Excellencies, ladies and gentlemen:
Let me begin by thanking Prof. Dr. Horst Teltschik and colleagues for inviting me to participate in this 41st Munich Conference on Security Policy. Yesterday, at the Broader MENA Conference, I spoke about the role of the OPEC Fund for International Development in assisting developing countries, including countries in the MENA region, in pursuit of their social and economic advancement. Today, I would like to expand on the complementary roles of the OPEC Fund and the Organization of the Petroleum Exporting Countries (OPEC) in helping preserve world peace through the enhancement of social progress and economic development.
Allow me to clarify the respective mandates of these two institutions, and their noble missions. Although the OPEC Fund and OPEC are both based in Vienna , Austria , and serve the complementary objectives of their shared membership, they are two quite independent organizations, both legally and financially. They report to different Ministers, and are endowed with their own separate headquarters and management.
Established in 1960, OPEC’s mandate is to support international macro-economic stability by ensuring secure world oil supplies. Its principal objectives are to co-ordinate and unify the petroleum policies of member countries and to determine the best means of safeguarding their individual and collective interests, while giving due regard to the need to secure an efficient, economic and regular supply of petroleum to consuming nations. OPEC also seeks to ensure the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations.
The mission of the OPEC Fund is to help maintain world peace and security through development co-operation. In establishing the institution in 1976, our member countries collectively decided to voluntarily allocate part of their revenues from oil - a finite, exhaustible resource on which they remain heavily dependent – to assist international development through the OPEC Fund. This decision was not based on considerations of charity, but rather on the firm and shared conviction that development cooperation is essential to the preservation of world peace and security, and thus, to the benefit of the world at large. By the end of 2004, our member countries had made available a cumulative total of US$7.4 billion in official development assistance (ODA) through the OPEC Fund, in addition to the financial assistance they made available through various other bilateral and multilateral channels.
Our mandate at the Fund is to reinforce financial cooperation between OPEC member countries and other developing countries, and to promote South-South solidarity. The aim is to not only help alleviate hardship among the poor, but also to ensure that those who have been marginalized from the mainstream of the world economy are looked after and prevented from becoming further disenfranchised. Thus, the Fund particularly helps the poorer, low-income countries in pursuit of their social and economic advancement. The strategy chosen is to help poor countries and people fulfil their basic needs by making available public and private sector loans. More than 60% of our cumulative public sector lending has been dedicated to infrastructure, one third of which has been committed to helping meet the energy needs of the poor. The Fund also provides grants for technical assistance, research, and emergency and humanitarian aid, most recently in support of the victims of the devastating Tsunami that hit South Asia late December 2004. Our preferred method is to work in partnership and co-financing with other development financing institutions, sister institutions, and relevant stakeholders in development. OPEC Fund member countries are not eligible for our assistance, except in emergency cases.
With 3 billion people or half the world’s population surviving on less than US$2 a day, the Fund’s mission to help maintain peace through development is more relevant than ever. As you may be aware, the volume of ODA available to help poor countries reach the Millennium Development Goals by 2015 is only about half the US$100 billion that is needed every year. International efforts are ongoing to bridge the financing gap. At this year’s Annual Meeting of the World Economic Forum in Davos , Switzerland , world leaders were urged to take responsibility for tough choices. Proposals were made to mobilize additional financial resources for development through voluntary taxation. OPEC Fund member countries made these tough choices several decades ago with their collective decision to voluntarily make available a stable and predictable flow of financing for development, despite themselves being developing countries, with many challenges to face at home.
Excellencies, ladies and gentlemen:
In this rapidly changing and increasingly interconnected and interdependent world, peace and security, including energy security, are matters of global concern, as evidenced by the presence of so many high-ranking members of the international security community here today. International organized crime, terrorism, violent conflict and the rapid spread of epidemic diseases have shown the negative side-effect of globalization. This has fuelled a sense of human insecurity, enhancing an international consensus that there can be no peace in our global village without a more inclusive and cohesive world order.
