Q: Congratulations on this latest World Oil Outlook. The report estimates total oil-related investment needs of $12.1 trillion out to 2045. But you yesterday [31 October] spoke of the perils of chronic underinvestment, are you seeing any improvements?

A: The oil industry investment climate is showing some signs of improvement, but we need to see more on the table. Compared to Covid levels we’ve seen investments pick up, but not to levels that we would ideally want to see. Prior to 2016 we were talking about investments in the range of $500-550bn per year, but we then saw them drop in some years to as low as around $200bn. We’ve seen them pick up again, but they haven’t reached those previous levels.

In our WOO, we said that from now to 2045, you need $12.1 trillion investment, which is around $500bn per year. That’s throughout the whole value chain, not just the upstream. The biggest sector is upstream at $9.5 trillion, with $1.6 trillion in the downstream and $1 trillion for the midstream. It’s a huge amount of money, but it’s vital as we have been hit hard twice in recent times. First with the 2014-2016 industry downturn, and then in 2020 with the Covid downturn. In addition, with every downturn there is market instability and with that you lose investor appetite.

Q: We’ve had high prices of more than $100/B this year, but investment hasn’t rebounded. What do you think are the key impediments to investment? Why hasn’t it come back?

A: This is a really good question. I think there is a lack of confidence on the part of many oil companies with regards to policies, particularly messages from governments about the need to move away from fossil fuels. That’s the primary thing, but the lack of financing for upstream projects due to ESG constraints is also a concern.

They are serious impediments, because with current price levels it would seem like the ideal time to invest.

It is important to stress that it is not just about the upstream. We need to ask ourselves: why have there been concerns about high gasoline prices, high diesel prices? In our WOO, we say that it’s not only upstream, it’s about refining too. I’ve been hammering this message home since the first day I took office.

There have to be corresponding investments in refining capacity around the world. We only see refining growth today in the Middle East - the UAE, Saudi, Kuwait, Iraq - and other parts of non-OECD Asia, such as China and India. We see the opposite happening in OECD countries where there’s been many refinery closures.

Q: The WOO does emphasize the lack of refining capacity, and obviously there is a middle distillate crunch in particular at the moment. The report forecasts that refining capacity additions will peak this year, and then decline. Do you think there is much scope for further investments in new refineries given the long-term uncertainties?

A: I think if there was the right environment, based on sound messaging and guidance from governments and policymakers, then we would see enough investment. There is a future for growth in oil. At Opec, and other outlooks say similar, we firmly believe that oil will be a major component of the energy mix way out to 2045. In the WOO, demand reaches around 110mn b/d by 2045.

There has been a growing consensus forming around this over the past year, but Opec has been consistent in driving the message home for years and years that we need to invest, invest, invest. Unfortunately, at times the tide was too strong for us to push against. The chronic underinvestment that we’ve seen in a number of recent years is a big reason why we face the challenges we do today.

Let me just give you the US as an example. There, we see gasoline demand coming back by almost 2mn b/d, but at the same time refining capacity is shrinking by around 2mn b/d. That is a gap of 4mn b/d opening up.

Q: One interesting thing in the report was that you differentiated between adding refining capacity and the need for additional secondary units at existing refineries. What’s more important, just increasing global CDU capacity, or increasing the complexity of refineries that we already have?

A: You need to do both. The complexity relates to the types of crude oil resources we have in the world. For example, you can’t build a simple refinery when you have an abundance of heavy, medium and sour crude. It is also driven by the differentials between light/heavy and sweet/sour crudes, and that depends on where you are, and what kind of crude you intend to buy.

The most available type of crude in the future is predominantly going to be sour, medium/heavy type of crudes from the Middle East. There is also Venezuela, which sits on the largest global reserves and that’s really heavy, sour crude. In the Middle East, you have huge reserves in Iran, Saudi Arabia, Iraq, Kuwait, the UAE, as well as in Oman and Qatar. I wouldn’t call this all heavy, but the typical Middle East grades require complex refining capacity. For instance, you can’t take Kuwaiti heavy crude, put it into a simple distillation refinery and get good value from it.

The future of refining capacity will be geared more towards building more complex refineries. Additionally, to add value it’s no longer about just extracting the margin through the complexity of refining crude, but by integrating petrochemicals. There’s a growing trend to integrate the petrochemicals business with the refinery to realize maximum value.

Q: Turning to global oil demand, I think a lot of people were surprised by the WOO’s significant upwards revisions to forecast global oil demand given the energy transition and current market disruption. What’s the logic behind this?

A: Things are slightly different today compared to when we put together the WOO over the summer. There is more uncertainty now. In the near term, however, we do see some switching from gas to oil, and from coal to oil. In fact, we’ve even seen Europe switch to oil in some cases. It’s not just Europe; it’s also in places in Asia. It means that this year we have a higher starting base for demand when compared to last year’s numbers. However, the long overall growth trajectory is the same.

It is also important to note that we see some energy transition related policies impacted by the current energy crisis. It means some countries may revisit or delay policies that could potentially impact oil demand.

Q: Looking at the near term, you’ve also revised up demand even in the OECD, despite most of the West seemingly going into a recession.

A: To reiterate, the energy crisis has clearly opened people’s eyes and to look at alternatives to gas and coal. This is a major factor behind us bumping up near-term OECD [oil] demand. There is also evidently an increased focus on security of supply.

