March 2001 1 Printed in Austria by Ueberreuter Print and Digimedia Publishers Organization of the Petroleum Exporting Countries, Obere Donau- strasse 93, 1020 Vienna, Austria. Telephone: +43 1 211 12/0; Telex: 134474; Telefax: +43 1 216 4320; Public Relations & Information Department fax: +43 1 214 9827. E-mail: [email protected]E-mail: OPEC News Agency: [email protected]Web site: http://www.opec.org. Hard copy sub- scription: ATS 850 ( 61.77)/12 issues. Membership and aims OPEC is a permanent, intergovernmental Or- ganization, established in Baghdad, September 10–14, 1960, by IR Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Its objective is to co- ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an effi- cient, economic and regular supply of petro- leum to consuming nations; and a fair return on capital to those investing in the industry. The Organization comprises the five Founding Members and six other Full Mem- bers: Qatar (joined in 1961); Indonesia (1962); SP Libyan AJ (1962); United Arab Emirates (Abu Dhabi, 1967); Algeria (1969); and Nigeria (1971). Ecuador joined the Organiza- tion in 1973 and left in 1992; Gabon joined in 1975 and left in 1995. Secretariat officials Secretary General Dr Alí Rodríguez Araque Director, Research Division Dr Shokri M Ghanem Head, Energy Studies Department Dr Rezki Lounnas Head, Data Services Department Dr Muhammad A Al Tayyeb Head, Petroleum Market Analysis Department Javad Yarjani Head, Administration & Human Resources Department Dr Talal Dehrab Head, PR & Information Department Farouk U Muhammed, mni Legal Officer, In charge of the Office of the Secretary General Mrs Dolores Dobarro Web site Visit the OPEC Web site for the latest news and information about the Organization and its Member Countries. The URL is http://www.opec.org This month’s cover ... shows San Francisco, California, which has been badly affected by an energy crisis, resulting in rolling blackouts (see Forum on page 7). Photo courtesy NASA. 2 NOTICEBOARD Forthcoming conferences and other events 3 COMMENTARY Kyoto: the way forward The US President’s recent remarks on Kyoto have highlighted the need for a fresh approach to the environmental debate 4 FORUM Are the world’s oil resources limited? 4 An OPEC point of view By Dr Shokri Ghanem, Director of OPEC’s Research Division California dreaming? 7 Speaking the unspeakable about electricity deregulation Professor Ferdinand E Banks, Uppsala University 12 CONFERENCE NOTES 114 th OPEC Conference agrees to cut production by 1m b/d 19 PRESS RELEASE OPEC Secretary General urges broader perspective on global warming 20 SECRETARIAT NOTES Secretary General pays courtesy call on Austrian President OPEC Secretariat activities and forthcoming meetings 23 NEWSLINE Energy stories concerning OPEC and the Third World 33 MARKET REVIEW Oil market monitoring report for February 2001 50 MEMBER COUNTRY FOCUS Financial and development news about OPEC Countries 56 OPEC FUND NEWS Recent loans and grants made by the OPEC Fund 63 ADVERTISING RATES How to advertise in this magazine 64 ORDER FORM Publications: subscriptions and single orders 65 OPEC PUBLICATIONS Information available on the Organization Indexed and abstracted in PAIS International Vol XXXII, No 3 ISSN 0474-6279 March 2001
Transcript
March 2001 1
Printed in Austria by Ueberreuter Print and Digimedia
P u b l i s h e r sOrganization of the PetroleumExporting Countries, Obere Donau-strasse 93, 1020 Vienna, Austria.
M e m b e r s h i p a n d a i m sOPEC is a permanent, intergovernmental Or-ganization, established in Baghdad, September10–14, 1960, by IR Iran, Iraq, Kuwait, SaudiArabia and Venezuela. Its objective is to co-ordinate and unify petroleum policies amongMember Countries, in order to secure fair andstable prices for petroleum producers; an effi-cient, economic and regular supply of petro-leum to consuming nations; and a fair returnon capital to those investing in the industry.
The Organization comprises the fiveFounding Members and six other Full Mem-bers: Qatar (joined in 1961); Indonesia (1962);SP Libyan AJ (1962); United Arab Emirates(Abu Dhabi, 1967); Algeria (1969); andNigeria (1971). Ecuador joined the Organiza-tion in 1973 and left in 1992; Gabon joined in1975 and left in 1995.
S e c r e t a r i a t o f f i c i a l sSecretary General Dr Alí Rodríguez Araque
Director,Research Division Dr Shokri M Ghanem
Head,Energy Studies Department Dr Rezki Lounnas
Head, Data ServicesDepartment Dr Muhammad A Al Tayyeb
Head, Petroleum MarketAnalysis Department Javad Yarjani
Head, Administration &Human Resources Department Dr Talal Dehrab
Head, PR & InformationDepartment Farouk U Muhammed, mni
Legal Officer,In charge of the Officeof the Secretary General Mrs Dolores Dobarro
W e b s i t eVisit the OPEC Web site for the latest news andinformation about the Organization and itsMember Countries. The URL is
http://www.opec.org
T h i s m o n t h ’ s c o v e r . . .shows San Francisco, California, which has been badlyaffected by an energy crisis, resulting in rolling blackouts(see Forum on page 7).Photo courtesy NASA.
2 N O T I C E B O A R DForthcoming conferences and other events
3 C O M M E N T A R YKyoto: the way forwardThe US President’s recent remarks on Kyoto have highlightedthe need for a fresh approach to the environmental debate
4 F O R U MAre the world’s oil resources limited? 4An OPEC point of viewBy Dr Shokri Ghanem, Director of OPEC’s Research Division
California dreaming? 7Speaking the unspeakable about electricity deregulationProfessor Ferdinand E Banks, Uppsala University
12 C O N F E R E N C E N O T E S114th OPEC Conference agrees to cut production by 1m b/d
19 P R E S S R E L E A S EOPEC Secretary General urges broader perspective on global warming
20 S E C R E T A R I A T N O T E SSecretary General pays courtesy call on Austrian PresidentOPEC Secretariat activities and forthcoming meetings
23 N E W S L I N EEnergy stories concerning OPEC and the Third World
33 M A R K E T R E V I E WOil market monitoring report for February 2001
50 M E M B E R C O U N T R Y F O C U SFinancial and development news about OPEC Countries
56 O P E C F U N D N E W SRecent loans and grants made by the OPEC Fund
63 A D V E R T I S I N G R A T E SHow to advertise in this magazine
64 O R D E R F O R MPublications: subscriptions and single orders
65 O P E C P U B L I C A T I O N SInformation available on the Organization
Indexed and abstracted in PAIS International
Vol XXXII, No 3 ISSN 0474-6279 March 2001
2 OPEC Bulletin
N O T I C E B O A R D
Forthcoming events
Houston, TX, USA, May 7–11, 2001, Petro-leum Industry Site Visit. Details: IHRDCHeadquarters, 535 Boylston Street, Boston,MA 02116, USA. Tel: +1 617 536 0202; fax:+1 617 536 4396; e-mail: [email protected]; Web site: www.ihrdc.com.
Boston, MA, USA, May 7–11, 2001, Up-stream Petroleum Agreements. Details: IHRDCHeadquarters, 535 Boylston Street, Boston,MA 02116, USA. Tel: +1 617 536 0202; fax:+1 617 536 4396; e-mail: [email protected]; Web site: www.ihrdc.com.
Dundee, Scotland, May 7–11, 2001, Con-tracts used in International Petroleum Develop-ment. Details: Centre for Energy, Petroleumand Mineral Law and Policy, University ofDundee, DD1 4HN Scotland, UK. Tel: +44(0)1382 344300; fax: +44 (0)1382 322578;e-mail: [email protected]; Web site:www.dundee.ac.uk/cepmlp/.
Seoul, Korea, May 14–17, 2001, 13th Inter-national Conference and Exhibition on LNG.Details: AP Energy Business Publications PteLtd, 71 Robinson Road No 04-01, Singapore068895. Tel: +65 222 3422; fax: +65 2225587; e-mail: [email protected]; Web site:www.petromin.safan.com.
Düsseldorf, Germany, May, 14–17, 2001,ENVITEC 2001, International Trade Fair forSupply and Waste Management with interna-tional conference. Details: Messe DüsseldorfGmbH, Postfach 10 10 06, 40001 Düsseldorf,Germany. Tel: +49 (0)211 4560-01; fax: +49(0)211 4560-668; Web site: www.messe-duesseldorf.de.
Dundee, Scotland, May 14–18, 2001, Inter-national Petroleum Fiscal Systems Analysis andDesign. Details: Centre for Energy, Petro-leum and Mineral Law and Policy, Universityof Dundee, DD1 4HN Scotland, UK. Tel:+44 (0)1382 344300; fax: +44 (0)1382322578; e-mail: [email protected]; Website: www.dundee.ac.uk/cepmlp/.
Boston, MA, USA, May 14–25, 2001, Up-stream Oil and Gas Asset Management — ashared learning workshop programme. Details:IHRDC Headquarters, 535 Boylston Street,Boston, MA 02116, USA. Tel: +1 617 5360202; fax: +1 617 536 4396; e-mail:[email protected]; Web site: http://www.ihrdc.com.
