Our Achievements @ 50
Since OPEC was formed in September 1960, much has changed in the oil industry and the world at large. It has been a challenging time for an evolving organization like OPEC, but one also of significant achievement. To celebrate the 50th Anniversary, six achievements have been highlighted. These help provide an understanding of where the Organization has come from, how it has developed and how these achievements can be built on in the future.
1. Secure and steady supply of oil
Since its formation in 1960, OPEC has attached great importance to the responsibilities it attributes to the provision of a frontline energy source, namely working to ensure a stable, secure, well-managed oil sector. The very first resolution of the Organization aims to achieve stable oil prices, “with a view to eliminating harmful and unnecessary fluctuations”; a steady income for producing nations; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on their capital to investors. These principles are enshrined in the OPEC Statute, which was first adopted shortly after, in January 1961, and has provided the statutory beacon for the Organization’s actions in the market ever since.
Various landmark declarations and statements have subsequently reaffirmed OPEC’s commitment to these original objectives. This includes the Solemn Declarations from the three OPEC Summits that took place in Algiers, Algeria, 1975; Caracas, Venezuela, 2000 and Riyadh, Saudi Arabia, 2007, as well as OPEC’s broad-based, visionary Long-Term Strategy that was adopted in 2005.
OPEC has demonstrated repeatedly its commitment to market order and stability, even though, in practice, this can sometimes be hard to achieve. This can be viewed in the experiences of the past few years, with the growing scale of the paper market and the expanding role of speculation.
However, over the past 50 years, the oil market has remained adequately supplied, and OPEC has responded, as and when necessary, to market developments and unforeseen happenings. For example, when capacity from Iraq and Kuwait were withdrawn from the market in 1990, other OPEC Members increased exports to help meet the shortfall. And from 2003 to 2006, OPEC responded swiftly to a demand surge and supply disruptions in the market by increasing its production by more than 5 mb/d.
The most recent of the Solemn Declarations, the ‘Riyadh Declaration’, which concluded the Third OPEC Summit held in Saudi Arabia, also underlines how the Organization’s objectives, whilst remaining in line with those from 1960, have evolved. The Declaration states that the OPEC Heads of State and Government “have agreed on the following principles to guide our Organization and Member Countries’ economic, energy and environmental endeavours, within the following three themes: stability for global energy markets; energy for sustainable development; (and) energy and environment.”
Looking ahead, OPEC remains committed to ensuring stable, secure, reasonably priced supplies of crude oil to the market at all times. And in the medium-term, there are significant OPEC Member Country investments committed; both for the upstream and downstream.
It is clear, however, that with such big, costly and lengthy undertakings in mind, security of supply needs to go hand-in-hand with security of demand, and reasonable prices need to prevail. The overall goal is for all stakeholders to focus on improving inclusivity, cooperation and transparency; to provide a stable setting in which investments and expansion flourish, economies witness stable growth, and where better access to modern energy services help make energy poverty a thing of the past.
2. Fifty years old – a success in itself
When OPEC was set up in Baghdad in 1960, there were some who predicted that the Organization would not last long. Fifty years on, however, that initial small group of developing countries has evolved into a group of 12 that is respected far and wide as an established part of the international energy community. It has survived and it has prospered.
It has not been an easy task to advance such influence and standing, particularly given the nature of its establishment. The main catalyst for its birth came when a group of multinational oil companies — the so-called Seven Sisters — who, at that time were the dominant force in the oil market, unilaterally reduced the posted prices of the crude they supplied. These firms effectively controlled the quantity of oil extracted and decided how much was sold, to whom, and at what price. In reality, it was a time when the international petroleum industry, outside of the former Soviet Union, was under the control of the established industrialized powers.
So in 1960, five oil-producing countries — Iran, Iraq, Kuwait, Saudi Arabia and Venezuela — joined together around the premise of cooperation, with a commitment to safeguard their legitimate national interests and to ensure order and stability in the international oil market. There was no fanfare, no glare of major publicity from the international media, just five developing nations setting about the business of defending their legitimate interests.
The odds were stacked against them, in a world previously dominated by the established industrialized powers. Yet, little by little, OPEC began to make its mark. In this light, the formation of OPEC was a brave act, a pioneering act, an act that demonstrated that even developing countries had rights. Their indigenous resources were more than just a convenience for others; a concept that every nation around the world can appreciate.
Since its humble beginnings, the Organization has had its shares of ups and downs, but it is evident that it has grown in stature and achieved an astonishing degree of success. It has provided Member Countries with the support and the confidence to assert their interests in the petroleum industry, particularly in terms of what the United Nations Charter says is the inalienable right of any country to exercise permanent sovereignty over their natural resources.
It has also helped maintain stable and regular supplies of oil to the market; expand its role on the global stage; helped enhance and build better cooperation and dialogue among producers and consumers, and created a facility — the OPEC Fund for International Development — for channeling aid to developing nations.
That is not to say that the Organization can sit back and rest on its successes and achievements. It recognizes that the global oil market is an ever evolving entity; one that requires constant monitoring and appropriate actions. The past 50 years have been important, but it is the next 50 years that the Organization is now focusing on.
