Libyan-born Abdala El-Badri became the Secretary-General of Organization of Petroleum Exporting Countries (OPEC) in 2007.
He started his career in the oil industry with ExxonMobil in 1965 as assistant accountant after graduating with a degree in Accounting and Business Administration in Southern Florida, US. He was Chairman, Libya National Oil Company, Minister of Oil and Electricity, Minister of Petroleum and Deputy Prime Minister.
Abdalla El-Badri has served on several boards in the Libyan oil industry and OPEC.
Mr. Secretary-General, what would you describe as OPEC’s major task and how has that shifted over the years?
Abdalla El-Badri: When OPEC was set up in 1960 its goal was to ensure the stabilisation of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.
The focus then was on stability – and this remains true today. Of course, the market has evolved over the past 50 years or so. For one thing, it is significantly bigger today.
In 1960, total liquids supply was just over 22 million barrels a day (mb/d). By 2012 it had increased to close to 90 mb/d. In terms of OPEC crude, supply grew from close to 8.3 mb/d in 1960 to around 30 mb/d in 2012. In addition, with this market expansion, we have seen our inter-linkages expand.
Today, the oil market is characterised by interdependence – with producers and consumers, international oil and gas companies, national oil and gas companies, independents, service companies, traders, financiers and regulators all playing an important role.
Moreover, we have also seen developments and changes in other areas. For example – and this is not an exhaustive list – improvements in technology have enabled us to continually push the boundaries of what is possible, extending the reach of the industry, reducing costs and unlocking additional resources.
Additionally, the emergence and expansion of the ‘paper oil’ markets has, on occasion, led to excessive speculation and resulted in extreme price volatility. At the end of 2012, for example, the total number of open interest contracts on the NYMEX (the New York Mercantile Exchange) and the ICE (the Intercontinental Exchange) was more than 40 times greater than actual daily oil demand. And we have made significant advancements in the producer-consumer dialogue, which back in 1960 was almost non-existent.
Over the years, we have seen a cooperative and coordinated approach to dialogue evolve as we aim to bring about market stability in both the short-and long-term. For example, OPEC has dialogue with the European Union, the International Energy Agency, the International Energy Forum, Russia, as well as other stakeholders. The importance of this cooperation can only grow in the years ahead.
In short, while the market has seen some significant shifts, developments and changes since 1960, in general, the overall goal for OPEC remains the same – a stable market for all parties.
Repeatedly there have been tensions within OPEC as some members consider cutting production to maximise revenues while others go for a lower price to discourage fuel switching. How is OPEC dealing with these?
Abdalla El-Badri: Throughout the history of the organisation there have been differences of opinion. This is only natural for an organisation of 12 member countries. In fact, it is true for any organisation of this nature. OPEC is like a family – we cannot always agree on everything.
However, we are able to discuss, deliberate and debate, in order to reach a consensus. We do not walk away from challenges and difficulties; we work hard to overcome them. It all underlines OPEC’s strong foundations.
And, as I mentioned in my response to your previous question, in terms of the oil market the goal for OPEC and all its member countries is stability, and a healthy balance between supply and demand.
Given that transportation drives the economies of OPEC members, what impact will the growing sector of electric or alternative fuel cars have on OPEC members?
Abdalla El-Badri: It is clear that the road transportation sector, in particular, has huge growth potential, especially in developing countries.
In China, we see car ownership increasing from just 34 cars per 1,000 people in 2009 to 213 per 1,000 by 2035. And in India, we see average annual growth of more than 10 per cent, with the level jumping from just one car per 100 people in 2009 to a little more than one in 10 people by 2035.
These are tremendous growth figures. And given that car ownership per capita in OECD countries in 2009 averaged 478 per 1,000 people, there is evidently much further potential for developing countries.
At OPEC, we recognise that there will be developments and advancements in areas such as electric and hybrid vehicles, and that some of the growth in the transportation sector will be driven by these technologies. However, these developments are starting from a low base and we expect these new technologies to take time to increase their penetration in the sector.