Tashkent, Uzbekistan, May 15–17, 2001,OGU 2001, 5th Uzbekistan International Oil& Gas Exhibition & Conference. Details: ITEOil & Gas, 105 Salusbury Road, London,NW6 6RG, UK. Tel: +44 (0)20 7596 5233;fax: +44 (0)20 7596 5106; e-mail: [email protected]; Web site: www.ite-exhibitions.com/og.
Dundee, Scotland, May 21–29, 2001, RiskAnalysis and Decision Making in PetroleumExploration. Details: Centre for Energy, Pe-troleum and Mineral Law and Policy, Uni-versity of Dundee, DD1 4HN Scotland, UK.Tel: +44 (0)1382 344300; fax: +44 (0)1382322578; e-mail: [email protected].
London, UK, May 24–25, 2001, GlobalWomen Petroleum & Energy Forum. Details:Global Business Network Ltd, 9 WimpoleStreet, London, W1M 8LB, UK. Tel: +44(0)20 7291 1030; fax: +44 (0)20 7291 1001;e-mail: [email protected]; Web site:www.gbnuk.com/gbnemissions.htm.
Cairo, Egypt, May 27–31, 2001, Interna-tional Seminar on Status and Prospects forSmall and Medium Sized Reactors. Details:International Atomic Energy Agency, VIC,Wagramer Strasse 5, PO Box 100, A-1400,Vienna, Austria, Tel: +43 (0)1 2600 (0); fax:+43 (0)1 12645; e-mail: [email protected].
Dundee, Scotland, June 4–8, 2001, Mining2001: Global Issues in Corporate Mining Strat-egy and Government Policy. Details: Centre forEnergy, Petroleum and Mineral Law andPolicy, University of Dundee, DD1 4HNScotland, UK. Tel: +44 (0)1382 344300; fax:+44 (0)1382 322578; e-mail:[email protected]; Web site:www.dundee.ac.uk/cepmlp/.
Gorse Hill, Woking, UK, June 5–8, 2001,Fundamentals of the Energy Industry. Details:Petroleum Economist Ltd, 15/17 St. CrossStreet, London EC1N 8UW, UK. Tel: +44(0)20 7831 5588; fax: +44 (0)20 7831 4567or 7831 5313; e-mail: [email protected]; Web site: http://www.petroleum-economist.com.
Kyoto: the way forwardThe US President’s recent remarks on Kyoto have highlighted
the need for a fresh approach to the environmental debate
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contents do not necessarily reflect the official
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E d i t o r i a l s t a f fEditor-in-Chief Farouk U Muhammed, mni
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When US President George WBush made it known recentlythat he did not support the
Kyoto Protocol, he no doubt expected thathe would have to endure some criticism forhis stance. But he could scarcely have im-agined the force of the critical hurricanethat would be unleashed. Nation after na-tion queued up to decry the President’sposition on Kyoto as thoughtless and a threatto the future of the Earth. The UnitedStates, they claimed, was arrogant, aloof,and prepared to sacrifice the long-termhealth of the planet — which affects us all— in pursuit of its own short-term eco-nomic interests.
But in truth, much of the outrage thatwas expressed by the other industrializednations following the President’s pro-nouncement was, as the popular journalis-tic cliché on the topic of global warming hasit, mere hot air. For although it is true thatthe US is nowhere near meeting its targetfor greenhouse gas emission reductions (asset out in the Protocol), most of the indus-trialized countries who were so eager tocriticize the US on the grounds of environ-mental recklessness (Germany and the UKexcepted) are also well wide of the mark asregards their own emission reduction tar-gets, and their politicians are only too awareof this fact. A case, perhaps, of the Euro-pean pot calling the American kettle black?
One of the main justifications that hasbeen advanced by the US for not supportingKyoto is that the treaty would harm itseconomy. It is, however, by no means new toobserve that implementation of the KyotoProtocol would cause economic damage toone particular country or group of countries.It is precisely this point which OPEC hasbeen making for years, and which was madeagain recently by the Organization’s Secre-tary General, HE Dr Alí Rodríguez Araque(see the statement on page 19 of this magazine).
Numerous studies, both by OPEC it-self and other independent bodies, havedemonstrated conclusively that, were theKyoto Protocol to be implemented as itstands, the countries whose economieswould be hardest hit would be the oil-
exporting developing nations. The conse-quent reduction in oil demand growthwould slice hundreds of billions of dollarsoff the revenues of OPEC’s Member Coun-tries, dramatically reducing their ability notonly to meet the needs of their growingpopulations, but also to commit substantialamounts of investment to the future of theoil industry.
In terms of the losses that would accruefrom the implementation of the Protocol, itwould be particularly unfair if it were agroup of developing countries that were tosuffer most in this regard. After all, it is notthe actions of the poor nations of the Souththat have led to the current environmentalsituation. Most of the world’s greenhousegas emissions have stemmed from the richcountries during their long process of in-dustrialization. It is therefore only fair thatthese nations should be the ones to bear thecost — although, as we have recently seen,not all of them seem willing to do so.
President Bush’s pronouncements,therefore, may in fact have served a usefulpurpose: that of refocusing attention on theneed to come up with a viable alternative toKyoto, one that is realistic, one that will nottreat any nation or group of nations un-fairly, and one that can be agreed upon byall parties. Indeed, as indicated recently byUS Energy Secretary Spencer Abraham, thePresident has already signaled the need fornew thinking by setting up a task force thatwill report on every aspect of the energysituation — including Kyoto. But it is notjust the United States that can benefit froma fresh approach. Everybody can.
What is now needed is for all sides in-volved in the debate to get together andagree upon a comprehensive way of ad-dressing the problem of preserving theenvironment for ourselves and for futuregenerations, while at the same time notplacing obstacles in the way of the eco-nomic growth that is the only way for thedeveloping nations of this world to liftthemselves out of poverty. It is a huge chal-lenge. One that will require flexibility fromall sides. But it is a challenge to which theworld can — and must — rise.
4 OPEC Bulletin
F O R U M
In this area, a number of studies, in-cluding some in recent years, give a ratherpessimistic view of long-term oil-supplyprojections. For example, The End ofCheap Oil in the March 1998 issue ofScientific American pointed to a resource-based decline in conventional world oilsupplies around 2003-2005, thus leadingto sharply rising prices in the near future.
Another warning of a similar naturehad come in 1977, when the Massachu-setts Institute of Technology published atwo-year study stating in its conclusionthat “world oil production is likely to leveloff before the year 2000 — perhaps as earlyas 1985 — even if energy prices rise 50per cent above current levels in real terms”.
Earlier, there had been the Club ofRome’s 1972 book The Limits to Growth,whose doomsday scenarios for some keycommodities were widely discussed, inparticular, the prediction that we wouldsoon run out of oil. This list could be easilyextended with some other studies.
These gloomy predictions, of course,never materialized. However, the widely-debated views of geologists ColinCampbell and Jean Laherrère, the authorsof the The End of Cheap Oil, have devel-oped into a discussion platform betweentwo major groups: the ‘pessimists’ and the‘optimists’. Based on analytical criteria andthe levels of ultimately recoverable reserves(URR)1 , there are a wide variety of opin-ions, with some pessimists arguing that thepeak in world conventional oil productioncould be within the next decade, while theresource optimists see this peak coming asmuch as 30 years later.
I also share the view that oil, like anyother physical resource, is finite, but thequestion of when and where the peak isgoing to occur is closely related to theestimated size of ultimately recoverablereserves of conventional oil, coupled withtechnological advances, oil price develop-
Will structural resourceconstraints affect the world’sability to meet growing oildemand in the future? TheDirector of OPEC’s ResearchDivision, Dr ShokriGhanem*, offers an optimisticview on this often-posedquestion.
Are the world’s oil resources limited?An OPEC point of view
ments and the rate of oil demand growth.These are all-important constraints deter-mining when the peak will be reached.Over the years, technological advanceshave also played a key role in reservesappreciation at a much lower cost, not-withstanding the fact that with higher oilprices, additional resources have becomeavailable. Three-dimensional seismology,horizontal and directional drilling, anddeep water-production systems are allexamples of major technological break-throughs in this field. Thus, changes intechnology have increasingly enabled usto tap resources which were once eitherunrecoverable or uncommercial.
Private investmentThe opening up of new areas, and the
accessibility of private investment in theseareas, will also contribute to the expan-sion of prospective resources far beyondearlier projections. This applies in particu-lar to countries with resource-rich crudeoil endowments that were denied accessto new technology and foreign investmentfor many years because of sanctions (eg,Libya, Iran).
The oil resources are in place. The issueis rather a question of technology and theeconomic conditions, for example, prices,tax regimes, market structure, and so on,that will decide on the level of its avail-ability. Technological developments andprice adjustments will always bring aboutsolutions that withstand the risk of re-source constraints. I believe that experi-ence to date encourages us to hold suchan optimistic view. As an example, let usexamine the development of proven oil re-serves during the last 20 years.
At the beginning of the 1980s, provenoil reserves in the world were put at 636billion barrels. Over the following twodecades, around 403bn b of crude wereproduced, catering to rising world oil
* Based on a presentation given by Dr Ghanemto the Austrian Society for Petroleum Sciences,Vienna, Austria, on March 21, 2001.
