G7_JAPAN

Energy security
$130BN
20% Fall in investment in oil exploration
and production between 2014 and 2015
SAMUEL KUBANI/AFP/GETTY IMAGES
level that will see all the necessary future
investments take place? Clearly they are not.
At current price levels, not all the necessary
future investment is viable. Moreover, new
barrels are needed not only to increase
production, but also to accommodate for
declining rates from existing fields.
Restoring the balance
If the necessary new capacity does not come
online in the coming years, the market
could move from one of too much supply
to one of not enough. The previous high
oil-price cycle was the outcome of a lack of
investment in more supply. And today’s low
oil-price environment is the result of too
much investment in high-cost production
during that period.
It is essential to return balance to the
market, and provide the stability and
market conditions that allow for future
investments. This is something that OPEC
is continually striving for.
The market is already showing signs
that supply and demand fundamentals will
start to correct themselves in 2016. But the
issue of expanding inventories remains a
significant concern. Since the end of 2015,
the five-year average for commercial stocks
among members of the Organisation for
Abdalla Salem
El-Badri
Secretary General
OPEC
El-Badri has been Secretary General
of the Organization of the Petroleum
Exporting Countries (OPEC) since
2007. In 1977, he joined the board of
Libya’s Umm Al-Jawaby Oil Company,
and in 1980 was appointed Chair of
the Waha Oil Company. He became
Chair of the Libyan National Oil
Company (NOC) in 1983 and Libya’s
Minister of Petroleum in 1990. He
subsequently served as Libya’s
Minister of Energy, Oil and Electricity,
and Deputy Prime Minister, before
returning to NOC until 2006.
www.opec.org
Economic Co-operation and Development
(OECD) has risen from a negative level of
85 million barrels to a surplus of well over
300 million barrels at the start of 2016. This
development continues to affect crude
prices significantly. Moreover, for the
same period there has also been a rise
in non-OECD inventories, plus an
expansion in some non-OECD strategic
petroleum reserves.
The market must address the issue of
the stock overhang to bring further balance.
And, given that non-OPEC members
increased supply by more than 5 mb/d
between 2013 and 2015, compared to OPEC
keeping supply fairly stable over this period,
this is an issue that all major producers
should tackle together.
It is hoped that G7 leaders at the
Ise-Shima Summit in Japan discuss the
current oil market environment, given
the industry’s global economic impact.
Specifically, it is in the interests of
everyone to see balance restored to the
market and inventories come down to
levels that allow prices to recover and
investments to return. As OPEC often
says, extreme prices – either too high or
too low – are not in the interests of either
producers or consumers. G7
g7g20.com May 2016 • G7 Japan: The Ise-Shima Summit 61