By Isochukwu
From the discovery of oil, the development of internal combustion engines and the need to fuel war vehicles, the demand for oil increased. The Seven Sisters (Exxon, Mobil, Texaco, Shell, Gulf, British Petroleum, Standard oil of Carlifornia) dominated the oil industry and exercised virtually sovereign rights over the oil in host countries.
The Organisation of Petroleum Exporting Countries (OPEC) was established at the Baghdad conference of Iran, Iraq, Kuwait, Saudi Arabia, Ecuador and Venezuela in 1960 as a revolt to the power of the multinational companies (it cut the posted prices for Venezuelan crude). Other countries have joined. They include: Nigeria (in 1971), Angola, Libya, Qatar, UAE and Algeria.
Article 1 of the OPEC statute (2012) establishes it as an intergovernmental organisation.
Note that the gas sector is largely regulated by the Gas Exporting Countries Forum (GECF).
In 1966, the conference of sovereign heads of states adopted the solemn declaration of a new international economic order based on justice, mutual understanding and concern for humanity. The declaration emphasised the need to conserve petroleum and recognise alternative sources of energy.
From the 1970s, OPEC’s influence began to manifest and member countries began to take control of their petroleum.
The OPEC fund for international development was established in 1976 in the interest of poor and developing nations (with the exception of OPEC member countries). Voluntary contributions of more than 240 million dollars have been made to this fund by member countries
Following the fall in oil prices in the 1980s OPEC introduced production quota/ceiling to control availability of oil and stabilize the price. Non-member countries were also petitioned to this effect.
AIMS AND OBJECTIVES OF OPEC.
By Article 2,
– Coordinate and unify petroleum policies of member countries and safeguard their interest.
– Ensure stabilization of oil prices and eliminate fluctuations.
– Safeguard interest of producing nations by securing steady income and efficient supply to the consuming nations..
MEMBERSHIP
Article 7 provides that any country which is a substantial net exporter of crude oil with similar interest of member countries (protecting themselves from the powerful international companies (Perez Alfonso noted)) may become a full member upon acceptance by ¾ of members including founding members.
By Article 8, Withdrawal requires prior notice to be given to the conference and takes effect at the beginning of the next calendar year from the receipt of such notice. Provided the member has discharged financial obligations. The country can be re-admitted. Ecuador pulled out in
ORGANS OF OPEC.
The conference: Article 10 provides that the conference is the supreme authority which consists of heads of delegation (usually petroleum ministers of member states). By Article 11-14, It meets twice a year and resolves substantive decisions by unanimous agreements. At least 75% Quorum is required for decision making. Compliance is voluntary. Article 15:
– They formulate general policy of the organisation and approve amendment to the statute.
– Consider application for membership.
– Appoint members of the board of governors, secretary general, deputy secretary general and auditor of the organisation.
– Entertain and deliberate upon reports, recommendation, budgets presented by the Board of Governors.
The Board of Governors: composed of governors nominated by member countries for terms of two years. Meets twice a year. Article 20:
– They implement the decision of the conference.
– Submit reports, budgets and make recommendation to the Conference.
– Deliberate upon reports submitted by the Secretariat.
– Nominate auditor of the organisation.
– Can convene an extraordinary meeting of the conference and prepare agenda for the conference.
The Secretariat: Artice 25 carry out the executive functions. Prepare and submit report to the board of governors. The Secretary General is the chief officer of the Secretariat and the legally authorised representative of OPEC who is a national of a member country. He is appointed for a term of 3 years renewable once by unanimous decision of the conference. Where no unanimous decision can be reached, appointed on a rotational basis for 3 years.
He must:
– Be a national of a member country and attained the age of 35 years with at least 15 experience in the oil industry.
– Have a degree from a recognised university in law, economics science, engineering or business administration.
The OPEC is also made of departments like the division of research, personnel and administration department, public information department, legal office and so on.
PROBLEMS OF THE OPEC.
