Expert Meeting on Economic Diversification Maritim Hotel, Bonn, 16-17 May 2006 Ramiro Ramirez

1. Expert Meeting on Economic Diversification Maritim Hotel, Bonn, 16-17 May 2006 Ramiro Ramirez Energy Studies Department OPEC Secretariat, Vienna

2. 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. 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. OPECprofile • 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. Human Development Index, 2003 • 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 Slide 2

6. 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. OPEC dependency on oil Slide 2

8. OPEC Real GDP, population and Real GDP per capita, 1960=100 Slide 2

9. Real GDP per capita, 1960=100 Slide 2

10. Significant impact on OPEC MCs Why? High dependency on oil exports revenues High human development needs Impact of Kyoto implementation

11. Impact of Kyoto implementation

12. 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 marketsfor 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. 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

14. What does it all mean? • 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. 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. 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. Expanded gas use and exports through reduced gas flaringFlared 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. Carbon capture and storage 40 Gt CO2 <2% of Emissions to 2050 920 Gt CO2 45% of Emissions to 2050 400-10,000 Gt CO2 20-500 % of Emissions to 2050 Source: IEA

19. 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. www.opec.org