© 2006, Organization of the Petroleum Exporting Countries Expert Meeting on Economic Diversification Maritim Hotel, Bonn, 16-17 May 2006 Ramiro Ramirez.

© 2006, Organization of the Petroleum Exporting Countries

Expert Meeting on Economic DiversificationMaritim Hotel, Bonn, 16-17 May 2006

Ramiro Ramirez Energy Studies DepartmentOPEC Secretariat, Vienna

© 2006, Organization of the Petroleum Exporting Countries

Why is OPEC here?

• Organization of developing countries with a commitment to bring stability to a historically very volatile “commodity” market– Important because it seriously jeopardizes our

economic and social structure

– Important to consumers as it affects their economies too

• Our countries provide a unique, non-renewable resource which is traded world-wide as if it were simply another “commodity”

© 2006, Organization of the Petroleum Exporting Countries

Why is OPEC here?

• Huge amounts of capital are required to simply maintain production and

• Huge amounts of capital are also required to expand production in order to meet demand forecasts

• Projects do not happen overnight (long lead times) • Uncertainty regarding project investment is a critical

issue to us• Kyoto Protocol implementation will affect us• Economic diversification is of great importance to us

© 2006, Organization of the Petroleum Exporting Countries

OPEC profile

• Average GDP per capita: $2,500 (2005 estimate) • But there is a very wide range ($730 - >$50,000)• 95% of the 544 million people in OPEC live in a

country where GDP per capita is no higher than $5000

• This compares with OECD average GDP per capita of close to $30,000

• Average life expectancy: 61 years• Socioeconomic development needs: reflected, for

example in the relatively low values of HDI (Human Development Index)

Slide 2

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Human Development Index, 2003

Slide 2

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1.0

OPEC member countries HDI:Most ranked below 70th

HDI typically below 0.8 Unemployment levels very high, often as much as 25-30% Particular problem with youth unemployment Fast rates of population growth

© 2006, Organization of the Petroleum Exporting Countries

OPEC dependency on petroleum

Share of oil exports in total exports 76% (17%-98%)Share of oil exports in GDP 38% (7%-80%)

Oil reserves: 897 billion barrels (78% of world total)Crude oil production: ca. 30 mb/d (35% of world total)

Gas reserves: 89 trillion standard cubic metres (49%)Gas production: 464 billion st cu. m. p.a. (17%)

OPEC study suggest that by 2010 of the 12 most dependent countries in terms of net fossil fuel exports as a percentage of GDP, 10 will be OPEC countries

Slide 2

© 2006, Organization of the Petroleum Exporting Countries

OPEC dependency on oil

Slide 2

0

10

20

30

40

50

60

70

80

90

100

1960

1962

1964

1966

1968

1970

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1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

% of exports

% of GDP

© 2006, Organization of the Petroleum Exporting Countries

OPEC Real GDP, population and Real GDP per capita, 1960=100

Slide 2

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100

200

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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Real GDP

Population

Real GDP per capita

© 2006, Organization of the Petroleum Exporting Countries

Real GDP per capita, 1960=100

Slide 2

0

50

100

150

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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

OECD

OPEC

DCs

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Impact of Kyoto implementation

Significant impact on OPEC MCs

Why?

• High dependency on oil exports revenues• High human development needs

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Impact of Kyoto implementation

© 2006, Organization of the Petroleum Exporting Countries

What should we be trying to achieve?

Reduce global emissions on a level playing field (Article 3 of the Convention on Principles)

Sustainable economic growth and development through:

• Stable markets for commodities important to the developing world• Encourage technology transfer (energy efficient, cleaner, more

sustainable use of our energy resources)• Encourage investment (win-win-win)• Encourage trade (on a level playing field)

© 2006, Organization of the Petroleum Exporting Countries

The challengesAn OPEC perspective

Encourage initiatives that would bring about economic diversification for OPEC MCs (developed countries commitments under Article 4.8 of the Convention and 2.3 of the Kyoto Protocol)

• Investment and transfer of technology (win-win-win)

• More access for exports into Annex B markets

• Encourage trade opportunities for oil exporting developing countries

© 2006, Organization of the Petroleum Exporting Countries

What does it all mean?

1. Be realistic energy efficiency for all development and quick deployment of cleaner fossil

fuel technologies for all

Be fair elimination of distorting taxes

Be cooperative lets look for win-win-win opportunities

© 2006, Organization of the Petroleum Exporting Countries

Possible areas for diversification

How could they contribute to stop deterioration of our environment and yet assist them in diversifying their economic dependence on hydrocarbon exports?

Manufacture of energy intensive goods with CO2 sequestration?

Further development of natural gas projects?

CDM gas flaring reduction projects

Depending upon natural endowments and human resources, other sectors such as agriculture, manufacturing, and services including information technology could be expanded

Importance of policies to promote local content development and technology assimilation.

Greater vertical integration of the petroleum industry, as well as further expansion of petrochemicals and other products

© 2006, Organization of the Petroleum Exporting Countries

Possible areas for diversification: natural gas

Switching to natural gas use and export contributes to diversification efforts, frees up exports of oil

Need to encourage the development of LNG and pipeline infrastructure

West African Gas Pipeline

initial talk of a CDM project

Trans-Saharan pipeline from Nigeria to Algeria

Gas sector offers considerable scope for further exploration

© 2006, Organization of the Petroleum Exporting Countries

Expanded gas use and exports through reduced gas flaringFlared gas as a percentage of gross production

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10

20

30

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50

60

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1960 1965 1970 1975 1980 1985 1990 1995 2000

% OPEC

non-OPEC

Huge success in reductions in flaring

Still scope for improvement (7% vs 2%)

Low population densities prohibit expansion of domestic markets, large distance to foreign markets, infrastructure developments too expensive

© 2006, Organization of the Petroleum Exporting Countries

Carbon capture and storage

40 Gt CO2

<2% of Emissions to 2050

400-10,000 Gt CO2

20-500 % of Emissions to 2050

920 Gt CO2

45% of Emissions to 2050

Source: IEA

© 2006, Organization of the Petroleum Exporting Countries

The Way Forward

• Bonn Agreement/Marrakech Accords give priority to "assisting developing country Parties which are highly dependent on the export and consumption of fossil fuels in diversifying their economies".

• Are there funding possibilities? – GEF? (has, for example, a history of providing funding to

investigate technical and economic issues associated with gas flaring)

– SCCF? (includes explicit mention of diversification)

• What about the Kyoto mechanisms?– CDM? Efforts underway, how to expedite?

• Need for serious, extensive review of the options

© 2006, Organization of the Petroleum Exporting Countries

www.opec.org

© 2006, Organization of the Petroleum Exporting Countries

Who gets what from a litre of oil in the G72005

21%

26%

36%

51%

51%

54%

56%

0.00 0.25 0.50 0.75 1.00 1.25

United Kingdom

Italy

Germany

France

Japan

Canada

USA

USD/litrePurchase of crude oil (FOB)

Industry Margin (e.g. transport, insurance, refining and other costs)

National government taxes

Source: OPEC Research Division, 2006. Based on selected secondary sources.