1. Disagreement between member countries: as to policies and fixing of price. This problem is compounded by the requirement of unanimity. The members comprise countries with diverse locations, ideology, religion, interest and values. Arrangements must be made to quicken decision making process.
2. Emergence of the UK’s North Sea Oil producers.
3. Volatility of Oil prices: caused by over production (supply exceeds demand) inflation and decline in demand for oil. OPEC stipulates a production quota (production ceiling) for each member country. This is often flouted and the market is flooded with crude oil. To this effect, the OPEC Market Monitoring Committee was set up (made up ministers from Nigeria, Iran and Kuwait) to enforce compliance. Their effect has been minimal. Prices have plummeted in 1980s like the 1986 situation where the demand for oil was 5 million barrels a day while OPEC was producing 14 million barrels a day. However, the prices always recover.
4. The Parallel Market: the non-OPEC producers. There exists the Organisation of Arab Petroleum Exporting Countries which has membership (including members of OPEC) of major oil producing countries like: Saudi Arabia, UAE, Qatar, and so on. They equally flood the market. OPEC has tried to reach out to the non-OPEC producing states (like Russia and Brazil) regarding flooding the market. It even gives membership invitation to such countries in a bid to widen membership and increase influence in the Oil market. In 2000, OPEC granted observer status to Russia which participated in their meetings.
5. Decline in Demand for Oil: coupled with the discovery and research on alternative sources of energy. taking into consideration climate change, depletion of ozone layer caused by carbon emission.
6. The value of dollar also affects the market in a good or bad way where its value increase or decrease respectively.
7. Internal problems of OPEC Member States: which struggle with unstable political and economic environment. In Nigeria for example, there is constant fuel scarcity, shutdown of refineries and so on. it has withstood the war between Iraq and Kuwait.
8. Multilateral Agreements on Investment between the multinationals and the government which seeks to curb the power of the host state.
9. Lack of transparency in the global market in terms of accounts, transactions and obedience with the quota stipulation. Arrangements should be made for sanction of non-compliant member states.
10. The discovery of American White Shale.
SHOULD NIGERIA CONTINUE TO BE A MEMBER OF OPEC?
Arguments for Nigeria’s continued membership of OPEC:
– Member countries (like Nigeria) have been able to derive more revenue from export of oil and gas.
– The coalition of oil producing states (to form OPEC) resulted in greater bargaining power against the IOCs and the interest of member countries are advanced.
– Argued that if Nigeria leaves OPEC, it would produce more but earn less. This argument is questionable in the light of non-OPEC member countries like Mexico and Russia which produce more and still sell at reasonable prices.
– OPEC was the brain behind the establishment of National Oil Companies to advance state participation in the production of their natural resources. The Nigerian National Oil Company was established to this effect. This has in turn helped Nigeria to take greater control of her natural resources.
– OPEC has contributed to the regulation of the oil sector to some extent. Nigeria should adhere to her policies for a good oil sector.
– Some argue (Diwan Fawibe (Chairman of international energy services ltd)) that since the OPEC president (Alison Madueke) is a Nigerian, she would likely favour Nigeria.
Argument against:
– OPEC production quota to Nigeria is inequitable and inhibits her development: For example, Nigeria (with over 120 million citizens) has a production quota of 2.018 million barrels while smaller countries like Saudi Arabia (with about 22 million population) is accorded over 7million barrels. It has however been argued that this is done based on the reserves available in a country.
– Extinction of Petroleum: Research for and discovery of alternative sources of energy are made daily. People advise that Nigeria pulls out of OPEC and maximise the exploitation of her resources on time.
– Most member countries still remain undeveloped.
– Existence of a parallel market like OAPEC (discussed above).
In conclusion, although OPEC has faced and continues to face challenges it is nevertheless a force to be reckoned with. Nigeria is to blame. Embezzlement, laziness, inability of Nigeria to produce and refine, and so on. depending basically on oil. A return to agriculture and other means. Who is sure that the higher money obtained from our production quota would be spent well- Dr Mobolaji Aluko.