Overall, we believe that the internal combustion engine is still the best option around in terms of efficiency, cost-effectiveness, accessibility and performance. Thus, oil and increasingly efficient conventional powertrain technologies will remain central to the transportation sector for the foreseeable future.
In general, do you see the rise of new sources of energy such as unconventional gas as a threat to OPEC members?
Abdalla El-Badri: Generally, we think shale gas and tight oil holds promise. In the US, for example, shale gas production has jumped from 15 billion cubic feet a day in 2010 to 25 billion cubic feet a day in 2012, and projections are for this to increase to 45 billion cubic feet a day in 2020.
With regard to shale oil, our recent World Oil Outlook sees production increasing from around one mb/d in 2012 to two mb/d by 2020, and then to three mb/d by 2035.
However, shale resources outside of the US remain in very early stages of development and there appears to be a general consensus that it will be difficult for other countries to simply replicate the US experience with shale resources. A diversity of other factors – such as costs, water availability, regulation and concerns over potential environmental impacts – will also help determine the future of these new resources.
Many questions remain as to how sustainable their growth will be in the long term, particularly when we look at decline rates. We do not view shale gas and tight oil as a threat to OPEC. We welcome energy diversity and an expanded energy mix, and shale gas and tight oil are positive additions to this. However, we see shale more as an ‘evolution’ than a ‘revolution’.
Setting a fair price, your predecessor Adnan Shihab-Eldin two years ago mentioned a price range of $50 to $60. You yourself said that there was no evidence to suggest that the important psychological threshold of $100 would be reached.
Abdalla El-Badri: I have no concrete sense of target prices, not even of a specific range. We at OPEC don’t want extremes, prices that are too high or too low. What we do want is a stable price. This would benefit the producers and the consumers. But, as I said, the market determines that.
A market over which you don’t have decisive influence? Has OPEC lost so much power, OPEC, the feared organization that dictated prices in the 1970s and 1980s and has even used oil as a political weapon.?
Abdalla El-Badri: We only dictated things for a short period in our history. Those days are long gone. The countries that belong to OPEC currently supply about 40 percent of the petroleum consumed in the world. One cannot exactly say that we truly control the market.
But OPEC can exert important influence by cutting back or expanding production volume.
Abdalla El-Badri: That’s true, and we do this as we see fit. Beginning in 2004, we increased production by close to 5 million barrels per day by the end of 2006. Then we reduced production by 1.7 million barrels when we felt that the price was too low. It was a very good decision as far as OPEC is concerned.
Some experts doubt that OPEC can even expand production volume to a significant degree anymore. These specialists say that Saudi Arabia, for example – the world’s only oil superpower – is already putting too much pressure on its oil fields today, and that the reserves are generally smaller than was previously assumed.
Abdalla El-Badri: Don’t worry, we still have capacity. We are currently able to increase production by 3.5 million barrels. And we have also invested up to 2012 in new projects at a total cost of $150 billion, which will give us additional capacity of 6 million barrels in four years. However, we have to know how high the demand for oil will be in the future, so that we can plan our investments accordingly.
You cannot deny that the reserves are finite. Have we already seen “peak oil” – the maximum level of petroleum production that can be reached before reserves will inevitably begin to shrink?
Abdalla El-Badri: No, I don’t think so. I also don’t believe that we will reach this point in the near future.
Experts outside of OPEC have a less optimistic view of our energy future.
Abdalla El-Badri: Perhaps. But I believe that even your grandchildren will still have enough fossil fuel. There will be an end to the oil, for sure. But I’m convinced it will not be in the next 100 years.
Even a study published on behalf of OPEC concludes that, by as early as 2024, your cartel may no longer be able to fully meet customers’ demands and deliver as much oil as they need.
Abdalla El-Badri: This is not our own study, it does not reflect the official OPEC view. I am convinced that its conclusions are wrong. There is enough oil. And there are enough discovered reserves. Our real problem lies in the correct assessment of demand. We would like to know how fast it is growing.