1. The total size of the URR is widely used asan important factor to determine the peak-ing date and level of conventional oil pro-duction, which has become known as‘Hubbert bell curve’.
In the early decades of the last century,scientists were predicting the demiseof oil and coal. Later, it became ac-
cepted that coal was a rather abundantresource and it was no longer thoughtnecessary to make forecasts about when itwould be exhausted. Then attention againbecame focused on the question of oil re-sources, posing the question: “Are werunning out of oil?”
F O R U M
March 2001 5
needs. At the same time, however moreoil was discovered than the volumes pro-duced, namely a net addition of 415 bil-lion barrels to world oil reserves. Thus, lastyear, world oil reserves stood at over onetrillion barrels, enough to satisfy theworld’s needs for nearly 40 years at thepresent rate of consumption. If we takeinto account the size of recoverable globaloil reserves, this number could even bedoubled.
Similar arguments also hold true fornatural gas reserves. As at December 31,1998, global proven natural gas reserveswere put at around 15.9 trillion cubicmetres, representing a 38 per cent increaseover 1988 levels, of which the OPECMembers had a significant share. In thisrespect, the issues of security of oil supplyand scarcity of reserves become less rel-evant, especially when we consider thebenefits of technological advances and theabundant oil supply surrounding us formany decades to come.
Let us now turn to oil market pros-pects for the next two decades, using someof our findings based on the Secretariat’sprojections generated by the OPEC WorldEnergy Model (OWEM), a large-scaleeconometric model. Before doing so, hereis a brief description of the assumptionsupon which the model’s reference case isbased.
First, the perception of the potentialevolution of oil market fundamentals leadsus to assume a ‘soft landing’ for oil prices,with nominal prices settling in the low 20s(in $/b) over the first decade of the 21st
century, then staying constant in real termsat $18/b for the rest of the forecast periodup to 2020.
Economic reformsThe second assumption is that follow-
ing a quick recovery from the 1998 eco-nomic crisis in several regions of the world,and reflecting world trade and productiv-ity gains from economic reforms, an aver-age world economic growth rate of around3.3 to 3.4 per cent is expected. The ratesassumed here form the benchmark, but theuncertainties associated with future eco-nomic growth paths should be taken intoconsideration. This is admittedly one ofthe areas which constitutes a major diffi-culty in assessing potential energy-marketdevelopments.
The third assumption is that the valueassumed for autonomous energy efficiencyimprovements, at around one per cent perannum, although crucial to evolving pat-terns of demand, should be considered assubject to much uncertainty.
Finally, OPEC has also followed aneutral assumption in energy taxation andregulatory policies. The nominal energy
taxes, already in place, will show growthrates similar to that of inflation rates.
Growth in oil demand is basically a re-flection of increasing energy requirementsstemming from higher population, devel-opment aspirations and economicprogress. Although natural gas, coal andrenewables will play an important role inmeeting global energy demand, oil is stillexpected to retain a strong comparativeadvantage in the transportation sector,preserving its dominant share in the pri-mary energy mix over the next twentyyears.
In the reference case, we expect worldoil demand to increase at an annual aver-age rate of 1.5 per cent, or 1.4 millionbarrels/day, over the period to 2020, with
corresponding growth rates of 1.8 per centand 1.3 per cent during the following ten-year periods up to 2010 and 2020 respec-tively. Total world oil demand is, there-fore, expected to exceed 103m b/d by2020, a somewhat lower level than givenin other forecasts, such as the InternationalEnergy Agency (115m b/d) or the USEnergy Information Administration(117m b/d).
Increasing demandDuring this period the major incre-
mental demand will be seen in the non-OECD area, accounting for 70 per centof the 27m b/d total increase in demand.The declining share of the OECD in glo-bal oil demand (55 per cent in 2020) willbe compensated by a major increase in theAsia Pacific region (from 12 per cent in1998 to 18 per cent in 2020).
While non-OPEC oil production is ex-pected to stabilize at around 49m b/d, themajor contribution to rising oil demandshould come from the OPEC MemberCountries. Taking the low and high pricescenarios into account, the bulk of theseincremental oil requirements — between24m b/d and 34m b/d — is expected tocome from the OPEC Countries. Up to2020, these projections would put OPECcrude oil production in the range of 55mb/d to 65m b/d, reflecting the compara-tive advantage enjoyed by our Members,with their huge, low-cost reserves base.
The expansion in OPEC crude oil pro-duction will also lead to a growing marketshare for the Organization, increasing fromaround 40 per cent to over 50 per cent.Similarly, the incremental oil imports re-quired from the OPEC area, in order tomatch the rising oil requirements in otherregions, would in return necessitate con-siderable capacity expansion, which trans-lates into investment totalling many bil-lions of dollars.
This conclusion is also supported byother studies. The IEA, for example, un-derlines the need for “significant and sus-tained capital investment”; while the EIAemphasizes the growing importance ofOPEC and Middle East supply that “willrequire major capital investments, whichcould depend on the availability and ac-ceptability of foreign investments”. SinceMember Countries are increasingly in-volved in co-operation with other oil com-
‘Changes in
technology have
increasingly
enabled us to
tap resources
which were
once either
unrecoverable or
uncommercial.’
6 OPEC Bulletin
F O R U M
panies to invest more in upstream opera-tions and stimulate exploration and pro-duction activities, supply should be as-sured.
However, there are mounting uncer-tainties on the other side of the equation,namely, future oil demand prospects. Myconcerns in this regard are directly relatedto the potential impact of environmentalmeasures based on current discussions andnegotiations in the international fora.
The Kyoto Protocol foresees thatAnnex I Parties will, as agreed, lower overallgreenhouse gas emissions to below 1990levels between 2008 and 2012. Althoughit is not clear how and through whichpolicy instruments and measures this tar-get is going to be reached, we have nev-ertheless analyzed the likely impacts of theso-called ‘green taxation’ on oil demandprospects under the Kyoto Protocol sce-narios.
Enormous lossesThe results of these scenarios imply an
actual fall in OPEC oil production com-pared to the reference case of between 4mb/d to 10m b/d in 2010. Annualized rev-enue losses vary accordingly between$22bn and $63bn, equivalent to a welfareloss of between 1.7 per cent and 3.5 percent of GDP. It is important to emphasizethe level and the impact of such policieson oil demand growth, and their conse-quences for production levels that would
bring pronounced economic disadvantagesfor the OPEC Countries.
Despite continuing uncertainty in the
coming years, investment in the oil indus-try will, in any case, be a highly crucialelement for all of us, requiring enhancedco-operation in an environment of rapidly-changing industry dynamics. Looking at
‘Despite
continuing
uncertainty,
investment
in the oil
industry will
be a highly
crucial element.’
the large, low-cost reserve base of theOPEC Member Countries with their com-paratively low market shares (77 per centof world reserves versus 41 per cent ofglobal production), it would make eco-nomic sense to have more investmentchannelled into these highly-productiveregions. In that regard, co-operation andpartnership are growing as more MemberCountries announce projects involvingforeign oil companies.
Optimistic stanceIn conclusion, I would once more like
to reiterate my optimistic stance regard-ing the availability of oil resources as tech-nological advances will continue to sup-port a large oil reserve base for many yearsto come.
However, what is more pressing is theneed to secure large-scale investments intime to satisfy the growing oil demand incoming years. We are conscious of thisdaunting task, and that is why OPEC hasbecome more cautious about its produc-tion policy, and strives to maintain pricesat around $25 a barrel in order to ensurecontinued investment for supply security.
This is at the centre of our presentefforts to sustain market stability at pre-vailing price levels, not only in the short-term, but also in the long-term. It is some-thing that OPEC wants to achieve togetherwith the oil industry by sharing these re-sponsibilities.
March 2001 7
F O R U M
forward to personally co-operating withany electric utility in or near Sweden,because until the great deregulation wavewas set in motion about six years ago, wealready had access to an extremely depend-able supply of electricity that was producedat perhaps the lowest cost in the world,and whose price to both industries andhouseholds was very reasonable.
I can also mention once again thatdespite their attempts to portray them-selves as public-spirited inheritors of Swed-ish engineering brilliance, the long-rungoal of the ladies and gentlemen in theexecutive suites of the newly-deregulatedelectricity industry is to sell as much elec-tricity as possible outside Sweden, whereits price in some places is double that inthe latter country.
Until the great California fiasco, it wasalmost impossible to find any technicaleconomics literature about the shortcom-ings of deregulated electricity, for the verysimple reason that the editors of scientificperiodicals in economics did not feel thatit was in their interest to carry reports thatimpugned the activities of an industrywhose sales to consumers in the US aloneamounts to about $250 billion per year.As Ezra Mishan once pointed out in awidely-neglected paper, these reviews areperhaps the least read in the entire aca-demic world, but even so many of uswould like to think it possible for ourstudents to obtain as much genuine in-sight from ‘learned journals’ as they cancull from short articles in the Wall StreetJournal or Financial Times.
