, particularly SDG 7 which calls for access to affordable, reliable, sustainable and modern energy for all. We must never forget that 1.1 billion live in energy poverty and 2.8 billion people have no access to modern cooking systems. These issues were discussed at the 75th Session of the UN General Assembly and the First Annual SDG Moment, which was held on 18 September 2020.
I would like to congratulate China on its efforts in combatting energy poverty.
We commend how China has recently outlined its plans to scale up its Nationally Determined Contributions under the Paris Agreement by adopting more vigorous policies and measures. China aims to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060, as you outlined your opening remarks.
OPEC and its Member Countries remain fully committed to the Paris Agreement. We heartily agree with China that enhanced global collaboration is vital to address the challenge of climate change. Furthermore, international cooperation could allow a more coherent, balanced, integrated and inclusive approach for realizing the Paris Agreement goals and interlinked sustainable development aspirations.
For an intergovernmental organization like ours, President Xi’s fifth and sixth points resonate particularly strongly. He called on all nations to strengthen the UN system and improve the governance architecture for economic globalization:
“Global governance should be based on the principle of extensive consultation, joint cooperation and shared benefits.”
If ever proof was needed that relations between China and OPEC are based on shared values, a shared vision, it is these sagacious words. The President emphasised these points at the High-level Meeting to Commemorate the 75th Anniversary of the UN, under the theme, ‘The future we want, the UN we need: reaffirming our collective commitment to multilateralism,’ held on 21 September 2020.
‘Extensive consultation’ and ‘joint cooperation’ is at the heart of everything our Organization does, from our cooperation with our non-OPEC partners under the ‘Declaration of Cooperation,’ to our energy dialogues with a range of partners, including your great country.
We know that no single actor possesses all of the answers or even knows all of the questions. It is only by reaching out and working together that we are able to confront in unison, the challenges of our times.
It is very much this spirit that has permeated the OPEC-China Energy Dialogue over the last fifteen years. This is also part of our broader recognition of the importance of China’s role over the coming decades.
In the immediate term, China’s ongoing economic recovery is one of the few brighter spots across the globe. According to OPEC’s Monthly Oil Market Report (MOMR), China’s economic growth is forecast at 2.0% for 2020 and 6.9% in 2021.
The more long-term perspective clearly underscores the immense importance of China to the global economy and energy industry. This was a recurrent theme in OPEC’s flagship publication, the World Oil Outlook 2020, which you made reference to in your opening remarks. The global economy is expected to more than double from 2019 to 2045. While China accounted for 19% of global GDP in 2019, this amount is projected to reach a whopping 24% by 2045!
World oil demand is to rise from 99.7 mb/d in 2019 to 109.1 mb/d in 2045. Accordingly, China’s demand for oil is set to rise from 13.1 mb/d in 2019 to 17.1 mb/d in 2045, or by 4 mb/d.
Your great country became the world’s biggest importer of crude oil in 2017, overtaking the US. In 2019, almost 70% of OPEC crude exports went to the Asia Pacific region. A large portion of these exports goes to China.
The percentage of oil in China’s fuel share in the energy mix is also expected to remain stable between 2019 and 2045, at 19% per cent. This means that although China has been making great leaps and bounds in the field of renewables, the need for oil will remain significant.
The oil market stability that OPEC tirelessly works towards is conducive to supporting the recommendations for formulating China’s 14th five-year plan, recently adopted at the Fifth Plenary Session of the 19th CPC Central Committee. It is critical also for the promotion of the sound development of the digital economy and the Belt and Road Initiative.
President Xi’s final point concerned the need to build up capacities for tackling global challenges. I truly believe that the OPEC-China energy dialogue is one crucial cog in that apparatus.
The wise Chinese proverb tells us,
A single tree does not make a forest; a single string cannot make music.
Cooperation is what humanity needs in this dark hour. China and OPEC have repeatedly demonstrated their willingness to work together on energy matters. In this manner, we can make our contribution to fulfilling President Xi’s words, when he said,
“I believe that when COVID-19 is over, our world will rise from the pandemic and emerge even stronger. In that spirit, let us join hands to deliver a better life for our people and build a community with a shared future for mankind.”
Well said, Mr. President. May the wisdom of these words guide our discussions today and the OPEC-Chinese relationship going forward.
By HE Mohammad Sanusi Barkindo, OPEC Secretary General.