3. Sustainable development
Since its very early beginnings, OPEC, whose membership comes from the developing world, has placed a high priority on easing the plight of impoverished nations, in particular by helping them pursue the goals of sustainable development. At the First OPEC Summit in Algiers in 1975, the Sovereigns and Heads of State of our Member Countries, in a Solemn Declaration, reaffirmed “the natural solidarity which unites their countries with the other developing countries in their struggle to overcome under-development.”
This has also entailed the establishment of many effective bilateral and multilateral aid institutions, including the OPEC Special Fund, now the OPEC Fund for International Development (OFID), which was a direct result of the First Summit. The Fund was inaugurated the following year to promote South-South solidarity through cooperation between OPEC Member Countries and other developing countries; primarily by helping provide the financial resources those countries need to realize their economic and social development goals.
From the outset, the Fund has directed its resources to where they have the greatest impact on the lives of the poor, such as primary healthcare, basic education, water supply and sanitation, transport and agriculture, and rural development, while allowing the key decisions to be made by the beneficiary governments and the people themselves. It constantly strives to work ever more closely with its recipient countries, fellow development agencies and other partners, to ensure that its assistance continues to be well targeted, effective and timely.
Its methods of funding include public sector loans for development projects and programmes; balance of payments support and debt relief under the Heavily Indebted Poor Countries Initiative; trade financing; support to private enterprises; grants for technical assistance, food aid, research and humanitarian relief work; and contributing to the resources of other development organizations, such as the International Monetary Fund (IMF) for its Poverty Reduction Strategy Trust Fund, the International Fund for Agricultural Development and the Common Fund for Commodities whose activities benefit developing countries.
By the end of January 2010, over 120 countries from the developing world — Africa, Asia, Latin America, the Caribbean, the Middle East and Europe — have benefited from OFID’s assistance, with the level of cumulative development assistance extended by OFID standing at US$11,682 million.
The OPEC Fund, moreover, is just one of many multilateral and bilateral institutions that are supported by OPEC Member Countries as a means to provide aid to developing countries. It is all part of OPEC’s continuing commitment to help meet the pressing needs of other developing countries.
In fact, relative to their per capita income, OPEC Member Countries have done a lot more to alleviate poverty in poorer developing countries than the richer nations of the world. For example, Saudi Arabia has consistently earmarked a near four per cent of its annual budget for the purpose of aid, which it makes through bilateral and multilateral channels.
OPEC, the OPEC Fund and its Member Countries continue to advocate a coordinated, balanced and holistic approach to sustainable development through its three mutually supportive pillars, as defined by the United Nations: economic development, social progress and environmental protection.
4. OPEC and the environment
The oil industry through human ingenuity and technological development has a long history of successfully improving the environmental credentials of oil, in both production and use. And OPEC Member Countries — both individually and collectively — have themselves been at the forefront of many important environmental-focused developments.
This includes investing billions of dollars over the past decades in flared-gas recovery projects. This represents a significant contribution to the reduction — by more than half since the early 1970s — of the amount of gas that has been flared per barrel of oil produced. OPEC has also held and participated in a number in workshops on this issue, and is an active participant in the Global Gas Flaring Reduction Partnership sponsored by the World Bank.
In the Gulf region, where many Member Countries are located, the very busy sea lanes are highly vulnerable to pollution, with the unregulated dumping of waste materials a common problem. However, the countries in the region have been exceptionally proactive in rising to these challenges, in line with international and regional conventions and agreements.
The Organization also recognizes the realities of global climate change and supports comprehensive, fair and realistic efforts to reduce the environmental impacts of global energy use. OPEC and its Member Countries have been active participants in the longstanding United Nations-sponsored negotiations on climate change, since they began formally in 1992.
It has also participated in countless other conferences and seminars on this subject, as well as organized some of its own, and undertaken extensive studies on climate change and the energy sector. The issue is an important feature of the energy dialogues OPEC established with the European Union, China and Russia, as well as in its involvement with other groups in the industry, such as through the International Energy Agency’s GHG R&D Programme.
The Third OPEC Summit held in Riyadh, Saudi Arabia, in November 2007, had as one of its three core themes: Energy and environment. It highlighted the importance of promoting collaboration in research and development in the petroleum field among OPEC science and technology centres, as well as collaboration with other international centres and the industry. This was underscored by several Member Countries announcing at the Summit the creation of a special $750 million fund to invest in clean technology ventures.
In the years ahead, with the world requiring its energy to be even cleaner, safer and, as far as possible, environmentally benign, and with fossil fuels continuing to be the leading energy source, OPEC recognizes the importance of continuing to promote the development and deployment of cleaner fossil fuel technologies. In this regard, OPEC supports the existing technology of carbon capture and storage (CCS), which has the potential to contribute up to 40 per cent of emission reductions by the middle of the century. One CCS project in an OPEC Member Country already exists: In Salah in Algeria. Industrialized countries, however, having the financial and technological capabilities, should take the lead in developing and deploying these types of technology.
