CNBC Transcript: Hadley Gamble's interview with Suhail al-Mazrouei, UAE Energy and Industry Minister & OPEC President at the 9th Gulf Intelligence UAE Energy Forum
HG: Morning everyone and welcome. I'd like to say thank you to the UAE and to Gulf Intelligence as well for having me - we're thrilled to be here. And we're going to be talking about keeping OPEC and non-OPEC countries on track for 2018 and beyond. And the man who's charged with doing that, at least for this year, is his Excellency, Suhail Al Mazroui - welcome.
Your Excellency, you've just assume the presidency of OPEC, congratulations.
SAM: Thank you.
HG: Let's get into it, in terms of oil prices trading at higher range and we've got a lot of optimism surrounding the supply restraint. Are we at the point where OPEC can basically declare a mission accomplished? - At least when it comes to the restraint in terms of supply and in terms of it's time now to really start talking about an exit strategy?
SAM: No, I think first of all OPEC is committed to what they have decided when we meet in November which to continue with this deal for a full year. So we need not to forget that this is the agreement; this is the base of the agreement. And, there is of course, a positive market sentiment that we are seeing today, and it's expected. As we hear from the previous questions and reviews, the market is balancing and this is what we have been saying - the issue was the timing and how long it will take. And the way we look at it is, we should not look at a quarter or just a month to assume the full price of the year. You remember last year we started the quarter with a strong pricing. And then toward the middle of the year, everyone was kind of disappointed from where we started (to) where we are.
I think there is cyclic events that happens every year on the demand side, and they affect the market. We need to take into consideration that we are in the winter, and typically in the winter the demand is higher. You go to the second quarter you see some softening, you see some refineries goes to maintenance and you see as well, demand changes during the year. So, the cyclic event of the supply and demand is something that we live every year.
There is a reason that OPEC meets twice a year. And this group, the good thing that this group is staying together. The compliance level is what's important to me. And as we have seen it in November, where the prices were actually high compared to where they were in the previous times of the year, where the compliance was not on the 100% level, we achieved 122% together.
And, I am confident of the commitment of all of the countries attending. And something interesting happened, that not only the countries that signed for the agreement attended when we met in November, some observers attended as well. Which means that there is a dynamic of joining the clan. And that's, I think, what's important, is to see that this group have started something that never expected before. And this group has been complying at a very difficult time. So they've got to know each other and they're complying very well. And my expectation is that this compliance will continue very strong for the full year.
And I have no doubt that the market needs further correction. We're still need not to forget that we still have more than 100 million barrels from the five years average, that needs to be taken care of. And the market fundamentals in 2017 has been good but we are looking forward to see another healthy year of production in 2018.
HG: Give us a little preview of what happens in June now. Because one of the questions just a few moments ago was, is there a price point at which point this agreement might be something that needs to evolve and change.
SAM: No, I don't think it's about price. The concern is to achieve that balance between supply and demand.
HG: And we're not there yet.
SAM: We're not there yet because there is a 100, as we said, there's more than 100 million barrels to be removed if we believe that the five years average is a good point for us to have as a reference. And if that is true then we still have some room for improvement to achieve that level.
And when we achieve that level then there is the other question, which is do we have enough investments which the previous two gentlemen addressed.
Do we have enough investments coming to the market to bring the new oil that the demand is, or the world is needing, in terms of demand the growth. Everyone, if you remember last year, was expecting 1/1.2 point to demand. But, we ended up with at least 1.5, and we ended the year with the demand level of almost 2.
So this means that whatever forecast you have and you put, it's not necessarily that the world is going to meet it. The expectation for next year, in terms of for the world economy growth is strong at least. It's at least what we had in 2017, if not stronger. So if we have that, which means that we will have a strong demand then the expectation is to have new investments coming to the market.
But there are good news actually. ADNOC have announced a 109 almost billion dollars investment in the next four years throughout the value chain. And Saudi Aramco have announced, I think a similar level, in the next three years. So NOCs, I think IOCs with time, they will come to put more investments. And that's what we targeted. If you remember in our previous interview, I told you that we need to incentivize investors to come and invest in the market. And I think that the pace of that would trigger a correction of taking care of the risk of the supply and demand imbalance. If we achieve that level, then we will not have shocks to the world economies of very high prices and very low prices.
You asked me about 2017 - on average it's a good year. But we have seen $40 and we have seen almost $70 within the same year. For policymakers, for people who are looking at budgeting for a country - that is not a healthy fluctuation.
