On 20 July 2000, the Secretary General of Organization of the Petroleum Exporting Countries, Dr. Rilwanu Lukman made a speech in Caracas, Venezuela. Here is the full text of that speech.
OPEC's medium-term strategy:
It is undeniable that the events of the last three years have reminded everyone in the oil industry of the importance of avoiding price instability and the role that OPEC plays in attaining this goal. The effective results achieved also underlined the fact that co-operation between OPEC and non-OPEC oil producers is a key issue.
We had been promoting this idea for a long time and were glad to see a tangible outcome at last, when such key producers as Mexico, Norway, Oman and Russia agreed to restrain output when the market plunged towards rock bottom and to increase output again when it threatened to overheat.
But in site of the great importance of these efforts, they are only reactive to a problem that is already there. Aware of this, in OPEC we are now aiming at going beyond this state of affairs by designing and carrying out proactive policies. We are considering ways of advancing a mid-term strategy that would address the problem of price stability with set parameters and would also deal with other issues of great importance for our Members -countries.All this has been discussed at length and in depth in several Meetings in recent years.
UP to now, we have looked into mew means of establishing targets, with various suggestions being made on how to tackle the issue. Many scenarios and options are being examined to help us arrive at a viable policy approach. Summit of OPEC Heads of States Now let us move on to the matter in hand: the upcoming Second Summit of OPEC Heads of States.
This will provide an excellent opportunity for discussion and for seeking ways to expand and strengthen co-operation among the Organization's Members Countries. Moreover, the event will not concentrate exclusively on oil, as there are plans for meetings of the Ministers of Foreign Affairs and Finance, cultural events and much more.
One task of the Summit will be to fundamentally re-appraise the Organization's role; it's objectives and other major issues. The event will also discuss the present status of the oil industry, which has changed so dramatically since OPEC's establishment in 1960, the outlook for the new century, and the challenges that we are all likely to face.
Although the beginning of a new millennium makes it very appropriate for OPEC to revisit it's objectives and general direction, it is worth pointing out that the basic objectives set by the Organization 40 years ago remain as relevant today as they were back then. They are laid down in the OPEC Statute as follows:
"OPEC's principal aims are the co-ordination and unification of the petroleum policies of the Member Countries and the determination of the best means for safeguarding their interests, individually and collectively.
The Organization shall devise ways and means of ensuring the stabilization of prices in international oil markets, with a view to eliminating harmful and unnecessary fluctuations."
The challenges facing OPEC that will be examined by the Summit are many. One of the most central issues facing the Organization and its Member Countries is the need to identify a level of prices that will be sustainable over the long term and to ensure that capacity expansion to meet growing oil demand takes place in a manner that is consistent with stable and sustainable market conditions.
Another key challenge will be the increased harnessing of our Member's natural gas resources, as the demand for cleaner fuels, especially in the power generation sector continues to rise. Furthermore, as the structure of the international oil industry changes, OPEC will need to change too. Some Member Countries may benefit from opening up their oil sectors to participation by international oil majors and the technology the latter are able to employ.
Technological developments may affect the industry in many other ways too; they will enable non-OPEC countries to recover a higher proportion of their reserves at lower costs; while the development of fuel cell vehicles could have an adverse effect on oil demand if the latter gain widespread commercial acceptance.
And the Internet revolution is spreading through the energy industry at lightning speed. Those companies and countries that are slow to recognize its benefits will surely be left behind.
All these factors are combining to create a future oil industry landscape where only certain thing seems to be the bewildering rapid pace of change.
The increasing importance of climate changes negotiations makes it imperative for us to look at them in depth. OPEC has been closely following all developments concerning this issue over the years.
The reason is simple: the measures proposed to curtail greenhouse gas emissions represent a very real and dangerous threat to the economic health of nations, which are heavily reliant on oil exports. The fact that many of our Member Countries earn more than 90 per cent of their foreign exchange from hydrocarbon sales thus makes them highly vulnerable.
Studies prepared by our Organization show that the OPEC Member Countries could stand to lose annual oil export revenues of $23 billion, compared with reference-case levels, if industrialized countries imposed carbon taxes at sufficient levels to achieve their emission reduction targets by 2010, as set out by the Kyoto Protocol of December 1997.
This equated to a fall in oil demand by OFCD countries of 6.5 million barrels a day by 2010.Nonetheless, several ideas have been proposed to minimize the direct effects of mitigation measures on oil exporters. One suggestion is that energy taxes could be restructured according to carbon content.
This would obviously lead to price increases for coal, bringing in a dramatic reduction in the use of coal for electricity generation. With this, carbon dioxide emissions would fall by at least 10 per cent, which would certainly be a major achievement in terms of reducing greenhouse gas emissions.
Another measure could be the establishment of broader investment funds to help oil-exporting developing countries diversify their economies away from oil through increased investment in key sectors and expanded technology transfer efforts.
Preferential trade treatment for developing countries should also be encouraged along with the elimination of such market distortions as subsidiaries on coal or nuclear power and tax incentives for oil production in industrialized nations. With so many issues to be considered, it came as no surprise that the most recent round of climate change negotiations, held last November in the former German capital Bonn, saw no major breakthroughs, as many of the most difficult issues remained unresolved.