In looking at the environmental conundrum, it should be remembered that for developing countries, poverty alleviation, economic development and social progress are the overriding priorities and it is clear that people in such nations will need more energy, not less, to meet their needs. Climate change is in fact providing these countries with yet more challenges and additional vulnerabilities, although they have contributed little to the current situation. It means that the goal of “common, but differentiated responsibilities and respective capabilities” needs to be to the fore.
5. Encouraging dialogue and cooperation
OPEC was formed in September 1960 around the premise of cooperation, with a commitment to safeguard the interests of its Member Countries and to ensure order and stability in the international oil market. This has been reaffirmed repeatedly in its declarations, statements, decisions and actions since.
This cooperation has since grown stronger as the Organization has become an established and respected member of the global energy community. Other oil-producing developing nations have joined, extending the Organization’s reach to North Africa, West and Southwest Africa, and the Organization has reached out to other industry stakeholders to help achieve its longstanding objectives focused on market order and stability.
A major advance in bringing more industry stakeholders closer occurred in the late 1980s. This followed the 1986 oil price collapse and the realization among non-OPEC producers — from both the developing and developed worlds — that market stabilization measures were urgently needed and that OPEC required support in providing these.
This process expanded further in subsequent years with major advances in the producer-consumer dialogue in the 1990s, particularly the formation of the International Energy Forum (IEF), whose specific purpose was to provide the setting for such dialogue.
OPEC, together with other stakeholders, played a key role in the establishment and development of the IEF. And today, the Organization and its Member Countries are also active participants in the Joint Oil Data Initiative, set up to help enhance the transparency, quality, timeliness and flows of oil market data, which is hosted at the IEF Secretariat in Riyadh.
OPEC has also put much effort into expanding dialogues on a variety of issues between it and other industry stakeholders. In recent years this has included the International Energy Agency, the European Union, China, Russia, and a number of other non-OPEC producers. Interaction with international organizations is expected to increase further, as OPEC becomes more directly involved in oil- and energy-related issues that are being addressed at high-level policy platforms, such as the G-20.
Today, the importance of cooperation between producers and consumers has never been greater. The reason is that globalization is bringing us all closer together and there is no getting away from the fact that we live in an increasingly interdependent world. It is one in which we are continually seeing advancement in international trade, an explosion of instant mass communication, rapidly advancing technology and greater mobility, but at the same time, it is one in which energy poverty continues to blight the lives of billions of people.
The Organization and its Member Countries recognize that genuine, committed, multilateral, well-targeted and constructive dialogue is essential, if the many, diverse challenges facing the industry are to be met efficiently and effectively in the future. Inclusivity is the key: thinking and planning ahead to look at the needs and responsibilities of oil producers and consumers, oil exporters and importers, and developed and developing nations.
6. Strengthening of National Oil Companies
When OPEC was formed in 1960, and many of its National Oil Companies (NOCs) formed in the years after, the world oil industry was very different to that of today. Outside the self-contained former Soviet Union, it was dominated by the multinational oil companies, which controlled the quantity of oil extracted, managed how much was sold and to whom, and determined the price. Host governments were paid small royalties, in contrast to the large profits made by the multinationals of that time — known as the Seven Sisters — which were the forerunner to many of today’s International Oil Companies (IOCs).
Since then, however, the voices of those host countries and their NOCs have grown louder, as they pushed forward the inalienable right of all countries to exercise permanent sovereignty over their natural resources in the interest of their national development. OPEC has helped provide a platform that has enabled its NOCs to flourish; by affording them a stronger global presence, not only in the oil industry, but in global trade and environmental negotiations, particularly by enabling the pooling of knowledge, resources and intellect.
Over the past few decades these NOCs have gradually increased in size, stature and strength, with their roles, responsibilities and capabilities advancing enormously. They are now considered to be in the vanguard of the industry’s present, and its future.
This ever-expanding role becomes further apparent when looking at the definition of what is an IOC or an NOC. It is not as straightforward as it was in the past. In some cases, the lines that previously distinguished the two are becoming increasingly blurred. In many instances, we see mutually beneficial relationships evolving, as the energy landscape becomes more complex and interdependent.
Moreover, it is clear that many NOCs are moving towards being IOCs as they invest and build capabilities overseas. It is to be expected. It is a natural progression. And the trend is set to continue in today’s fast-moving, high-tech, interdependent, global oil industry.
Whatever the evolving nature of IOCs and NOCs and their relationships, the key word when discussing the two, remains: cooperation. The benefits are clear. NOCs and IOCs share many challenges in the industry and are thus well-placed to find common, effective and sustainable solutions throughout the energy value chain. There is a need for strong relationships and partnerships between all stakeholders, based on complementary strengths and mutual interests.
Going forward, OPEC attaches great importance to the continued strengthening of its Member Country NOCs, and the further development of positive and constructive NOC-to-NOC and NOC-to-IOC relationships. This was made clear in the Organization’s Long-Term Strategy adopted in 2005, which recommends that OPEC Member Countries strive to strengthen cooperation in upstream and downstream scientific research and technological development among themselves and with international institutions, as well as widening and deepening dialogue with all industry stakeholders.