Before the bad news in Californiasurfaced, many persons were of the opin-ion that both electricity and natural gasderegulation were functioning as smoothas silk. This has never been the case! TheScandinavian exchange Nord-Pool is of-ten cited as a jewel in the deregulationcrown, but in truth deals have been
A trenchant critic of electricityderegulation, ProfessorFerdinand E Banks* examineshow misguided enthusiasm for theworkings of the free market hascreated an energy crisis that hasbrought darkness to the ‘sunshinestate’ of California.
California dreaming?Speaking the unspeakable about electricity deregulation
hatched in that establishment which canonly be called bizarre.
As for the situation in the UK, shortlyafter deregulation began to accelerate, thenewly-privatized utilities were subjected toa ferocious public attack as profits, divi-dends, share prices and executive salarieswent into orbit, and the increased volatil-ity of electric prices portended that theycould follow.
As I stressed in my energy economicstextbook, the way things were supposedto work was that thousands of jobs thatcould only exist in a ‘non-competitive’ en-vironment would be liquidated, leading togreater efforts by those still in employ-ment, which might bring about an increasein profits that could be translated intohigher dividends and share prices (andperhaps some higher salaries), as well asreduced (real) electricity prices.
And, at the alpine heights of puretheory, there might be an improvedmacroeconomy due to these lower pricesthat would facilitate the reabsorbtion intoemployment of the persons who had been‘retrenched’.
While the pink slips were being dis-pensed throughout the UK, a further boostto profits fortuitously resulted from a slidein the price of the fuels used to produceelectricity (ie, gas, oil and coal), but evenso the marvelous ‘efficiency gains’ prom-ised by Professor Stephen Littlechild (theUK electricity regulator) generally failedto materialize.
A logical question at this point is whyshould anything else have been expected?Littlechild’s programme for a restructur-ing of the industry in order to increasecompetition did not make sense in anyserious classroom in the world in whichmainstream economic theory was taught.Instead, as with the Swedish entrance intothe European Union (EU), deregulatorsand re-regulators and their booster clubs
* This is an extended version of a paper pre-sented by Professor Banks at the 22nd In-ternational Meeting of the International As-sociation for Energy Economics (IAEE),Rome, Italy, June 9–12, 1999, and publishedin the proceedings of the conference. Theauthor teaches economics at Uppsala Univer-sity, Sweden.
Many years ago, at a very pleasantseaside conference in Portugal,the late Fred Schweppe of the
Massachusetts Institute of Technology por-trayed the spot-price electricity market-place as an institution where a utility (elec-tricity seller) and its customers were bosompartners working to minimize the price atwhich electricity was sold to all categoriesof buyers.
As a resident of Sweden, I do not look
F O R U M
8 OPEC Bulletin
worked overtime to convince the losers inthe deregulation game that they were ac-tually winners.
The sad truth is that as with the Swedesand the EU, many of the losers havebought this misapprehension, but I findit impossible to sympathize with them.They should have understood that virtu-ally none of ‘their’ favorite economists werecapable of understanding what could gowrong when complex electric networks aredisrupted by crank ideas about ‘competi-tion’ and ‘efficiency’, unless those dedi-cated scholars possessed at least an elemen-tary background in electric circuit analysis:for all its mathematical sophistication, anoverwhelming portion of the theoreticalwork on electric deregulation does notapply at all to real-world markets.
Furthermore, even if we can overlooktheir lack of acquaintance with, for exam-ple, Kirchoff ’s law, the modeling of theelectric contract market by many UKeconomists — which amounts to a purelyeconomics endeavor — is nothing shortof scandalous, and if there were such athing as ‘natural justice’, most of the pub-lications on deregulation originating in theUK would be on the desks of the seriousfraud authorities — they are strictlymoney-making propositions. This is onlyincidentally the case in Scandinavia, be-cause with certain exceptions the Swedishand Norwegian economists riding thederegulation gravy train hardly understandthe lowest-level economics concepts aboutwhich they write and speak with neitherexpertise nor confidence.
The driving force behind the deregu-lation crusade was — and perhaps still is— certain political and economic ideas ofthe ‘Reaganomics’ variety, which are basedon supplanting government and regulatorsby corporate elites and the financial mar-kets, and firmly placing shareholders aheadof customers and employees. Many share-holders like myself were unimpressed bythese ambitions, just as we are less thanamused by the serial mental lapses of ourpolitical masters that inexorably led to thelatest “regulatory failure”, to use an expres-sion introduced by the Financial Times(March 8, 1995) to describe one of Pro-fessor Littlechild’s classic blunders.
The positive side of the present situ-ation is that perhaps everywhere in theworld, alert voters and/or shareholders may
learn something from it. When the Ger-man electricity sector was deregulated inFebruary 1999, with all restrictions fool-ishly abolished in a single move, a mad-cap price war followed that had a stagger-ing impact on the power sellers. Despitean outbreak of ruinous competition, pro-ducers continued their bombastic talkabout gaining a larger slice of the electric
market, but even so share prices contin-ued to fall.
Industry backgroundWith the exception of the lunatic
fringe of academic economists and theiracolytes, electric power was once consid-ered a natural monopoly. Consequently,in return for an exclusive franchise, elec-tric utilities were obligated to serve, witha high degree of reliability, all existing andfuture customers. In other words, theprovision of electricity was to some extentregarded as a public service. Prices, ingeneral, would be regulated on a cost-plusbasis. Under that system, the worseningstrain on electricity supply that we are nowwitnessing, and the growing confusion of
legislators and their experts, could havebeen held at bay indefinitely.
The events bringing about a changein that situation in the US have beenoutlined in a brilliant article by ThomasJ Overbye — a recipient of the IAEE PowerEngineering Society’s outstanding youngengineers award — and presented inAmerican Scientist (May–June, 2000).
Until the early 1970s, electric rateswere decreasing, while the demand forelectricity was increasing at between sevenand ten per cent per year. Few engineersor economists felt inclined to challenge,publicly, the concept of natural monopo-lies, and as Overbye points out, the sys-tem of vertical monopoly — ie, a singleowner for the generation and transmission,and perhaps distribution of electricity —provided “a stable basis for building anextensive and fairly reliable system.”
Trouble appeared with the first energyprice shock, which reduced macroeco-nomic growth rates, and in addition in-creased the price of fossil fuels employedin generating electricity. New capacitycontinued to come on line, while electric-ity demand slowed. This, of course, wasnot the end of the world, but various‘wannabes’ felt that they could profit bypainting it as such. Among other thingsthey focused on what they called the ‘waste’created by monopoly/vertical integration,although any intelligent person familiarwith the price of electricity, its reliability,and the modest electric reserve marginshould have refused to entertain this un-substantiated bunkum.
Many economists who believed inincreasing returns to scale were then con-vinced that it was a good career move ifthey changed their minds, and a small butinfluential clique of energy professionalsarrived at the fantastic conclusion that itwas economical to purge the supply sideof the electricity sector of all or most of itsmonopoly elements, and thereby obtain afacsimile of the competitive market that istaught to almost all first year economicsstudents.
One of the truest believers turned outto be Professor William W Hogan of theKennedy School of Government (HarvardUniversity), who in a Royal Society for theEncouragement of the Arts lecture, sug-gested that “England and Wales made amistake in setting up too few competing
‘The positive
side of this
situation is
that people
everywhere
in the world
may learn
something
from it.’
March 2001 9
F O R U M
generators, so competition is slow in com-ing through entry.”
“Slow” is not the word that I wouldhave used had I been fortunate enough togive this lecture, since Professor Littlechildtakes a back seat to no man or womanwhen it comes to unleashing his competi-tive urges: given the opportunity he wouldderegulate and ‘fragment’ every electricsector in every country on the face of theglobe. His so-called slowness was the sim-ple result of not being able to re-regulatethe UK electric sector without an enor-mous misallocation of resources.
Misallocation in what sense? In thesense that a too hasty introduction of un-restrained competition could have resultedin a large stock of embarrassingly visible‘stranded’ (or superfluous) power stationsthat attained this footing because theiroutput could be procured more inexpen-sively from other firms — perhaps a for-eign firm without a genuine interest intaking part in the deregulation game, suchas Electricité de France (EdF). This is whathappened to a certain extent in Germany.
In addition, as a president of EdF(Gilles Menage) once remarked, the kindof complete deregulation favored byLittlechild and by the EU’s Energy Direc-torate would have resulted in a downgrad-ing of social considerations (such as pro-viding universal services), as well asremoving the right of authorities to inter-vene on strategic (ie, macroeconomic)grounds.
The Swedish government, of course,would love to give up any and all rightsthat they are in possession of for a friendlypat on the back from their colleagues inBrussels. However, the self-esteem ofFrench politicians and civil servants is ona completely different level, which explainswhy they still export inexpensive electric-ity from their nuclear plants, and merrilycontinue to ignore a directive from the EUto open their interior market to competi-tion.
Professor Hogan also told his audiencethat: “for most business purposes, finan-cial contracts could stand in the place ofphysical transactions, with only a finalsettlement at the price revealed in the spotmarket.”
In some cases this is probably right,but where electricity and natural gas areconcerned, it is completely wrong! This is
the kind of ‘wisdom’ that gives economicsa bad name, because as an observer in Texasrecently remarked: “If Enron is holding600 futures contracts instead of six billioncubic feet (of gas) in storage, you can’t heatyour home with that.” (Forbes, January 22,2001).
