Security of Energy Supplies Inextricably Linked with Demand

01 Jun 2015
  • Security of Energy Supplies Inextricably Linked with Demand

With expensive investment required to sustain energy supplies, a clear projection of demand is vital if producers are to meet future consumer needs, explains Abdalla Salem El-Badri, Secretary General, OPEC.


The world was a very different place when representatives of a small group of developing countries sat down together in Baghdad to form the Organization of the Petroleum Exporting Countries (OPEC) back in 1960. The world had not yet witnessed the first human spaceflight, air travel was still in its infancy, the Beatles had only just formed, and the use of personal computers and mobile phones was still decades away.


The intervening years have seen much change. This is certainly true for the character and dynamics of the energy sector, with new technologies pushing the frontiers of the industry, more choice and availability of energies, an expansion in global travel and trade, the increased financialization of energy markets, and an evermore interdependent energy world.


However, one basic issue has remained central to the industry, and to producers and consumers alike: the importance of energy security.


Discussing the topic of energy security might elicit a variety of responses, but in general several key characteristics remain constant. Although this is not an exhaustive list, the basic tenets of energy security have been, and remain as follows:

  • It is reciprocal. Security of demand is as important to producers as security of supply is to consumers.
  • It should cover all foreseeable time horizons. Security tomorrow is as important as security today.
  • It should be universal, applying to rich and poor countries alike, with the focus on the three pillars of sustainable development and, in particular, the eradication of energy poverty and the provision of modern energy services.
  • It should benefit from enhanced dialogue and cooperation among stakeholders.

OPEC recognises the importance of security of supply to consumers, and this can be viewed in its actions over the years. The organisation has kept the market well supplied, and continues to do so. It holds sufficient spare capacity that can be used to bring balance to the market if there is a supply shortfall due to issues such as geopolitical or weather-related events. Alongside oil stocks, spare capacity gives vital flexibility to the market during unforeseen events.


However, it is also essential to underscore the issue of security of demand for oil producers. It is vital to have the clearest possible picture in relation to future oil demand, particularly in an industry subject to long lead times and payback periods.


At OPEC, we appreciate the importance of energy-efficiency measures and every country has the right to initiate its own energy and environmental policies. Nevertheless, it is crucial to appreciate that some policies offer uncertainties in regard to their impact on future oil consumption levels and overall energy demand.


To sum this up simply, producers do not want to waste precious financial resources on infrastructure that might not be needed. At the same time, however, if timely and adequate investments are not made, future consumer needs might not be met.


The importance of this is further underscored when it comes to assessing oil-related investments. OPEC’s World Oil Outlook 2014 estimates that oil-related investment requirements will approach $10 trillion (in 2013 dollars) between 2014 and 2040.


It all underlines the fact that security of supply and security of demand cannot be decoupled, and that a comprehensive look at energy security is needed over the short-, medium- and long-term timeframes.


OPEC also recognises the importance of understanding that energy security means different things to different people, particularly the 1.3 billion people without access to electricity and the 2.7 billion people relying on biomass for their basic needs. It is extremely positive that the proposed seventh goal of the United Nations Sustainable Development Goals will call for countries to “ensure access to affordable, reliable, sustainable and modern energy for all”.


Sustainable development goals are a high priority for OPEC members. Sustainable development is the main aim of the financial and technical assistance they provide to other developing countries, whether directly through their own aid institutions or through their participation in the OPEC Fund for International Development (OFID). OFID supports the UN’s Sustainable Energy for All (SE4All) initiative, as well as many projects aimed at alleviating energy poverty, addressing it holistically alongside food and water security.


There are also several other challenges and uncertainties that feed into the issue of future energy security. These include the ongoing UN climate change negotiations and the importance of reaching an agreement that is comprehensive, balanced, fair and equitable for all, and also the role and impact of financial market speculation on the oil market, human resource requirements and potential staffing shortages, as well as the need to continually improve data transparency.


To help meet these and other challenges, OPEC believes it is important to constantly explore ways to develop and expand its dialogue and cooperation with other stakeholders.


A prime example of this is OPEC’s proactive participation in the International Energy Forum (IEF), which plays an important role in strengthening energy cooperation and dialogue between producers and consumers. OPEC’s involvement includes being a partner organisation in the Joint Organisations Data Initiative (JODI), which focuses on enhancing the transparency, quality, timeliness and flows of oil and gas market data.


In addition, OPEC regularly participates in other dialogue processes, such as those with the IEF and the International Energy Agency. OPEC has been closely involved in several of the G20’s energy-related work streams, and plays an active role in the European Union-OPEC Energy Dialogue and the Russia-OPEC Energy Dialogue.


Such dialogue and cooperation are essential elements in the ongoing efforts to maintain stability and confidence in the industry and help everyone meet their energy security needs. The world may have changed a great deal since OPEC was formed back in 1960, but the goal of everyone to achieve energy security remains, whether they are an individual, business, country or region.


OPEC members continue to play a positive role in this regard, as they have done since the organisation was formed back in 1960: through holding regular and stable supplies of oil, maintaining an adequate level of spare capacity, supporting efforts to alleviate energy poverty, and engaging and cooperating with other industry stakeholders.


By Abdalla Salem El-Badri | Published in G7G20 | March 30, 2015

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