That depends on many factors, including energy conservation in the industrialized nations and the thirst for energy in major emerging economies like China and India. Do you have a clear idea of what’s going on there?
Abdalla El-Badri: I have visited China and spoken with the political leadership there. We are in talks with the EU and I am going to visit Japan. The most important thing for us is dialogue. The individual countries do not provide us with exact demand figures for the future, but at least they give us some indication of how much oil will be needed.
You paint a rather rosy picture. But isn’t OPEC also affected by the diverging interests of its members? Wasn’t there a substantial dispute at your last major meeting – one that pitted Iran and Venezuela, with their ideas about high prices and their anti-Western agenda, against the “moderates”?
Abdalla El-Badri: We leave politics up to the individual member nations. OPEC is an economic organization. Besides, it wasn’t a real dispute. We speak with one voice. However, we did have a lively discussion in November over whether and how we should generally shift from the reserve currency, the dollar, to the euro for purposes of trading. Some of our member nations have enormous dollar reserves, while others sell in dollars and buy in euros.
And are you in favour of abandoning the practice of trading in dollars as Venezuela and Iran have demanded?
Abdalla El-Badri: The euro is currently the world’s strongest currency. A change can be made, but it will take some time. It took many years for the dollar to become a dominant currency in the oil business. But in the future it will not be that difficult to change.
Angola and Ecuador were accepted as members of OPEC. Should Russia join?
Abdalla El-Badri: We don’t knock on anybody’s door.
But wouldn’t you like to see Moscow knocking on your door? With the Russians on board, with their enormous production capacities and even bigger reserves, OPEC could truly set prices.
Abdalla El-Badri: Once again, we don’t want to dictate anything.
Russia and Iran are promoting the Gas Exporting Countries Forum – a cartel for natural gas – the world’s second-most important natural resource, which is tied to the oil price. Are you concerned about this sort of a “counter-OPEC,” and do you think it has potential?
Abdalla El-Badri: This sort of organization may be an option in the long-term, but the gas producers are tied to supply agreements, some for 30 years – it’s not like crude. But we at OPEC do not see this as a threat.
There has been a worldwide trend toward re-nationalization of energy reserves in recent years. While multinational companies like Exxon, Shell and BP controlled the market two decades ago, nowadays 77 percent of all oil reserves are in the hands of national and, in many cases, relatively inefficient oil companies in the production countries. Wouldn’t it be better if more private, and thus more transparent, companies dominated the market instead of these national dinosaurs?
Abdalla El-Badri: The international oil companies are the real dinosaurs, not we at OPEC. The multinationals have changed their philosophy in recent years, but they still have a long way to go. They need to hire and train more local people. And they should invest more in the exploration of fields and in new technologies. They also have to be very gentle with the production profile of every country.
You recently spoke out against biofuels. Why?
Abdalla El-Badri: I have nothing against biofuels, or against any other forms of alternative energy. All I wanted to say was that one shouldn’t invest in something that ultimately cannot be brought to fruition, at least not on a large scale. Biofuels are not a saviour at all. The production of biofuel comes at the expense of food reserves and water. It requires precious agricultural land that could be planted with other crops. At the end of the day the consumer will pay the price.
You have been familiar with OPEC for a long time. You have observed the organization from very different perspectives, including as a manager of both private and state-owned oil companies and as an energy minister. How has the cartel changed?
Abdalla El-Badri: OPEC is the oldest surviving organization that consists exclusively of Third World countries. It’s now almost 48 years old, and it has members from Africa, Asia and South America. It is a success story. It is getting stronger and stronger, year in and year out. We are able to control our reserves. OPEC promotes energy security for the entire world and doesn’t limit itself to the individual interests of its members.
What would the world look like without OPEC?
Abdalla El-Badri: I think the world is a better place because of OPEC. The world would not be as safe a place without this organization, because we guarantee a stable petroleum market. In doing so, we also contribute to overall world stability on the energy side.
Mr. Secretary General, we thank you for this interview.
