Majid Al Moneef - Former Governor of the Organization of Petroleum Exporting Countries, Saudi Arabia ERF Conference on “Arab Oil Exporters: Coping with a New Global Oil Order” How Could Arab Oil Exporters Respond to the New Global Oil Order: Graduate to Rule-based Macroeconomic Institutions Kuwait, November 26-27, 2017 www.erf.org.eg

1. session 2
Oil market outlook: Oil exporters adjustment to the
new dynamics
Arab Oil Exporters: Coping with a New Global Oil Order
Kuwait city - Nov. 26-27, 2017
Majid AL MONEEF

2. Five determining factors impacting the Long Term Oil Market Outlook
1. Technological advancements and cost advantages of renewables, electric vehicles and smart
mobility.
2. The commitment to Paris-21 outcome with or without the U.S
3. Leading role of China in the emerging energy landscape: in renewables, EVs and UNFCC
4. The changing trade patterns in oil and gas and with it the emerging geopolitics
5. The reviving role of the U.S in global oil and gas production and its changing energy
proprieties.
Five potential factors determining the impact on Arab oil and gas exporters?
1. The degree of dependence on oil and gas to fuel economic growth
2. The adaptability to oil price swings or demand decline
3. Forming business, economic and political alliances and relations in response to the emerging
oil and gas patterns
4. Crafting new fiscal, energy, labor and industrial policies in response to the outlook
5. Redefining the future role of the state and the private sector in the economy
Outline

3. Signaling the End of the Oil Era: Exaggeration or warning call?

4. Oil Price Cycles: Downturns Last Longer and volatility persisted
0
20
40
60
80
100
120
140
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Current Real (2015$)
1st Boom 8 Yrs
Price $ 3-36
REAL $72/BL
2nd Boom 11 Yrs
Price $ 38-112
Real $85/bl
Downturn 22 Yrs
Price $ 14-33
REAL $39/bl
AVERAGE $55/BL
✓ Many indicators that the current cycle is more structural than cyclical
✓ Current oil prices could last much longer

5. 0
1
2
3
4
5
6
7
8
1960 1980 2000 2020 2040
World OECD DCs China
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1960 1970 1980 1990 2000 2010 2020 2030 2040
World OECD DCs China
Energy Intensity
Boe/$1000 GDP
Oil Intensity
Barrel/$1000 GDP
1. Efficiency gains in energy and oil in all sectors and regions
✓ Oil intensity declining from 0.55bl/$1000 to 0.3 now and 0.15bl in 2040
✓ The only region in which intensity increased (lower efficiency) was GCC

6. 2. Renewables gaining ground: declining costs, favorable policies
and receptive public
✓ Increasing investments in renewables: from $70 in 2005 to $312 bn in 2105
✓ China is leading in investment and generation

7. Coal
28%
Gas
23%Oil
1%
Renewables
20%
Hydro
16%
Nuclea
r
12%
2040
39047 TW/H
Coal
7%
Gas
23%
Oil
-3%
Renewables
41%
Hydro
14%
Nuclear
12%
2015/2040
15539 TW/H
Coal
41%
Gas
22%
Oil
4%
Renewables
6%
Hydro
16%
Nuclear
11%
2015
23809 TW/H
2. Renewables gaining ground: declining costs, favorable policies and
receptive public (Cont’d)
Sources of Electricity Generation: 40% of new generation from Renewables

8. 3. Technology and battery cost Breakthroughs in electric vehicles Sales and in
penetration along with changes in smart mobility

9. 3. Technology and battery cost Breakthroughs in electric vehicles Sales and
in penetration along with changes in mobility (Cont’d)
✓ Price of oil to make EVs competitive with ICE cars is projected to reach $64 by 2020
✓ Although many unresolved issues remain, the most optimistic scenario forecast oil demand loss 6-8 mbd

10. Levels of Penetration of EVs differ but the increasing trend is clear

11. Passengers
26%
Marine
5%
Freight
18%
Aviation
6%
Industry
19%
Buildings
8%
Electricity
6%
Other
12%
Transport
55%
94.1
MBD
Passengers
24%
Marine
6%
Freight
19%
Aviation
9%
Industry
22%
Buildings
6%
Electricity
3% Other
11%
Transport
58%
105.6
MBD
2015
2040
Sectoral Composition of world Oil Demand
OECD
45%
China
12%
India
4%
Middle East
9%
Other
Developing
17%
Other
13%
Developing
42%
92..5
MBD
OECD
29%
China
15%
India
9%
Middle
East
10%
Other
Developing
21%
Other
16%
Developing
56%
105..6
MBD
2015
2040
Country Grouping Shares in consumption
Modest demand growth < 1% annually, led by transport & petrochemical
sectors especially in developing countries
Peak global oil demand is not near in the base case, but is so in a carbon constrained scenario of IEA

