OPEC Secretary General El-Badri

Green threats

Fossil fuel will remain essential and El-Badri adds that “oil and coal will go neck to neck.” The rise of alternative energy is inevitable but, with a projected 50 per cent rise in global energy demand to 2035, El-Badri says “there is room for all kinds as every country is looking for more energy and demand will accommodate all types of energy.”

But surely the growth of alternative energy is gaining strength and will be a threat to the oil business? Not so, he says. He adds that some sources of alternative energy present dilemmas like using land for food or fuel and the nuclear issue remains uncertain since the catastrophe in Japan. “They are growing from a really low base and we encourage all sources of energy and we see growth in the energy mix as demand rises.”

OPEC fall-out

Medium to long-term demand may be secured, but in the shorter term, the market would like to see OPEC demonstrating a more unified front in decision making. The lack of agreement at the June meeting this year may have appeared negative but El-Badri insists that OPEC members have lived through tougher times than a disagreement over supply and demand figures. He says we need to remember the context under which the meeting took place.

“The outside environment was not so friendly; there were many negative signs like the state of the US economy, the European debt crisis, and fears of a slowdown in China. Added to that, we had one country out of production and six new ministers at the meeting.”

El-Badri presented his report to the June meeting indicating fears of a shortage of 1.5 million barrels in the third and fourth quarter of this year. “Some countries agreed with my report, some countries did not, but this is hardly a crisis.”

He reminds us that “OPEC has faced a lot of difficulty in the past, real difficulties where some countries invaded each other and fought each other but we have been able to overcome these difficulties.”

He says a real test of unity came in 2008 when the oil price dropped from $147 to $30 a barrel. “OPEC took a decision and spoke with one voice then to reduce production, and we did it successfully.” This current slowdown in oil demand should not be viewed as a crisis, he says, especially when the market has more pressing issues at hand, such as job creation and re-instatement of consumer confidence.

The Libyan problem

The Secretary General is relieved and encouraged to see Libyan oil coming back to the market. “Restoring oil p
roduction in Libya is an emergency, it must happen without delay and any obstacles.”

The past few months has been a time of personal and professional concern for the Libyan-born oil official who has watched the demise of his country and its oil industry with fear and sadness. “I spent all my life working in Libya – from clerk to chairman of the National Oil Company. I know all of the oil fields by heart.” It was also a time of immense personal distress as members of his family were left behind in the country. Months later, the future looks brighter. His family is safe and well, the war is coming to a close and the outlook for the oil industry is hopeful.

El-Badri is optimistic about the future of energy in Libya, and says restoring oil production is vital. “This is the only source of income they have.” The priority he says is to “restore their production and restore their exports because it’s important the Libyan people have an income, medicine, food and other things needed to get back to normal as it was or even better.” He says the country now needs the full cooperation and investment of the international oil companies. He urges them to waste no time. “I encourage them to come back immediately and without delay as they are part of the game, they must be there from day one and take the initiative.”

Libyan oil expertise is first-class and he is confident that the expat workers and management will also return in their droves once the security and political environment is more settled. “Security must be 100 per cent and financial help must be given.” He said the oil industry has the leadership and the expertise to succeed. “I have great confidence in the chairman of the National Oil Corporation, Dr. Nuri Berruien. The country has some of the best oil experts and the National Transitional Council must support them, this is a top priority.” He says he expects Libya to be producing up to a million barrels a day in six months and he expects oil production to be back to pre-war levels of 1.6 million barrels a day within 15 months.

El-Badri also suggests that current oil prices have a built-in political unrest risk-premium of $16 – $20 a barrel. If Libya can return to normal soon, this premium should shrink, although continuing turmoil in the region means it is unlikely to disappear altogether.
The oil price has hovered above $100 most of this year with Brent Crude becoming the benchmark of choice. The relative strength of the oil price, given the weakness of the global economy, has surprised the market as well as the Secretary General, but many analysts say it underlies longer-term tightness in the market.

El-Badri is not worried about members over-producing at a time like this, the market has not been flooded, but he expects OPEC members to reduce excess production when Libya comes back on track. “As long as other member countries have a different oil from the very sweet Libyan oil, then this cutback will automatically happen. Libya has a strong customer base in Italy, France, Spain and Austria; the market will take care of this shift.”

Slick plans

OPEC celebrated its 50th anniversary last year and “this economic organisation is still relevant and vital to the world economy,” says El-Badri. Now in his second term as Secretary General, he looks forward to the remaining year and a half despite the challenges. The organisation combines the production efforts of 12 member countries, eight of which are in the Middle East. In this very uncertain world, the future for OPEC will be more of the same, ensuring the stabilisation of oil markets. No new member countries are being considered “we are not out knocking on doors and no-one is knocking on our door right now.”

El-Badri does not rule out future expansion but says “we have no immediate intention to grow, if any countries are interested, they are welcome to talk to us, but they must qualify and abide by the OPEC statutes.”

OPEC and other major energy-related organisations are busy collecting data throughout the year and longer-term reports such as OPEC’s Annual World Oil Outlook and the IEA’s World Energy Outlook are due out before the end of the year. The International Energy Forum’s Joint Oil Data Initiative’s investment guide will be published sometime in 2012. This collective information will help guide costly investment decisions in a world of economic uncertainty. The need for solid energy data has never been so urgent; clearer data and more transparent facts and figures can only make OPEC Secretary General El-Badri’s job a less difficult one in the coming 18 months