Q: The report also notes the increasing flows of Middle Eastern crude into Europe. Is that something that you see as being a sustainable development? 

A: We don’t see this as a long-term trend. From my own crude oil trading experience, I know that the majority of growth will be in Asia and non-OECD, and refineries in Asia are predominantly designed to process medium and heavy Middle East sour crudes. The crude flows will continue to rise long-term into Asia, but it’s not just crude, it’s more middle distillates too.

Q: Yes, maybe distillate exports to Europe will be more resilient. As you say, there’s no new refining capacity coming online in Europe, but there is demand. And in the Middle East, refineries such as [Kuwait’s 615,000 b/d] Al Zour are starting up now.

A: Let me talk about Kuwait as an example. The country has finished its new clean fuels refinery upgrade project and for the first time Kuwait ultra-low sulfur diesel has shipped to Italy. Kuwaiti diesel had never been sold to Europe before, it always flowed east. The reasons behind this relate to there being less Russian flows to the Mediterranean and North West Europe. You are also seeing flows from Adnoc in the UAE to Europe, as well as more jet fuel to the region to meet rising demand. We’ve seen calls from the French government to buy more distillate to supply France, there have been calls in Germany too, and the Austrian chancellor was recently in the UAE heading a delegation.

This brings me back to the value of dialogue, of maintaining relationships, and not putting all your eggs in one basket in order to enhance energy security.

I recently met with Japan’s Minister of Economy, Trade and Industry, and we specifically talked about issues related to energy security, as well as the role of Opec, the Declaration of Cooperation, and Japan assuming the G7 leadership next year.

Let me stress that at Opec we will continue to deliver on what we’ve done for 62 years, with our members ensuring regular and timely supplies to their customers. Indeed, the WOO highlights the call on Opec rising from 32mn b/d in 2021 to 42mn b/d by the end of 2045.

Q: Where do you see this near-10mn b/d Opec liquids increase coming from? Is it mainly the Middle East? You referenced Venezuela earlier.

A: Venezuela has huge potential. I was there in September talking to President Maduro and the team at the petroleum ministry. We all know they have massive reserves, but sanctions are clearly impacting the country. Iran is another member country affected by sanctions, and it also has huge reserves. It is not only in oil, but gas too. Both are founder members and have the capability to provide reliable supplies to meet growing demand.

There is also the largest Opec member country producer. Saudi Arabia has plans to reach 13mn b/d. Elsewhere, the UAE targets 5mn b/d, Kuwait plans to hit 4mn b/d, and there’s Iraq as well.

Q: There’s a lot of NGLs coming as well, with Saudi Arabia’s Jafurah basin, and the UAE also looking to boost gas output. I suppose that factors in.

A: You are right, it’s not just crude, it’s all liquids and this includes NGLs. The bulk of the gains are in the Middle East, but there are also other places.

In fact, I was in Africa recently, where our seven African Opec members are keen on attracting foreign investments to boost production. Nigeria has potential, Angola has further promise and is planning to open up bid rounds, and with smaller producers like Equatorial Guinea, Congo, and Gabon there are also significant opportunities. The same goes for Algeria and Libya. They just need to be in a position to attract more foreign investment. It’s not just oil, but also gas, a lot of them are members of both Opec and the GECF, the Gas Exporting Countries Forum.

Q: One new producer that is attracting a lot of attention at the moment is Guyana. Could you see Guyana joining Opec?

A: I would love to have them in Opec. Our World Oil Outlook expects them to produce 1.3mn b/d by 2030 and even more thereafter. We also have ten non-Opec partners working with us in the Declaration of Cooperation. I think that we have really enhanced understanding among the 23 countries that are part of it. I think it will be likely that, Inshallah, as we say, Opec will have more new members in the future.

Q: The WOO makes it very clear that Opec sees oil remaining a major part of the global energy system out to 2045, which means that for climate targets, decarbonization is very important. What do you see as the key tools here? 

A: The oil industry is part of the solution. It has to be given that the WOO sees oil retaining a 29% share of the global energy mix in 2045, a slight decline from 31% today.

The industry’s resources can be harnessed to help develop more efficient technological solutions, to unlock a low emissions future. Carbon capture, hydrogen, the circular carbon economy and more. These are all things that are being implemented today. Dr Sultan al-Jaber at Adipec talked about the UAE already being the lowest carbon producer. This is an impressive achievement. Opec member countries are playing their part.

It is important to stress that we also see phenomenal growth in renewables. We believe in renewables, and our member countries are also making significant investments here.

Q: And the $12.1 trillion investment, does that include things like CCS? Are these types of technologies factored into the WOO?

A: This figure is just for production.

Chapter Eight of the WOO has the Advanced Technologies scenario and that’s a scenario that sees oil retain a large portion of the global energy mix, but with the involvement of advanced technologies to help meet climate change objectives. This scenario leads to an outcome that is not far from the Paris Agreement’s ‘below 2°C’ objective.

Q: And finally, what would you want to highlight as being the key message of the WOO?

A: As I said earlier, it has to be invest, invest, invest. This requires all policymakers and stakeholders to be on board. If we don’t get it right this time, I think it will sow the seeds of future energy crises.

*Interview conducted by Senior Editor Jamie Ingram on 1 November in Abu Dhabi.