Second Joint IEA/OPEC Workshop on Oil Investment Prospects

A second joint workshop was organised today in Paris by the IEA and OPEC on oil investment prospects. The first, which took place in Vienna in June 2003, provided input to the IEA’s World Energy Investment Outlook (WEIO) which concluded that availability of reserves and capital was not a key constraint in bringing on the oil required by 2030. Mr Claude Mandil, Executive Director of the International Energy Agency, highlighted the OPEC Secretariat's "valuable contribution" to this IEA study. During this second workshop, the findings of the WEIO and OPEC’s oil outlook were presented. Discussions focused on the challenges in promoting the necessary investments in the oil sector, as well as the key drivers, uncertainties and implications. The workshop was attended by a select group of high-level delegates representing the IEA and OPEC Secretariats, their member countries, major private and national oil companies and the investment community.

“A pivotal area in shaping the flow of investment to oil development is the Middle East. Although the costs of developing the region’s vast reserves are lower than anywhere else in the world, financing this investment will be determined partially by perceptions of security risk, but even more so by national decisions establishing the pace of resource exploitation”, said Mr. Mandil at the opening of the workshop.

“Unlike the major privately owned international oil companies that can mobilise large cash resources, the amount of earnings national oil companies can retain for investment purposes will necessarily be a derivative of the broader needs of national budgets”, explained Mr. Mandil. “Financing new projects could become a problem where the national debt is already high and national considerations discourage or preclude private or foreign investment.”

“If the projected amount of investment in the Middle East is not forthcoming and production does not, therefore, increase as rapidly as expected, more capital would need to be spent in other more costly regions”, he stated.

Mr. Mandil added that “maintaining the momentum of the rebound in Russian production and exports will be difficult. It will require bringing on new producing provinces, expanding crude oil export pipelines and sea-terminals and reinforcing government efforts to stabilise the legal and tax regime for investors.”

In his opening remarks delivered on behalf of the OPEC Secretariat, Dr Adnan Shihab-Eldin, OPEC’s Director of Research, commended the increasing level of cooperation between OPEC and the IEA and assured the meeting that more joint projects would be carried out by the two organisations for the good of the international oil industry.

He highlighted the challenges that would have to be overcome in order to obtain the necessary investment to fund sectoral expansion over the longer term. “These challenges cover many issues of both a short- and a long-term nature, in a world that is more complex and interdependent than ever before,” he said. “We all face these challenges, regardless of whether we are producers or consumers, OPEC or non-OPEC. Moreover, we need to handle these challenges — or, at least, most of them — in a manner that stretches across all participating groups.”

Dr Shihab-Eldin was pleased to note that the IEA’s “comprehensive and valuable” study, WEIO, confirmed the OPEC view that the resource base (of oil) was sufficiently abundant to satisfy expected demand growth over the coming decades and that large levels of investment would be required.

“I am sure that this meeting today will spend time looking at the expected scale of these investment needs, and how this relates to past experience within the industry,” he said. “But we need to be fully aware of the large uncertainties that we will have to deal with." These include the large uncertainties associated with future levels of oil demand, policy developments and technological impacts.

He welcomed a steadily growing sense of collective responsibility for the state of the market within the international petroleum community, adding: “The benefits of this can be felt throughout the industry, not only upstream, but also downstream, including transportation and distribution. Indeed, it has become widely acknowledged that the downstream industry should feature prominently in our assessments both now and in the future, so as to avoid it becoming a source of price volatility.”

Dr Shihab-Eldin concluded by re-emphasising that OPEC remained committed to its fundamental objectives of seeking order and stability in the international oil market, with secure supply, reasonable prices and fair returns for investors. But, he said, “OPEC’s perspective is not just the immediate time-horizon; it also extends well into the future. This is why we attach so much importance to such workshops as the one we are holding today.”