Dear Mr President of the OPEC Conference, Your Excellencies, Ladies and Gentlemen,It is a great honour and a pleasure for me to have been invited to OPEC's International Seminar. I've been asked to share with you my views on the Global Energy Outlook and Challenges.

I do it with great respect. It is always a challenge to present a clear vision of the energy future, especially when energy markets are undergoing rapid changes.

The oil market, in particular, has been very eventful in 2004:

• Growth in oil demand has been the strongest for several decades.
• Crude oil prices have been at historically high levels.
• Geopolitical uncertainty and the risk of supply disruption have increased.
• Spare production capacity has gradually been reduced and is now at its lowest level for a long time. Questions have been raised whether production capacity will grow sufficiently fast to meet future demand.
• The old debate about oil reserves and whether the world is running out of oil, is once again making headlines. Reserves replacement among oil companies has been weakening and there have been reserve write downs.

Oil is the most important energy source in the world economy, and developments in the oil market have ramifications to other energy markets, be it gas, coal or renewables. In my presentation I will concentrate on the oil market.

Will demand continue to grow at levels higher than what we have seen in the past? Will oil prices revert to more normal levels or is something more profound taking place in the market? Will supply increase fast enough to meet demand, and what can the industry and governments do to bring about growth in oil supply?

These are some of the questions and issues I will address.

Oil demand
In the first years of the new century oil demand growth was weak – about 0,5 mbd annually. This is much lower than the average growth level in the 1990ies of about 1,5 mbd.

Questions were raised whether a structural shift had taken place, causing future demand to grow at a slower pace. Today we know this is not the case. Oil demand growth this year will probably exceed 2,5 mbd, and we have to go back to the 1960ies to find a year with higher demand growth. Next year most forecasts indicate a somewhat lower growth, but still a relatively strong growth of about 2 mbd.

There are important reasons for welcoming the increase in oil consumption. The main reason behind the growth in oil demand is economic growth, particularly in countries such as China and India.

In my view the strong economic growth and development in these countries, with large populations, are one of the most important and promising developments of our time. Economic growth is a precondition to combat poverty and oil is needed to fuel economic growth.

China has now become the second largest importer and consumer of oil after the US. But oil consumption in China, India and in developing countries is still in many respects very small. In the developing world people use 2-3 barrels of oil annually, in industrial countries consumption is more than 15 barrels a year.

There is obviously a great potential for growth in oil demand in these countries.

This is one reason why oil demand will continue to grow. The other reason is that for the time being there are no alternatives to oil in transportation. For the next 10 – 20 years it's not likely that alternatives to oil will make a strong entry into the transportation sector.

Up to 2020 demand is expected to grow by at least 1,5 mbd annually, according to forecasts by IEA and other experts. This implies production capacity will have to grow by 20 – 25 mbd – or almost 30 % by 2020.

Huge investments in new capacity are needed to meet this demand growth. In addition new investments are needed to sustain current capacity, because of natural decline rates. According to the IEA about ¾ of upstream oil investment will be needed to counter natural decline in production.

The expected increase in oil consumption should lead to a renewed emphasis on energy conservation and efficiency. The technical and economic potential for energy savings is large along the whole energy chain from production to end use. Improved energy efficiency is an obvious way to moderate oil demand growth without having to sacrifice economic growth.

Oil supply
Oil supply is a function of reserves and investments.

The question of whether we are running out of oil has again made headlines.

However, it seems that most analyses conclude that oil resources will not be a problem in meeting future oil demand, at least for the next 2 – 3 decades. The key for the oil industry in the years to come will be to mobilize sufficient, sustained and timely investment to convert oil resources into oil supplies.

If we look back on recent years, I think most analysts will say that the growth in Non-OPEC production has been somewhat disappointing, particularly on the background of high oil prices.

Countries in the former Soviet Union, and in particular Russia, is an exception. Growth in Non-OPEC supply has to a large extent come from these countries. There has also been some growth in Gulf of Mexico and West-Africa. But no new oil provinces, no new North Sea, have been discovered.

In the North Sea oil production is declining. Norway now produces around 3,3 mbd, a level we expect to maintain for a few years, before production is likely to decline.

Most analyses, whether it is from IEA or OPEC, indicate further increases in Non-OPEC supply in the next 10 – 15 years. The peak is expected to occur between 2010 – 2020.

The growth in Non-OPEC production will be much lower than oil demand growth, meaning that a significant share of new supply will have to come from OPEC. This is an important change compared to the 80s and 90s, where Non-OPEC took most of the demand growth and OPEC was squeezed on market shares.

OPEC countries undoubtedly have the reserves to meet demand. But will governments make sufficient funds available for petroleum investment? And will oil companies be offered attractive investment conditions, political and other risk factors taken into account? These are important questions which must be addressed by host governments.

I am not prescribing any solution for any country. It is my firm conviction that every country has to find its own way.

In Norway we have been concerned with maintaining control over our resources. We have offered national and international oil companies exploration and production rights. Sound production practises, high safety and environmental standards are important parts of our regulatory framework.

To reach a balance between maximising state revenues and giving private sector companies a fair return on their investments is of paramount importance. Over time we have had many discussions on government take with companies in Norway, both regarding state participation and the tax system. These elements need to be adjusted over time to promote a good investment climate.

With oil and gas prices at a high level for several years, oil companies have had every incentive to increase their exploration and development activities. But there is no strong evidence that this has happened. Oil companies were quick to cut budgets when the prices fell in 1998/99. However, they seem to have been slow to adjust to the higher price level we have experienced during the past 4 - 5 years.

Oil companies' investment behaviour in recent years could imply that it will take a substantially higher oil price than in the 1990'ies to release companies' investment resources. I hope oil companies will share their views with us on this issue during the seminar.

The oil price
In the 1990ies the annual average crude price was about 18 USD/barrels, whereas the average price since 2000 has been above 25 USD/barrel. OPEC's introduction of its price band (22 – 28 USD) in 2000 and in the recent year, a very strong oil demand, have lifted the oil price. Except for this year, OPEC has been very successful in stabilizing the price within the price band.

It is my impression that an oil price within OPEC's price band is accepted also by major oil importing nations. And they have reason to do so: Oil prices at this level stimulate supply diversity, a key ingredient to energy security. Reasonably high oil prices can in this manner be seen as an insurance for energy security.

Market stability is beneficial to investments and one way towards more efficient and stable oil markets are better data on market fundamentals. Transparent, timely and reliable oil statistics will provide a better understanding of the world oil supply and demand situation.

In 2001 six international organisations, including IEA and OPEC, launched the Joint Oil Data Initative to improve oil data transparency.

This year demand has been grossly underestimated, leading OPEC to set quotas too low. The result has been surging prices. It's vital that market participants have access to the best information possible.

Therefore Norway supports the Joint Oil Data Initiative – an effort to increase transparency and data quality in the oil market. Hopefully it will lead to reduced volatility and better forecasts.

Let me conclude,
I think we will continue to see relatively high prices in coming years, supported by strong growth in oil demand and OPECs effectiveness in managing the oil market.

In such an environment, I hope national and international oil companies will face the challenge of implementing viable investment programs to meet future growth in demand.

The challenge for host governments is to make attractive investment opportunities for companies.

I believe that dialogue between OPEC and Non-OPEC producers, between producing and consuming countries and organisations like OPEC and IEA is important in promoting stability and predictability in the oil market, and put us in a better position to meet future challenges.

Thank for your attention!