As I have pointed out in my textbook,and in a few dozen articles and lectures,
the kind of financial contracts that Hoganis thinking about — futures and options— are and will probably remain a distin-guished non-starter where electricity andgas are concerned.
Sometimes the desire to see things inderegulation that are not there is almostas touching as it is pathetic. According toan executive of a very successful interna-tional firm, “The Scandinavian market isvery sophisticated and open-minded. TheNordic power market is a model for boththe rest of Europe and the US.”
That is strange, as I would havethought that the exact opposite was true.Deals have been concluded on Nord-Poolwhich made no economic sense at all, andon at least one occasion trading has had to
be suspended because the price structureof paper transactions was completely outof line with that displayed in the physicalmarket. In point of fact, the most exqui-site asset of Nord-Pool at the present timeis the bemusement and lack of sophistica-tion of its clientele.
Where deregulation and various com-mandments from the EU’s ‘Central Com-mittee’ are concerned, the situation hasdeteriorated to a point where these Nord-Pool patrons have joined many of their lessaffluent countrymen in displaying a re-markable ability to maintain their com-posure in the face of virtually any outrage.Just as they have accepted at face value thefairy tale that Sweden will gain economi-cally and socially from being a part of theEU, they also elect to believe the prepos-terous claim that very inexpensiveScandinavian electricity will be made evencheaper by deregulation.
Instead the likelihood is that Swedishindustry and households will face higherelectricity prices because of the limitedSwedish electric supply, a very large ‘Bal-tic Ring’ demand, and the inane bureau-cratic meddling from jet-setting EU offi-cials. In addition, some people in Swedenwill be taught a badly needed but unwel-come lesson in applied economics, particu-larly about trying to manage risk withderivatives instead of long-term contractsfor electricity.
The present contribution is unasham-edly rich in denial, but what I will notdispute is that beauty is in the eye of thebeholder. Several years ago, Hazel O’Leary— then the US Secretary of Energy —called the Pakistani energy policy “the bestenergy policy in the whole world”.
This was an expression of her sincerebelief that Pakistan’s independent powerproducers, with healthy loans from finan-cial institutions, the International Mon-etary Fund and World Bank, etc, wouldgive the Third World a demonstration ofthe beauty of privatized power in a com-petitive setting. Without going into de-tails, I can note that those of us who arefamiliar with the resulting botch — andthat includes many top executives from theentire international financial community— have come to the conclusion that it waspossibly the worst energy policy ever con-ceived or conceivable.
According to the former US Energy
‘Futures and
options are
and will
remain a
non-starter
as far as
electricity
and gas are
concerned.’
F O R U M
10 OPEC Bulletin
Secretary, Bill Richardson, “America is asuperpower, but it’s got the grid of a ThirdWorld nation.” (Wall Street Journal, May11, 2000). What he should have said wasthat the US had the grid of a superpowerbefore the onset of deregulation, since alarge part of the present deficiencies arethe result of a deregulation that has dis-torted the previous supply-demandequilibria (based, for example, on optimaldispatching), and in the process promotedthe kind of uncertainties that reducedinvestment in new capacity.
Everyone who has studied economicsat any level should find it easy to compre-hend that when electricity use increases by23 per cent since 1992, but capacity onlyrises by six per cent, then the crucial elec-tric reserve margin is in the danger zone,and entire geographical regions are vulner-able to disruptions caused by equipmentbreakdowns and human error.
As indicated by Gregory Palast (TheObserver, August 20, 2000) when Califor-nia’s state senate voted to introduce “themiracle of market competition to electric-ity, they wrote right into the law thatdomestic prices would fall by at least 20per cent.” Instead, on a number of occa-sions, the price spiked by several hundredper cent over that of the previous year, andthe legislator who sponsored the originalderegulation law joined a consumer boy-cott (that featured thousands of consum-ers refusing to pay their electric bills). Thiskind of price escalation has become com-monplace. In the UK, for example, sud-den increases in costs have led to the tem-porary closing of energy intensiveindustries, while in the US Midwest, it iseasy to detect occasions when the spotmarket electricity price doubled or tripled.
“The answer (to the California con-tretemps) is straight out of Econ 101: freemarkets improve reliability and lowerprices.” (Business Week, August 28, 2000.)This is certainly true much of the time,but I prefer to ignore that kind of enlight-enment when it comes to the presentsubject. In the courses that I have taughtall over the world in international finance,and in my forthcoming finance textbook,I have never hesitated to present myself asa devotee of the efficient markets hypoth-esis (EMH). Put simply (when consider-ing stocks, bonds, etc), individuals are notbigger than the market.
I have often had some reservationsabout this approach where non-financialassets are concerned, but it is useful toobserve what happened in Australia whenthe government sold off some electricassets: the market immediately wrote theseassets down to a tenth of their sales price.What happened was an unadorned appli-
cation of the EMH, although it might notbe explained in the Econ 101 textbook re-ferred to above.
The value of those electric assets wasbased on their efficient integration into acomprehensive electric supply network.When fragmented, economics and/ortechnical viability was reduced, perhapsdrastically, and so (ceteris paribus) themoney value of the assets had to decline.Of course, it might have been possible toavoid so drastic an outcome if, as in theUK, an electric power pool had been avail-able of the type that the deregulatory bodyOFGEM has labeled a playground forprice-fixing and collusion.
Some comments on this subject in theFinancial Times (August 22, 2000) are wellworth a raised eyebrow or two. Accordingto Amity Shlaes, the “power crisis” inCalifornia is the result of not giving pri-vate initiative sufficient elbow room. Iseem to remember Al Capone having thesame opinion about bootlegging. Shlaes
says that: “Worldly players such as Enronhave large derivatives departments, and arenimble traders in the secondary markets.”
I would never deny that Enron hasproved to be a brilliantly managed corpo-ration, but it will take more than brillianceor agility to make sure that its involvementwith futures and options stays out of deeptrouble — at least, as long as electricityremains the ultimate perishable commod-ity, in that sizable quantities of it cannotbe stored for a millisecond. As a result, itfeatures a potential for highly volatile pricemovements that are reinforced by theilliquidity that can suddenly appear in anymarket for derivatives.
“People get burned on a daily basis,”an observer noted of the Australian mar-ket, by which he meant that anyone seek-ing price insurance via derivatives tradingcould be faced by terrifying margin callsand option premiums. But even so, for allits difficulties, this market is being toutedas a model for Asian countries that are con-sidering the adoption of a ‘pro-competi-tive’ electric sector. Even the Philippines— over-populated and, outside of certainenclaves, desperately poor — has beendeclared a beautiful candidate for reform.
Needless to say, a follow-Australia syn-drome would be more appetizing rightnow than one having to do with imitatingCalifornia, although it reduces to the samething. Electricity prices in Australia havevibrated between zero and several thou-sand dollars per megawatt hour, and theonly explanation is deregulation.
In The Economist (October 7–13,2000) there was a short discussion of thecandidates for the Nobel prize in econom-ics. One of the highlights of this curiouslypretentious essay was a tale about howProfessor Gary Becker (of the Universityof Chicago) received the prize only after“a flood of nominations forced the Stock-holm cabal to act.”
Gary Becker’s politics and that of theStockholm “cabal” were perfectly in har-mony: he was therefore a certainty for theprize. As for his work, it deals with thingslike the economics of marriage, consum-ing and ‘swinging’ drugs, education, etc,and he has published extensively on thesetopics. His work on drugs and the othersubjects mentioned above is a dismal jokeperpetrated on those of us who teach the‘dismal science’.
‘Electricity
remains the
ultimate
perishable
commodity,
since it cannot
be stored.’
March 2001 11
F O R U M
I can also reveal that The Economist’sexperts have concluded that ProfessorsGeorge Akerlof and Michael Spenceshould be leading candidates for the prizenext year. I have held professorships andresearch positions all over the world, andconsider myself an outstanding teacher ofeconomics and finance, but the only workby Akerlof with which I am familiar hasto do with buying used automobiles —some of which he has decided to call‘lemons’. As for Spence, I seem to remem-ber being told many years ago that hehas something to teach me, but even so Ican hardly conceive of a situation in whichI would be interested in finding out whatit is.
Now for the physics and engineering.Suppose that I heard that the Martians hadlanded at Åre or Riksgränsen, and weresnowboarding down slopes reserved forskiing. Although I would not willinglyturn to the excruciatingly irrelevant workof the above mentioned economists forcounsel, I might be tempted to examineonce again (US) Department of the ArmyField Manual FM 6-40 (Field ArtilleryGunnery) because I know that diligentapplication of the physics (ie, ballistics) inthat volume is precisely what is needed toconvince these undesirables from outerspace to go back to where they came from— or at least to pay Courchevel orKitzbühl a visit.
The approach (or logic) being usedabove can be applied to the theoretical andempirical economics pertaining to theelectric market, and in particular the elec-tric contract market. The main fault I findwith these materials is that they are dis-tracting. It is distracting, as well as frus-trating, to spend hours or months pour-ing over highly mathematical articles andend up with less than nothing; and I per-sonally consider it demeaning to be en-gaged in consuming or producing thatkind of work. It also needs to be made clearthat no successful economic model of anyfinancial market, anywhere in the world,has ever been constructed, nor should itbe expected that one can be constructedof a complete electric product or papermarket. It may, however, be possible toconstruct ‘partial’ models in which someaspects of these markets can be success-fully studied.