Access to reliable and affordable energy services is a key ingredient in the pursuit of the social and economic advancement of both industrialized and developing nations. In the aftermath of the tragic events of September 11, 2001 , energy security again tops the agenda of policy makers, with renewed fears about scarcity and security of supplies.
OPEC has ensured the security of energy supplies for over forty years and with it, global macro-economic stability and world peace, with some member countries making up for production losses incurred by others in case of crisis or war. The organization stands firm in its commitment to maintain a stable international oil market, as evidenced by the unprecedented efforts underway in OPEC member countries - particularly in the Gulf - to increase investment in oil production capacity, and to ensure that adequate spare capacity is available for the benefit of the world at large.
Oil and gas are expected to account for two-thirds of global energy consumption by 2020. Oil demand increased by more than 75%, from 47 mb/d in 1970 to 83 mb/d this year. Demand is forecast to rise further, by around 30% or 1.5% annually for the next two decades, and to reach 111 mb/d by 2025. Similarly, demand for gas is projected to grow by 2.9% annually, to 30% of global energy consumption by 2025. About 80% of the incremental increase in oil demand will be in the developing countries, which will account for 46% of world oil consumption by 2025, a quarter of which will be in China .
As a seat for almost 70% of the world's proven oil reserves and 40% of total proven world gas reserves, the Middle East, home to the majority of OPEC member countries, will have to meet almost two-thirds of the projected increase in world demand. Of a projected world oil trade of 67 mb/d by 2025, the Middle East will account for about half. This region’s importance is also expected to increase, as far as the natural gas trade is concerned.
A cumulative total of some US$500 billion will be needed over the next 25 years to maintain and increase the oil supply capacities of the Middle East – an area of low-cost production. This amount is not substantial, when compared with expected Middle East oil revenues, and thus not considered as particularly demanding, provided that oil prices are not so low that they deprive the industry of the financial resources required for adequate investment. Although national oil companies are making the necessary investments to bring production levels up to standard, part of the financing will have to come in the form of foreign direct investment which, in turn, requires a peaceful and stable enabling environment in FDI home countries.
All commodities witnessed a sharp increase in price in 2004. For oil, in nominal terms, the OPEC daily basket price reached record highs in 2004. In real terms, however, prices are some 50% lower than they were in early 1980: in today's dollar terms, they are at the same level of late 1973, and below what they were in 1979, namely US$80-US$100/b. Prices moderated again in the fourth quarter, averaging US$36/b in December 2004. A combination of factors contributed to the price volatility, which occurred despite sufficient supplies and sound market fundamentals. These include unusual and unexpected high demand, in particular from China , compounded by low global inventory levels, refining bottlenecks, and strained supply infrastructure in major consuming regions, war and geo-political tensions, and speculative activity in the paper markets.
OPEC has done its best to ensure adequate supplies during this unusual year, thanks to continued investment in oil supply capacity, including spare capacity, which has fallen to around 5% of total OPEC capacity, following the decision by OPEC to increase production by a total of 3.5 mb/d in 2004. Nevertheless, other pressures, such as speculation and downstream bottlenecks, are likely to continue keeping prices high in the near future. In the longer term, these pressures need to be addressed in a broader co-operative approach.
Excellencies, ladies and gentlemen:
Enhancing energy security does not only require better technologies and more investment in production capacity. It also requires greater international co-operation and dialogue on energy policies and its geopolitical dimensions.
In 2002, the International Energy Forum (IEF) was established to promote a continuous dialogue and understanding between oil and gas producers and consumers on energy-related issues and perceptions affecting the world community in order to reduce supply and demand volatility, and enhance market stability and transparency. The permanent Secretariat of the IEF is located in Riyadh , Saudi Arabia .
I realize that the interrelated issues of peace through development co-operation, energy security, and market stability lend itself to many questions, which I shall be happy to take during the discussions.
Thank you.