The extent to which nations will be able to pay other to reduce pollution on their behalf was one of them, with the European Union favoring a limit of 50 percent, while the United States want to see as few restrictions on this as possible.
There was also no agreement on the penalties to be imposed if nations do not meet their pollution targets. Additionally, the divide between industrialized nations and the developing world remained strong, with the latter justifiably fearing that by committing themselves to limits, they may hamper their own future growth.
One of the main themes of the original Summit of OPEC Heads of State in Algiers, was the Gap between the rich nations and their developing counterparts. Twenty-five years on, the gap is still there. And it is widening, not closing.
What I want is to stress here is that OPEC and its Member Countries have just as big a stake in a clean environment as anyone else. We all drink the same water. We all breathe the same air. We all live on the same planet. We are not asking for a license to pollute.
What we are asking for is that the many issues which need to be addressed before the climate change negotiations can lead to actions that will actually benefit the whole planet, are addressed in a manner that is satisfactory to all who have a stake in the outcome of such discussions. OPEC will therefore continue to strive so that the voices not only of oil-producing developing nations, but also of the world as a whole, are clearly heard.
Future of the oil industry
Looking to the future of the oil industry, the initiatives OPEC has advanced in recent years surely emphasize one very important point --that the key to the Organization's success in maintaining market stability lies in co-operation. If the experiences of the past few years have taught us anything, it is that without co-operation, an entity as big and as sprawling as the international oil industry, with all it's many diverse facets, cannot hope to thrive and prosper.
We must sustain and build on the level of co-operation and understanding that enabled the oil industry to recover so strongly from the price slump of 1998.
Additionally, we know that OPEC's pace in the future of the oil industry is secure. At present, the Organization's output represents 40 per cent of the oil produced worldwide.
However, that same output level also accounts for around 60 per cent of the oil traded internationally from a reserve base representing over 3/4 of the world total. Thus it is certain that within a few years, whilst the global energy demand continues to increase, the Organization's eleven Member Countries will have a major participation in the total demand.
According to our own OPEC world energy Model (OWEM) which has just been updated, world oil demand will rise from around´73 million barrels a day in 1998 to some 76 million barrels per day this year. Over the following decades the world's thirst for oil should rise by a further 14 million b/d to over 90 million b/d and will reach an estimated 103 million b/d in 2020. These projections are in tandem with a global economy that is slated to see expansion of 3.5 per cent a year in 2010-2020.
With non-OPEC oil production in the first two decades of the 21st century forecast to most likely remain relatively stable at around 49 million b/d. OPEC Member Countries should take the lion's share of incremental demand.
With projected global demand rising, and the Organization being the only true and reliable incremental supplier, OPEC will need to expand its oil production capacity.
The scale of investments OPEC Member Countries will need to make for the future is enormous, running into tens of billions of dollars over the next few decades. For this, they will require a reasonable level of income and a fair share of petroleum revenues.
That is why a fair and stable price for crude oil is so important to our Member Countries. But, in just looking back over the last three years, we see that the price of the OPEC basket stood at $24,34/ barrel in January 1997, $ 9,44/b in December 1998 and $29,11/b in March this year.
This type of wild price swing makes it impossible to plan with any degree of certainty. Nevertheless, one thing is clear: the world will increasingly look to our Member Countries to supply the bulk of incremental demand in the future, and OPEC must therefore be prepared to meet that challenge.
Conclusions:
The events of the past three years have been a very important reminder of the cyclical problems that the international oil industry has suffered for many years. But these events have also highlighted how co-operation among the different players is the key to resolving critical issues that negatively affect everyone.
Although we would like to hope that such problems will not accompany us into the new millennium, perhaps what is really important is that in case they do arise again, we will have the ability and resolve necessary to deal with them effectively. Meanwhile, we in OPEC will remain committed to contributing to the stability of the international oil market for the benefit of producers, consumers and the world at large.
There are many challenges that the Organization will have to face in the coming years. To conclude, let me reiterate them for you. They include:
- The need to maintain market stability at a level that is fair for both producers and consumers.
- The various aspects of environmental challenges, including the impact of the climate mitigation measures on OPEC revenues, and maintaining the viability of oil as a fuel in the face of increasingly strict environmental regulations.
- The influence of technology on the oil industry. On the supply side, new techniques may enable non-OPEC nations to continue expanding their production from a relatively low reserve base, while on the demand side, a breakthrough in fuel-cell vehicle could negatively affect oil demand.
- The need to examine ways in which OPEC and it's Members can take advantage of the Internet and the e-commerce revolution.
Finally, returning to the theme of my speech, I would like to conclude by saying that I firmly believe that the international Oil Industry as a whole, and OPEC in particular, has weathered the challenges of its past, is acting responsibly and thoughtfully in the present, and can look forward with confidence to whatever the future may hold.
We remain as committed as ever to a stable oil market and we stand ready to work together with all the players in the global energy industry to ensure that we can meet the challenges of the new millennium. It is no accident that OPEC's slogan for its 40th Anniversary is "Co-operation and Stability", for it is something in which we truly believe.
Ladies and Gentlemen, thank you very much for coming here today and I hope to see as many of you as possible again at the Second Summit of OPEC Heads of State here in Caracas in September. It will be an auspicious occasion and I am very much looking forward to seeing you there.
( petroleumworld )
© 2000 Mena Report (www.menareport.com)