The theoretical key to a successful
deregulation of both the electricity and gasmarket is the opportunity for ‘arbitrage’— buying cheap in one market (or region)and selling dear in another.
Even economists without a back-ground in electrical circuit analysis mustconsider this extremely simple, especiallywhen they observe extensive inter-regional
electric grids; but anyone who is suffi-ciently interested in this topic to carefullyexamine Thomas Overbye’s paper, shouldcome to understand that this is not thecase. Electricity is different, and differentin the sort of way that prevents the for-mulation of the elementary arbitrage rulesthat we employ in the economics class-room!
California dreaming?Overbye notes that states like Califor-
nia with a strong environmental move-ment, high electric rates and plentiful al-ternative sources of power, “have been thefirst to jump on the bandwagon.” It is thiseagerness which explains blackouts,brownouts, large rises in electric prices, andthe huge debt now facing some utilities inthat state. Equally spectacular, but lessnoticed, the lights went out in the centreof Auckland (New Zealand) in the mid-dle of 1998, and stayed out for a month.Perhaps it is a coincidence, but the last time
I taught in Australia, I heard the NewZealand deregulation agenda described asthe most thorough in the world.
These two debacles are worth ponder-ing, because it may only be a matter oftime until this kind of event happens re-peatedly in the larger urban areas of manyThird World countries, and for that mat-ter anywhere that utility managers face thesort of co-ordination problems that beginby having to match supply to a growingdemand while keeping standby capacityat a minimum. As for environmentalists,they often construe deregulation as a blowagainst what they call ‘monopoly’, and sowe find, for example, Stephen Littlechildand Amory Lovins in the same bag. Thisis what the French call a mésalliance.
Most proponents of deregulation havestarted to harp about full reform insteadof what they interpret as the half-waynature of present arrangements. The nexttime you hear this, tell them to examinewhat full reform meant for German utili-ties, and what it will mean in the futureif the French continue to expand theirnuclear sector.
My strong objections to deregulationare related to the increasing amounts thatI pay for electricity. I am somewhat lessconcerned with the attempt by variouswell-connected economists to revoke someof the fundamental principles of main-stream economics. As P Jasinski and GYarrow of the Regulatory Policy Centre(Oxford University) observe “Electricity isan industry unlikely ever to be character-ized by anything approximating perfectcompetition.”
References
Banks, Ferdinand E, (2001): ‘Global Fi-nance and Financial Markets’, World Pub-lishing Company: London, New York, andSingapore.
— (2000): ‘Energy Economics: A ModernIntroduction’, Kluwer Academic Publishing:Boston, Dordrecht, and London.
Overbye, Thomas J, (2000): ‘Re-engineer-ing the Electric Grid’, American Scientist,May-June.
‘Electricity
is different in
a way that
prevents the
formulation of
elementary
arbitrage rules.’
12 OPEC Bulletin
C O N F E R E N C E N O T E S
No 3/2001Vienna, Austria, March 16, 2001
Opening address to the114th Meeting of the OPEC
Conferenceby
HE Dr Chakib Khelil,President of the Conference andMinister of Energy and Mines,
Algeria
114th OPEC Conferenceagrees to cut production by
one million barrels/day
Welcome to the 114th Meeting of the OPECConference. Since we last met in January,there has been one change among the Headsof Delegation, with HE Dr Adel K Al-Sabeeh replacing HE Sheikh Saud NasserAl-Sabah as Minister of Oil for Kuwait. Letus, therefore, welcome HE Dr Al-Sabeeh tothe OPEC Conference and say how muchwe look forward to his participation in ourdiscussions. At the same time, I should liketo express our gratitude to HE Sheikh Al-
Sabah and to wish him every success in thefuture.
I should also like to greet the high-rank-ing officials who are attending this Meetingas official observers, on behalf of the follow-ing countries: Angola, Kazakhstan, Mexico,Oman and Russia. Their presence hereunderlines the depth of their commitmentto co-operate with OPEC and other like-minded oil-producing nations, in order toensure reliable, low-cost oil supply to the
Algeria’s Minister of Energy & Mines and President of the Conference, HE Dr Chakib Khelil (centre), flanked by OPEC Secretary General,HE Dr Alí Rodríguez Araque (right) and the Chairman of the Board of Governors, HE Abdulla H Salatt of Qatar (left), pictured as theConference is about to get under way.
C O N F E R E N C E N O T E S
March 2001 13
market, achieve stable oilprices on a sustainable basisand maintain an open, fruit-ful dialogue with our clients.Excellencies, we are privi-leged to have you hereamong us and we appreciateyour effective participation instabilising oil prices. Wel-come to our Conference. Iam sure that, while we arehere, we shall have many op-portunities to exchangeviews on matters of concernto all of us in the market.
Today’s Meeting is thefirst regular one we have heldsince the 40th anniversary ofour Organization in Septem-ber. The two intervening Ex-traordinary Meetings, whichtook place in November andJanuary, were called with thespecific purpose of reviewingOPEC’s production agree-ment in the light of the pre-vailing market conditions.Both Meetings were success-ful in this regard. Not only
did they underline their ef-fectiveness in achieving thedesired price stability in themarket, but, of equal impor-tance, they did this in a vis-ible and credible manner. Inother words, they sent a clearmessage to the market thatOPEC was monitoring thesituation carefully and pro-fessionally, that it was alwaysmindful of the need to en-sure that demand was fullymet and that it was preparedto take precautionary meas-ures, whenever necessary, tohelp restore order and stabil-ity to the market. Such ameasure was, indeed, takenon January 17, when ourConference agreed to adjustthe Organization’s overallproduction level by 1.5 mil-lion barrels per day, with ef-fect from February 1.
Since the January Meet-ing, prices have weakened,but nevertheless remainedwithin the range of $22–$28 per barrel for OPEC’sspot Reference Basket ofseven crudes. This demon-strates the effectiveness of theOrganization in achievingprice stability. Put simply,this price range allows themarket to breathe, by accom-modating reasonable fluc-tuations in supply and de-mand, at the same time askeeping prices within limitswhich have already foundmuch acceptance from thekey players of the industry.Despite this — and meas-ured in year 2000 US dol-lars — the price of oil todayis about 40 per cent of itsaverage trend level of 20years ago.
At today’s meeting, weshall be reviewing the oilmarket outlook, to determinewhether adjustments are re-quired to OPEC’s produc-tion agreement. Seasonal fac-tors will obviously play a part
Top: The United ArabEmirates’ Minister of
Petroleum and MineralResources, HE Obaid bin
Saif Al-Nasseri (right),discusses a point with Saudi
Arabia’s Minister ofPetroleum and Mineral
Resources, HE Ali I Naimi(left).
Centre: The Iranian andIraqi Ministers, HE Bijan
Namdar Zangeneh (left)and HE Dr Amer Moham-med Rasheed (right) deep in
conversation.
Bottom: Iraq’s OPECGovernor, Dr Mussab H Al-
Dujayli (left) is picturedhere with the Director of
OPEC’s Research Division,Dr Shokri Ghanem.
C O N F E R E N C E N O T E S
14 OPEC Bulletin
look upon our recentachievements.
With the 40th anniversarycelebrations now behind us,OPEC can reflect upon agood start to the 21st century.We held a successful SecondSummit of OPEC Heads ofState and Government inCaracas in September; there,our Member Countries reaf-firmed their commitment tothe guiding principles of ourOrganization, as well as tak-ing an in-depth look at thelikely path the industry willfollow in the years ahead.Two months later, in Riyadh,the producer-consumer dia-logue received a boost, withthe level of participation byindustrialised countriesreaching new heights at theSeventh International En-ergy Forum. This fitted inwell with the steady rise inOPEC/non-OPEC co-op-eration that has become ap-parent in recent years, withthe resultant joint actionenabling us to effectivelytackle the series of oil priceissues that began in the late1990s. Then there has beenthe successful introductionof the oil price range, towhich I referred earlier. Andfinally, there has been the re-alisation by the general pub-lic in many consuming cli-ent countries that the blamefor high petrol prices shouldnot lie with OPEC, but in-stead with their own govern-ments for imposing excessivelevels of taxation. Onceagain, we call upon thesegovernments to rethink theirdistortionary fiscal policies,insofar as they unfairly affectoil product prices for theircitizens; at the very least,they could stop apportion-ing blame to OPEC for highprices, when their tax sys-tems allow levels of revenuethat are four times as high as
Top: OPEC Secretary General, HE Dr Alí Rodríguez
Araque (left) welcomes theHead of the Delegation of
Kazakhstan, HE Dr Sagynbek T Tursynov (right). Looking
on (centre) is the Head ofOPEC’s PR & Information
Department, Farouk UMuhammed, mni.
Centre: Algeria’s Minister ofEnergy & Mines and
President of the Conference,HE Dr Chakib Khelil (left),
chats to the Head of theAngolan Delegation, HE
Desidério da GraçaVerissimo e Costa (right).