So the lower the fluctuation, and the more expectation we have, I think we can plan better for our economies. And when we can achieve a less need for deals like this.
HG: When you look at the price today heading towards seventy dollars per barrel, are speculators behind that, do you think? Or is this something that's sustainable?
SAM: I think less now we are moving to an environment where less speculation, less geopolitics, and more of market fundamentals. As we mentioned, the world economic growth was higher than expected. The demand was higher than expected. The compliance level, again every year - and I'm kind of disappointed to see the results that people are still not trusting us with an average. We started this at a very difficult year and we achieved an average compliance of 100%. And we're still not seeing the trust that this compliance is going to stay. I think we're gonna surprise you positively, to see a higher compliance level moving ahead.
So I think it's more, it's getting to shape as we correct the market, to become market fundamentals oriented expectations, rather than speculations.
HG: You mentioned some shocks and I want to ask you about a CITI report that came out a couple of days ago. They talked about potential wildcards; like war, tensions in the Middle East and uncertain administration in the White House. How does OPEC plan to deal with the Trump factor?
SAM: Well we are not dealing with, as you know geopolitics in general. And I will not speak about countries, I'll not speak about choices of people; people choose their Presidents and we respect that. This is something that we don't discuss. What we discuss is the laws and regulations that could affect the market. And I think the U.S. market has been supportive of this industry. Historically, the shale oil and the growth of shale oil is something that could come at a rescue at a certain time. The only issue with shale oil that we have highlighted before is the pace of production. So we need to adhere to something that is within the supply and demand factors.
The geopolitics is always going to play a key role in how we predict, and how the speculations of the price. And I think, even though they talk about a major crisis, I think the biggest crisis that could have unrested the whole Middle East, we are kind of passing the storm. Countries now, and people, are realizing that the best way to change is to focus on strategies, on diversifying their economy, on creating jobs, and creating hopes for their people. And I think that, that is working. And, it's difficult to convince anyone today that changing that would be something easy or something that will lead to a peaceful or a good result.
Therefore, I am expecting that we will still see correctioners in 2018. And I think it's the year of fully correcting the market, fully achieving the balance and I am expecting as well that this group of countries that stood and become responsible for helping the market to correct, there is a very good chance that they could stick together and potentially put them with a shape around that alliance.
HG: Talk to me a little bit about the global trends for output. What's your expectation there and how is that going to impact countries in this region?
SAM: I think OPEC as a group, we were at a time where the strength of OPEC or the strength of OPEC tools in correcting the market was weak. And we have proven when we made the deal, and we've been through cycles of convincing the world that the deal is working, and OPEC is strong and OPEC is playing a key role in the stability of the market. I think, you ask anyone today, that they will tell you that the deal has been working and OPEC have helped the market recovery, we have helped correcting the market. So, OPEC will continue to be a strong organization that managed, during crisis. And I think this phenomena of getting others to join OPEC in their course of market recovery, and achieving enough (to) bring investments, or achieving enough demand to incentivize investments into this industry is something that, the interest is growing. I have seen around 30 countries attending the last week; we were out of chairs actually to put for the heads of delegation.
So it's a good time for OPEC. It's a good time to see that they see the level of support of other countries supporting and understanding. And this engagement we did with them, of understanding the market, understanding that this group is not a cartelers (cartel). This group is truly intended to help this industry and help ensuring that demand is going to be met by adequate supply in the future.
This commodity is needed. This commodity is something that that we need and we will continue to make it cleaner. And we are environmentally sensitive in all sectors - whether it's in the energy sector or whether it's in the transportation sector. We will continue evolving and developing ourselves with the technology and the adherence to the international community when it comes to making this industry a safe industry, and continue to produce oil and continue to fuel the economy of our world.
HG: A little bit about countries that might be experiencing shock in terms of production. Are you worried about countries like Iran, like Venezuela. Do you think they're going to get in trouble this year?
SAM: No. Until today I'm not worried that we will have a big shock and even if there is a big shock, we can always meet, and we can always discuss, and we can always help each other. We have seen, if you remember, when Libya was out and when Nigeria was experiencing some of the unfortunate events, the group helped each other.
And we will meet if needed. If a crisis comes, OPEC can always meet. But we need not to assume that this group, this responsible group is not going to do anything and just sit if a crisis comes. If a crisis come, everyone will move. You will find us responsible and you will find that we're responsive in terms of the action needed for anything that is of a major event.
