Mohammed Barkindo is the secretary general of Organisation of the Petroleum Exporting Countries (OPEC). Barkindo is in India to attend the Energy Forum in New Delhi. In an exclusive interview to CNBC-TV18, He said India will contribute the most to the rise in global oil demand in the next two decades. Barkindo also added that oil will continue to play critical role in energy mix in the foreseeable future.
Watch: India will account for nearly a quarter of increased global oil demand, says OPEC Edited Excerpts: The tightness in the global supply in the near-term is a concern for you?
We are beginning to see headwinds in the supply-demand balance particularly going into 2019; largely two factors that are outside the fundamentals of oil. However, we are working with our partners in the non-OPEC.
In June, we met in the declaration of cooperation and took stock of the implementation of the supply adjustments for 18 months since January last year. We came to the conclusion that there was a need for us to change course because to restore balance in the oil market is a continuous strive of oil producers though partly to some of the variables that may not necessarily be under the control of producers.
As a result of that we have been able to bring down, so far, our conformity levels that you referred to as compliance which had overshot 100 percent level in June to 147 percent and we said we have surpassed our goal.
It was highly commendable, it showed the commitment of all the participating countries and this was the first time and I think the severity of the downturn also had a role to play in this. So from July we started to relax supply in order to bring down the conformity from 147 percent to 100 percent and this is still work in progress but so far so good.
So what is the sense because the market seems to be factoring in that the OPEC and allies will continue this output cut agreement beyond December 2018 as well?
There is a growing consensus among the participating countries in OPEC and non-OPEC that we should continue with this noble partnership between us beyond 2018. At the moment the decision is up to December 2018, but we have been holding consultations among ourselves and what I can share with you is that is this growing consensus that we should make this partnership a permanent feature. So the modus operandi, the mechanics of the partnership is currently been discussed by the partners.
In the near term, we have seen some of the OPEC members have increased production to ensure that the Iran supply gap is filled in but on the other side, there also are concerns about the global spare capacity at levels which can actually continue to add premium to crude oil prices?
You have touched on a very important issue for the industry as a whole and that is spare capacity which normally serves as a buffer or an assurance against emergencies in terms of supply.
Now, this is a function of conscious investment decisions taken either by producing countries or by companies or a combination of both. In the last couple of years as a consequence of the severe downturn, a sharp contraction in investments, especially in exploration and production (E&P) and with the rise in demand that we are witnessing, available spare capacity is gradually but steadily thinning out. What should we do as an industry? This has now been brought to the fore at the India Energy Forum where the global industry has gathered this week. We have to figure out how we can bring back investments to the industry.
What are the options for that you are looking at?
In OPEC world oil outlook, which we rolled out yesterday (on Monday) here in New Delhi, we are estimating $11 trillion worth of investments that would be required to meet current and future demand up until 2040 and this also includes the near 50 percent contraction that we have seen cumulatively in 2015 and 2016.
Therefore, within our spare capacity in order to meet demand, the market perception, especially from the trading community would be looking very tight and impacting on the stability. They had instability that we have attained which is now, unfortunately looking a bit fragile as a result of external factors that speaker after speaker this morning and yesterday made reference to at this forum.
You spoke about the world global demand as well. So put out those numbers for us as well, what is your sense on the global oil demand as we go ahead from here and where do you see the India contribution to that?
The growth numbers for demand – first of all, oil from our outlook and which is also in line with the mainstream projections, will continue to dominate the energy basket. Oil and gas will account for over 50 percent up to 2040. Demand will continue to grow by about 14.5 million barrels a day up to 2040. The bulk of this growth will be coming from India significantly.
Therefore, it is in our interest as producers to ensure that this healthy growth in India and other consuming countries is protected. We, therefore, have a vested interest in the continued economic growth, development and prosperity of India, the third largest consumer of oil and going forward, will account for the bulk of the demand.
So producing countries in OPEC and non-OPEC declaration of cooperation are in a Catholic marriage with India. We are in this boat together. Hence, the urge by speakers, including Prime Minister Narendra Modi and oil minister Dharmendra Pradhan that we have to put the issue of investments not only in the producing countries but in the consuming countries as well, at the front banner because we are in it together going forward.
I also want to talk about the import mix that India has right now whether it is crude or the products, 70-85 percent of that is met from OPEC, but now with the US also trying to come into this market, how is OPEC looking to protect or keep that market share in Asia?
For us, right from the inception of the Shale revolution in the US, we openly and officially welcomed these timely and additional volumes of crude that came into the market from their basins.
Without those volumes, the world would have sunk into an unprecedented crisis. If you recall, then we had lost production from some of our major producers and exporters. So just as well our American friends have used the combination of technology of fracking with their innovative financial products and practices to be able to midwife these revolutions. Now, the US has become one of the major exporters of crude and liquids to global markets. This market will continue to grow.
All projects, not only OPEC, continued to show that the world will continue to rely on oil and gas and the liquids and products to sustain this economic growth, to sustain this prosperity that is largely fuelled by oil. What we asked for is an orderly handling of the delicate balance between supply and demand in order to allow companies and countries in the producing regions to plan, to attract the investment capital that is required.
Don’t forget, it is a very capital intensive industry, you are talking about $11 trillion and we are all going to the same pool of investment capital to make our projects attractive, to get the best terms at a time when we are increasingly being crowded out based on other carbon considerations and what have you.
So we are confident that the best is yet to come but we all need to bring all hands on deck. The barriers have been broken down whether between the shale producers in the United States or the conventional producers in the Gulf of Mexico or in OPEC countries or indeed even with consuming countries like India.
So there is one thing that almost everybody is on board with and that is that even as we will see alternate fuels and electrical vehicles and hybrids etc., the demand for crude oil will continue to grow at an unprecedented phase at least for the next couple of decades as you said, so how much do you agree with that one and two what kind of a partnership is OPEC now looking to cement with India?
The discourse and the advocacy for alternative fuels, for alternative mobility, has not been handled well. The industry has been grappling with the cyclical nature of boom and bust. So the industry had been focusing on how to survive these cycles, how to continue to be reliable and dependable suppliers of oil to markets around the globe, whereas we have also seen a continuous hype in advocacy of alternative fuels, of new technologies in mobility that gradually is making our industry look like an industry that is steadily moving into extension to the contrary.Underground, you have more than one trillion barrels of oil, two at the moment you have over 3 billion people in this world who have no access to clean cooking fuel, not to talk of the over 1 billion people that have no access to electricity. By 2040, we are projecting additional 1.6-1.8 billion people coming into this world and over 90 percent from the same developing countries.