Bottom: Saudi Arabia’sMinister of Petroleum and
Mineral Resources, HE Ali INaimi (left) makes a pointto the Russian Federation’s
Deputy Fuel & EnergyMinister, HE Alexei B Miller
(second right).
in this, as will the global eco-nomic prospects. There isalso the need to ensure thatstable low-cost oil suppliesfrom OPEC will continuetoday to contribute posi-tively to sound economicgrowth in consuming coun-tries and the world at large— just as they have done inthe past. After all, economicgrowth in the short term isdriven by consumer confi-dence and OPEC aims to re-inforce this confidence byensuring stable prices.
At gatherings like this,there is too often the ten-dency to become excessivelyfocused on topical issues ofparticular concern to us.Sometimes, however, it canbe beneficial to all of us if wejust pause for a moment and
C O N F E R E N C E N O T E S
March 2001 15
the revenue received by ourMember Countries.
The positive achieve-ments of solidarity and co-operation during the firstyear of the new century haveset us off in the right direc-tion for meeting the newchallenges that lie before us.OPEC’s forecasts show theworld oil requirement risingby just over a third in thefirst two decades of this cen-tury; the process of ensuringthat the oil needs of our cli-ent countries are metthroughout this period con-cerns all of us in the industrytoday. We must strengthenthe industry’s capacity toreadily accommodate the in-cremental rises in demand asthey occur in the years ahead.While OPEC has a special re-sponsibility for this, becauseof its strong, competitive re-serve base, all parties in theindustry should be involved— OPEC and non-OPEC,producers, consumers and in-vestors. Non-OPEC pro-ducers, for their part, have aspecial responsibility in help-ing OPEC achieve stable oilprices. Without their co-op-eration, a repeat of the 1998oil price collapse remains alikely outcome, with disas-trous consequences for allconcerned: here again, I re-peat, for producers, consum-ers and investors. Onlythrough co-operation withall partners can we ensurethat the huge investmentthat is required will indeedbe in place in a timely man-ner.
Moreover, in meetingsuch a formidable challenge,we must acknowledge thatwe are operating in a rapidlyevolving geopolitical land-scape, in an era of globali-sation and the informationtechnology revolution, andin the face of a possible det-
Top: Algeria’s Minister ofEnergy & Mines andPresident of the Conference,HE Dr Chakib Khelil(right), in conversationwith Kuwait’s Minister ofOil, HE Dr Adel K Al-Sabeeh (centre), andAmbassador to Austria, HENabeela Abdulla Al-Mulla(left).
Centre: OPEC SecretaryGeneral, HE Dr AlíRodríguez Araque (right)welcomes Libya’s Chairmanof the National OilCorporation, HE AhmedAbdulkarim Ahmed.
Bottom: The NigerianDelegation was headed byPresidential Advisor onPetroleum and Energy, HEDr Rilwanu Lukman (left),and included Ambassador toAustria HE AbdulkadirBin Rimdap (centre) andECB Representative,Mohammed S Barkindo(right).
rimental impact on oil pro-ducers of the climate changenegotiations and world tradetalks. The challenge thereforerequires us to be even morevigilant than usual, if we areto successfully identify andreact to the new situations,as they manifest themselvesin the months and yearsahead.
As in the past, OPEC iscommitted to rising to thischallenge. But we can onlydo this to maximum benefitif our efforts are accompaniedby the willing participationand effectiveness of all par-ties in the industry, in a spiritof solidarity, co-operation,dialogue, trust and transpar-ency.
Thank you for your at-tention.
C O N F E R E N C E N O T E S
16 OPEC Bulletin
No 4/2001Vienna, March 17, 2001
114th Meeting of theOPEC Conference
The 114th Meeting of the Conference ofthe Organization of the Petroleum Export-ing Countries (OPEC) convened in Vienna,Austria, on March 16 and 17, 2001, underthe Chairmanship of its President, HE DrChakib Khelil, Minister of Energy & Minesof Algeria and Head of its Delegation.
The Conference expressed its pleasureat the presence of high-level representativesfrom Angola, the Republic of Kazakhstan,Mexico, the Sultanate of Oman, the Rus-sian Federation, and fellow oil-producingcountries, whose strong support for a re-duction in production is welcomed by theOrganization. The Conference also reiter-
ated its call on other non-OPEC producersto co-operate in efforts to stabilize the mar-ket through an appropriate adjustment inproduction.
The Conference reviewed the SecretaryGeneral’s report, the report of the EconomicCommission Board, the report of the Min-isterial Monitoring Sub-Committee(MMSC), and various administrative mat-ters.
The present weaker world economy andthe traditional sharp downturn in demandassociated with the second quarter bothclearly point to the need for a correction inoil supply, and the Conference has takenthe decision to stabilize the oil market.
Having reviewed the current marketsituation, the Conference agreed to reduceproduction by one million barrels per day,with effect from April 1, 2001, making in-dividual Member Country output levels asfollows (in barrels per day):
Member Countries strongly emphasizedtheir firm commitment to the agreement andeach stressed its commitment to continue tomaintain full compliance. The Conferenceagreed that market conditions should con-tinue to be closely monitored and that,should prices remain persistently outside ac-
Venezuela’s Minister of Energy and Mines, HE Alvaro Silva Calderon (second left) explains a point to (next to him) OPEC Secretary General,HE Dr Alí Rodríguez Araque, watched by Venezuela’s OPEC Governor, Edgar Rodriguez (right) and Economic Commission Board Representa-tive, Dr Gloria Mirt (left).
C O N F E R E N C E N O T E S
March 2001 17
ceptable levels, immediate action to sta-bilize the oil market will be taken. TheConference further decided to hold anExtraordinary Meeting of the Confer-ence on June 5 and 6, 2001, in Vienna,Austria, in order to review the situation.
The Conference expressed its ap-preciation to the Government of theFederal Republic of Austria and theauthorities of the City of Vienna fortheir warm hospitality and the excel-lent arrangements made for the Meet-ing.
The Conference passed Resolutionsthat will be published on April 17,2001, after ratification by MemberCountries.
The next Ordinary Meeting of theConference will be convened in Vienna,Austria, on Wednesday, September 26,2001.
Top: The Head of the MexicanDelegation, HE Ing Juan AntonioBargés (seated, second right) addressesthe Conference, with (seated to his left)the other Mexican delegates, Dr LourdesMelgar and Pablo Espresate, and(right) Oman’s Ambassador to Austria,HE Salim Mohammed Al Riyami.
Centre: Qatar’s Minister of Energy andIndustry, HE Abdullah bin Hamad AlAttiyah, is surrounded by reporters.
Bottom: Indonesia’s Minister of Energyand Mineral Resources, HE DrPurnomo Yusgiantoro (seated centre)answers journalists’ questions. Nearestthe camera is Indonesia’s Ambassador toAustria, HE Rhousdy Soeriaatmadja.
C O N F E R E N C E N O T E S
18 OPEC Bulletin
Left: HE Dr Khelil (second left) answers a ques-tion at the press conference. He is flanked byHE Dr Rodríguez Araque (second right), MrMuhammed (right) and OPEC News AgencyEditor, Fernando J Garay (left).
Below: The press room was, as ever, packed withjournalists.
Below: Gathered for the traditional groupphoto are (l-r) HE Abdulla H Salatt, HEAlvaro Silva Calderon, HE Bijan NamdarZangeneh, HE Dr Amer Mohammed Rasheed,HE Dr Chakib Khelil, HE Dr PurnomoYusgiantoro, HE Dr Rilwanu Lukman, HEAli I Naimi, HE Obaid bin Saif Al-Nasseri,HE Dr Adel K Al-Sabeeh, HE Abdullah binHamad Al Attiyah, HE Ahmed AbdulkarimAhmed and HE Dr Alí Rodríguez Araque.
March 2001 19
P R E S S R E L E A S E
Press Release No 5/2001Vienna, March 30, 2001
The recent statement by UnitedStates President George W Bushquestioning the viability of theKyoto Protocol is seen by theOPEC Secretary General, DrAlí Rodríguez-Araque, as an in-dication of the need to see theissue from a broader perspec-tive.
“Although the concern we allshare for the environment andworries about global warminghave a firm grounding, some-times realities are stronger thanour goodwill,” said Rodríguez.
“The rigid, mechanical ap-plication of policies that may be
OPEC Secretary Generalurges broader perspective
on global warming
fair, on many occasions couldcollide with reality, making suchpolicies unfeasible the way theywere designed.
“For instance, in the case ofOPEC, if the Kyoto Protocolcommitments were applied asestablished, they would meanlosses of up to $63 billion peryear for the Organization’s Mem-ber Countries.
“Losses on such a large scalewould clearly be unsustainablefor the economies of OPECMember Countries and other oil-producing nations,” he said.
For the OPEC Secretary Gen-eral, President Bush’s assertionthat it is necessary “to find newways of thinking about green-
house gases”, comes in responseto the economic damage thatthe implementation of the KyotoProtocol could bring, not onlyto oil exporters but to the worldeconomy at large.
“It thus shares the essence ofOPEC’s concern on the issue,”he noted.
Nonetheless, Dr Rodríguezpointed out that the UnitedStates, with four per cent of theworld’s population, is the larg-est polluter in the world, bothin absolute and per capita terms.
