Episode 11

Secretary General Barkindo: Underinvestment in oil and gas could have dire effects on energy security and the economy

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Key metric to watch: Oil supply and demand balance

In reference to the recent OPEC + agreement to ramp up production rates in July, Secretary-General Barkindo said he was aware of the fragilities of key demand markets in Asia, but he is encouraged by the economic recovery. The key metric to watch, he said, was supply and demand balance at current production levels.

OPEC currently projects that demand will rise by about 6 mb/d in 2021 and that global stocks should reach equilibrium this summer.

As we reach the fifth anniversary of the Joint Declaration of Cooperation, the Secretary-General stated that the OPEC+ union remains strong but acknowledged that there are ups and downs as in any union. He added that the relationship between the Saudi Oil Minister Prince Abdulaziz and his Russian counterpart Alexander Novak is currently “stronger than the Rock of Gibraltar.”

“Cautiously optimistic" about the return of Iranian oil barrels

Now that Iranian barrels have returned to the market, Secretary-General Barkindo said OPEC is closely watching the ongoing nuclear negotiations in Vienna.

Although he is not sure how long it will take Iran to ramp up production to pre-sanction levels, the Secretary-General emphasized the need for OPEC to be "cautiously optimistic" that Iran's return to oil will be orderly and transparent.

The US must play a key role in oil market sustainability and stability

As the biggest oil producer and consumer, Secretary-General Barkindo believes the declaration of cooperation would be incomplete without US leadership. He said that the White House played an integral part in crafting the OPEC+ agreement to extend the largest supply adjustment in history to 9.7 mb/d.

When asked about congressional NOPEC legislation, the Secretary-General stated that OPEC is a friend to the US and that it's necessary for the group to continue playing a role in the sustainability and stability of the global oil market.

Climate initiatives should focus on greenhouse emissions targets

Climate change is an imminent issue with a far-reaching consequence for all OPEC nations, said Secretary-General Barkindo. “If you come to our countries, you will see the meaning of climate change,” he noted. He added that many nations have submitted emission reduction targets and are committed to finding comprehensive and equitable solutions to climate change.

Climate change initiatives are not so much about fossil fuels, explained the Secretary-General, as they address greenhouse emissions. He said that all available renewable energy sources can’t replace the 50% share of the energy mix expected to be supplied by oil and gas by 2045.

“All available renewable energy sources can’t replace the 50% share of the energy mix expected to be supplied by oil and gas by 2045.”

OPEC Secretary-General Mohammed Barkindo

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Underinvestment in oil and gas could lead to energy poverty

In addition to rising ESG mandates, the pandemic has affected oil and gas investment and reduced access to capital, said Secretary-General Barkindo. The pandemic alone caused an estimated 30% contraction in investment capital, he added, and the oil industry still hasn't recovered from the ~50% contraction that occurred in 2015-2016.

This underinvestment could have dire consequences for energy security and the economy, he continued, because energy poverty is a significant crisis, and if investors shun oil and gas, it could lead to an even greater energy crisis than the one that occurred in 2020.

“The pandemic alone caused an estimated 30% contraction in investment capital, and the oil industry still hasn't recovered from the ~50% contraction that occurred in 2015-2016.”

OPEC Secretary-General Mohammed Barkindo

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OPEC expects the US to lead on cybersecurity protection agreements

The Colonial Pipeline and other ransomware attacks have raised concerns about the security of key global energy infrastructure. The Secretary-General noted that OPEC members are not currently collaborating on cybersecurity solutions, but the producer group is working with other organizations to conduct further research into the issue.

The most worrisome aspect of these attacks, he stressed, was that the US was so vulnerable to them. OPEC expects the US to lead on directing international frameworks and agreements to protect against cyber threats.

For more information about Helima Croft’s research report “Beyond the Ballot: Secretary-General Mohammed Barkindo," published on June 8, 2021, please contact your RBC representative.

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