12. 4. On the supply side: Half the increase will be from non-conventionals & NGLs from gas
✓ Technology and cost efficiency improved recovery as well as shale oil economics
✓ Resource potentials increases in the $40-60/bl price. 75% of remaining shale resources generate 10%
return at $60 price

13. 42.6
53.2 52.5
32.5
39.1
48.1
73.8
83.8 85.2
1.3
8.5
15.4
Non OPEC OPEC Conventional Non Conventional
2000 2015 2040
75.1 MBD
92.3 MBD 105.6 MBD
4. The outlook is for larger role for Non-Conventional oil (shale and sands) declining
conventional in Non-OPEC & increasing share of OPEC (mostly conventional)
✓ The Gulf’s share in global production to increase from 33% to 40% in 2040
✓ Cumulative investment requirements in oil upstream and downstream: $ 20 tr, 70%
in non-OECD, 15% in the ME

14. 6,469
3,404
11,020
2,625
1,726
696
3,182
690
OECD US NON-OECD MIDDLE
EAST
UPSTREAM Other
8,195
3,315
14,202
4,100
Cumulative Investment Requirements
2016-2014 (Billion $)
Changing oil trade patterns: Middle
East/China and India

15. The outlook implications
• The ability to and the speed of adjustment to the new normal is critical
• The GCC development model could not deliver:
▪ Lack of meaningful diversification of fiscal revenues, exports, GDP
▪ Non oil economy dependent on cheap energy
▪ A state led growth, with the private sector defendant on state spending and subsidies
▪ Segmented labor market: public and private, male and female, local and expatriate & the public sector
as the employer of last resort
▪ Distorted incentive systems and low factor productivity.
• Potential impacts on Arab oil and gas exporters?
▪ Change expectations: current oil market cycle will likely be long
▪ Limitations of over-dependence on extremely low domestic oil and gas prices and on their revenues to
fuel growth, increase employment and address inequality.
▪ How to adapt the economy to oil price swings or demand decline
▪ Fostering new trade relations and alliances in response to the emerging oil and gas patterns
▪ Setting up new fiscal, energy, labor, monetary and industrial policies
▪ Redefining the future roles of the state and the private sector and their relationships.
▪ Redesign the social contract ?

16. Impact of lower oil prices: GDP, fiscal and external sectors
-15
-10
-5
0
5
10
15
20
25
2000-12 2013 2014 2015 2016 2017f 2018f
Percent and
% of GDP: GCC
Real GDP Current Account Fiscal balance Inflation
-10
-5
0
5
10
15
20
2000-12 2013 2014 2015 2016 2017f 2018f
Percent and
% of GDP: Saudi Arabia
Real GDP Current Account Fiscal balance Inflation

17. GCC Energy Price Reform: better late than never
Source: Chatham House Source: Chatham House

18. GCC Fiscal Reforms: room for more
Fiscal Consolidation
(% of Non-Oil GDP)
Decrease in Spending
to Balance the 2016 Budget
Spending cuts and
Non-Oil Revenue Increases

19. Economic complexity Vs. GDP and fiscal revenue volatility
Source: IMF

20. Economic reforms: the Way Forward
✓Strong regulatory and institutional frameworks needed to unlock private sector potential.
✓Change is needed in the public employment and wage policies and fiscal framework: closing the
wage gaps, rationalizing and prioritizing capital and current expenditures.
✓Policies and Strategies to foster the emergence of dynamic new tradable sectors to enhance
diversification
✓Address energy price distortions, putting energy intensity on a declining path & diversifying
energy mix
✓Foster horizontal and vertical diversification, diversify the oil & gas based manufacturing, further
integrating into the global value chain, and attracting FDI into the non-oil sector.
✓Ensure that the use of SWFs is governed by clear and transparent rules.
✓Develop strong regulatory, supervisory and macro-prudential frameworks to enhance resilience of
the financial sector to oil price volatility.
✓Transforming the state from an allocative to developmental, the private sector from agent to
partner and the economy from singular to diversified.
✓Identifying and dealing with the winners and losers in the reform process: eg. When phasing out
subsidies, enforcing local content, localizing the labor force, etc.

21. Thank You

22. Shale oil economics improved due to technological improvements and cost
cutting. The outlook for continued growth until mid 2030s