1. © 2006, Organization of the Petroleum Exporting Countries Expert Meeting on Economic Diversification Maritim Hotel, Bonn, 16-17 May 2006 Ramiro Ramirez Energy Studies Department OPEC Secretariat, Vienna

2. © 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”

3. © 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

4. © 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

5. © 2006, Organization of the Petroleum Exporting Countries Human Development Index, 2003 Slide 2  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

6. © 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

7. © 2006, Organization of the Petroleum Exporting Countries OPEC dependency on oil Slide 2

8. © 2006, Organization of the Petroleum Exporting Countries OPEC Real GDP, population and Real GDP per capita, 1960=100 Slide 2

9. © 2006, Organization of the Petroleum Exporting Countries Real GDP per capita, 1960=100 Slide 2

10. © 2006, Organization of the Petroleum Exporting Countries Impact of Kyoto implementation Significant impact on OPEC MCs Why? High dependency on oil exports revenues High human development needs

11. © 2006, Organization of the Petroleum Exporting Countries Impact of Kyoto implementation

12. © 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)

13. © 2006, Organization of the Petroleum Exporting Countries The challenges An 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

14. © 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

15. © 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

16. © 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

17. © 2006, Organization of the Petroleum Exporting Countries Expanded gas use and exports through reduced gas flaring Flared gas as a percentage of gross production 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

18. © 2006, Organization of the Petroleum Exporting Countries Carbon capture and storage 40 Gt CO 2 <2% of Emissions to 2050 400-10,000 Gt CO 2 20-500 % of Emissions to 2050 920 Gt CO 2 45% of Emissions to 2050 Source: IEA

19. © 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

20. © 2006, Organization of the Petroleum Exporting Countries www.opec.org

21. © 2006, Organization of the Petroleum Exporting Countries