But for the normal courses of production, countries we have seen, countries go a little bit up and sometimes down. And, the nature of certain countries and the status of where they are in terms of facilities, in terms of their ability to schedule the maintenance at a certain time is something that we live with and historically we have been through many tighter and more difficult times and we have survived. This group is strong and it's like a family.
Now, we live together and this in this world, and we have, I think we talked with each other as heads of delegation and as leaders. And, Ahmed and his team they met as governors, and the technical representatives they talked (to) Suleiman and his team as well.
So, this level of engagement is so intense. To understand, and predict, and plan for anything that could... So any country can call on the others for help if they need it, and they will be there. This group is strong. And that's why many other countries have expressed interest to join and they are looking forward to cooperating (can't understand the last word)
HG: You mentioned some of the countries that are using this opportunity to really diversify their energy mix. Of course Saudi Arabia comes to mind. People in this room, large percentage, thinking this Aramco IPO is happening in 2018 this year. Do you agree?
SAM: I trust what the leadership in Saudi Arabia says, that they will do it. They have told us that they will revise their prices when it comes to gasoline and diesel and they will fix the system, and they have done it, and they have done it at the right time that they said.
I trust that the division of Saudi Arabia is a reality. It's something that, people are excited about it. And I think we are experiencing...
We have used this difficult time for us when the oil prices went down, to rethink our whole strategy of energy. To rethink on, in terms of, are we efficient in what we use? Can we improve the system that we have? Are we ready for the future?
For us in the UAE, we designed an energy strategy that is diversified that would take us till 2050, and Saudi Arabia they have the vision till 2030.
ADNOC have done a tremendous turnaround. They're looking at every bits and pieces of their value chain, tying to optimize here and there. And all, I think this 2014, let's say '15, till today, everyone has achieved higher efficiency.
Not only the shale oil. Sometimes people say, oh they reduce the cost per barrel from this much to this much. And I can tell you, everyone, this is an industry. It's not unique for a country, or for a type of group. Everyone have (has) benefited from the efficiencies and everyone have (has) sharpened their pencils and looked at every opportunity to optimize. And the industry today is strong, because we have worked with our contractors and we have worked innovatively to create values and we have used the latest technologies to improve efficiency, optimize the production, look at the value chain.
Sometimes eliminate some of those middlemen in certain areas where they were just booming the cost. And all of these have led to a stronger industry that everyone have benefited from.
HG: You mentioned U.S. shale. There are some that would speculate that U.S. shale producers are swing producers now, and it's no longer Saudi Arabia. What's your take?
SAM: I think everyone need to have a spare capacity to become a swing producer but a certain level. So, and you need to decide based on the economics, what is that level? That's what we have in UAE - we're building capacity of 3.5 million and our production is - and we are adhering at the same time to what we've signed of reducing our previous production in October 2016 by 139,000. So, I think everyone having that buffer, providing that flexibility of ensuring that we don't have shocks or price escalations that are beyond the control of certain countries when they do their budgeting.
Because what happened (happens) - this commodity, if it's stable then people can plan, and if they can plan then they will consume either less to optimisation or they will they will decide to charge or pass that charge to the customers, and then it becomes distributed. But, if there is a $20/$30 shock within the year, or between the planned budget price of oil and the actual then we will always have a problem; whether it's lower or higher. And, the whole process that we've been through of trying to control our production is to minimize that effect. And the more inventories above the five years level you have, the more risk of controlling the production from everyone to be reduced.
So, I think we have removed most of it, and now we have, the last part, to achieve the balance, we will have dynamic... Okay sure we will have different dynamics in the year 2018. But I think we have grown in terms of our ability to cope with this issue. And we have a stronger group, it's not only it's OPEC, and an OPEC Alliance; a group. And we have also other countries who are, whether they are joined or they don't, they actually in natural decline. So they lose production. And sometimes they are not part of the group, but they lose production more than, in terms of percentages than being in the group. And this is a fact of life. We are dealing with a reservoir that loses, that the well will lose production of around 5-10% every year and you need a replacement.
And the other issue in the United States is now people are not looking at production, they are looking at economics - 'I want return'. And now those investors who have lost lots of money, they are asking to see, and to be assured that the money that they will put (in), is going to make a good return.
And all of that is making us stronger, in terms of the investment and in terms of dealing with the crisis of overproduction.
HG: Excellency, we're going to have to leave it there. Thank you so much.
SAM: Thank you.
For more information contact Jonathan Millman, EMEA Communications Executive:
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