He said it was generallyrecognized that the US ac-counted for approximately 25per cent of global greenhouse gasemissions.
20 OPEC Bulletin
S E C R E T A R I A T N O T E S
OPEC Secretary Generalpays courtesy call on Austrian
PresidentHE Dr Thomas Klestil
As part of the process of familiarizing themselves with their new surroundings,it is traditional for senior diplomats posted abroad to make courtesy calls
on senior government officials of their host country.Thus, on March 1, 2001, the OPEC Secretary General, HE Dr Alí Rodríguez
Araque, who took up his post at the start of January this year, paid a courtesy callon the President of the Federal Republic of Austria, HE Dr Thomas Klestil,
at the Hofburg in Vienna.Prior to his meeting with the Austrian President, Dr Rodríguez
had already met with other senior members of the Austrian Government.
Right: HE Dr Klestil (left) and HE DrRodríguez share a lighter moment.
Above: OPEC Secretary General, HE Dr AlíRodríguez Araque (left) in discussions with theAustrian President, HE Dr Thomas Klestil.
S E C R E T A R I A T N O T E S
March 2001 21
OPEC Meetings
The 31st Meeting of the Ministerial Monitor-ing Sub-Committee was held at the OPECSecretariat, Vienna, Austria, on January 17,2001.
The 113th (Extraordinary) Meeting of theConference was held at the OPEC Secretariat,Vienna, Austria, on January 17, 2001.
The 102nd Meeting of the Board of Governorswas held at the OPEC Secretariat, Vienna,Austria, on February 12–14, 2001.
The 95th Meeting of the Economic Commis-sion Board (ECB), was held at the OPECSecretariat on March 12–13, 2001.
The 32nd Meeting of the Ministerial Moni-toring Sub-Committee was held at the OPECSecretariat on March 15, 2001.
The 114th Meeting of the Conference was heldat the OPEC Secretariat, Vienna, Austria,on March 16–17, 2001.
Secretary General’s diary
The Annual Meeting 2001 of the WorldEconomic Forum was held in Davos, Swit-zerland, January 28–30, 2001.
A luncheon address was presented at the IPWeek 2001, London, UK, February 19–22, 2001.
An official visit was paid to India, and wasorganized by the Indian Ministry of Oil &Natural Gas, New Delhi, India, March 19–22, 2001.
Secretariat missions
A seminar on I Costi Dell’Energia (The Costof Energy) was held at the University ofPisa, Pisa, Italy, January 22, 2001.
A lecture was presented to the EngineeringSociety of Denmark (IDA), Oil and GasGroup, Fredriksberg, Denmark, January22–23, 2001.
January–MarchTraining courses on An Introduction toFutures and Energy Futures Workshop wereorganized by the International PetroleumExchange, London, UK, on January 23–26, 2001.
The IPI World Congress and the 50th GeneralAssembly were organized by the InternationalPress Institute, and held in New Delhi,India, January 26–29, 2001.
The International Gas Economics Seminarwas organized by ENSPM/IFP, and held inParis, France, February 13–16, 2001.
A Meeting on Energy Modelling forPolicymakers was organized by the Interna-tional Energy Agency, and held in Paris,France, March 1–2, 2001.
A High-level Meeting on Energy for the Prepa-ration of the Regional Round Table on Energyat the United Nations LDC-III, was organ-ized by UNIDO, and held in Vienna,Austria, March 14–16, 2001.
A training course on Managing HumanResources was organized by the ManagementCenter Europe, and held in Istanbul, Tur-key, March 19–23, 2001.
The Russian Oil & Gas Summit and theCaspian Oil & Gas Summit were organizedby The Energy Exchange, and held inLondon, UK, March 20–21 & 22–23,2001.
A visit to UNCTAD was arranged, and tookplace in Geneva, Switzerland, March 22–23, 2001.
A training course on Economics of the OilSupply Chain was organized by the Insti-tute of Petroleum, and held in Cambridge,UK, March 26–30, 2001.
Forthcoming OPEC Meetings
The 103rd (Extraordinary) Meeting of theBoard of Governors will be held at the OPECSecretariat, Vienna, Austria, on May 3,2001.
A Brainstorming Session on OPEC PublicRelations will be held at the OPEC Secre-tariat, Vienna, Austria, on May 4–5, 2001.
The 33rd Meeting of the Meeting of theMinisterial Monitoring Sub-Committee(MMSC) will be held at the OPEC Secre-tariat, Vienna, Austria, on June 4, 2001.
The 115th (Extraordinary) Meeting ofthe Conference will be held at the OPEC Sec-retariat, Vienna, Austria, on June 5–6,2001.
The 104th Meeting of the Board of Governorswill be held at the OPEC Secretariat, Vi-enna, Austria, on August 28, 2001.
The 96th Meeting of the Economic Commis-sion Board (ECB), will be held at the OPECSecretariat on September 17, 2001.
The 34th Meeting of the Ministerial Moni-toring Sub-Committee (MMSC) will be heldat the OPEC Secretariat, Vienna, Austria,on September 25, 2001.
The 116th Meeting of the Conference will beheld at the OPEC Secretariat, Vienna,Austria, on September 26, 2001.
The OPEC Anniverary Seminar onOPEC and the Global Energy Balance: To-wards a Sustainable Energy Future, will beheld in Vienna, Austria, on September 28–29, 2001. Details can be obtained from:CWC Associates Ltd, ElizabethMcLaughlin, The Business Design Centre,52 Upper Street, London N1 0QH, UK.Tel: +44 (0)20 7704 0308; fax: +44 (0)207704 8440; e-mail: [email protected]; Web site: www.thecwcgroup.com.
The 3rd (Annual) Multi-Disciplinary Train-ing Course for Member Countries’ Trainees willbe held at the OPEC Secretariat, Vienna,Austria, in October 2001.
The 3rd Informal Brainstorming Session willbe held at the OPEC Secretariat, Vienna,Austria, in November 2001.
22 OPEC Bulletin
For an in-depth lookat the oil marketand related issues
the OPEC Reviewcontains research papersby experts from across
the world
Now in its 25th annual volume, the
OPEC Review is published quarterly.Its content covers the international oil
People wishing to submit a paper forpublication should contact the Editor-in-Chief of the OPEC Review, Farouk UMuhammed, at the Public Relations andInformation Department, OPEC Secre-tariat, Obere Donaustrasse 93, A-1020Vienna, Austria.
“The principal objective of the OPEC Review is tobroaden awareness of (energy and related) issues,enhancing scholarship in universities, researchinstitutes and other centres of learning”
Recent issuesDecember 2000
Global energy outlook: an oil price sce-nario analysis — Shokri Ghanem, RezkiLounnas and Garry BrennandThe hybrid permit cum price ceiling policyproposal: intuition from the prices versusquantities literature — Gary W YoheWorld oil reserves: problems in definitionand estimation — Ghazi M HaiderA vector autoregressive analysis of an oil-dependent emerging economy — Nigeria— O Felix Ayadi, Amitava Chatterjee andC Pat ObiThe closure of European nuclear powerplants: a commercial opportunity for thegas-producing countries — Jean-PierrePauwels and Carine Swartenbroekx
September 2000Energy taxes and wages in a general equilib-rium model of production — HenryThompsonResource windfalls: how to use them —Rögnvaldur HannessonEnergy consumption in the Islamic Republicof Iran — A M Samsam Bakhtiari and FShahbudaghlouOil and non-oil sectors in the Saudi Arabianeconomy — Masudul A Choudhury andMohammed A Al-Sahlawi
June 2000The case for conserving oil resources: thefundamentals of supply and demand — Doug-las B ReynoldsVicissitudes in the Hong Kong oil market,1980–97 — Larry Chuen-ho ChowEconomic theory and nuclear energy —Ferdinand E BanksThe economic cost of low domestic productprices in OPEC Member Countries — NadirGürer and Jan Ban
March 2000Energy and interfactor substitution in Tur-key— Carol Dahl and Meftun ErdoganDomestic demand for petroleum in OPECcountries — Ujjayant Chakravorty, FereidunFesharaki and Shuoying ZhouCyclical asymmetry in energy consumptionand intensity: the Japanese experience —Imad A Moosa
Before demand-side management is dis-carded, let’s see what pieces should be kept— Clark W Gellings
December 1999Energy in the Caspian Sea region in the late1990s: the end of the boom? — Christianvon Hirschhausen and Hella EngererHousehold energy demand in Kuwait: anintegrated two-level approach — M NagyEltony and Mohammad HajeehThe economics of the Nigerian liquefiednatural gas project — M Eghre-Ohgeneand O OmoleIncome determination in the GCC memberstates — Richard G Zind
September 1999The Caspian Sea geopolitical game: prospectsfor the new millennium — Gawdad BahgatAn analysis of Libya’s revenue per barrelfrom crude oil upstream activities, 1961–93— Mustafa Bakar Mahmud and Alex RussellEnergy use and productivity performancein the Nigerian manufacturing sector(1970–90) — Adeola F Adenikinju andOlumuyiwa B AlabaBasis risk: an expository note — FerdinandE Banks
June 1999The impact of emissions trading on OPEC— Shokri Ghanem, Rezki Lounnas andGarry BrennandTechnology, oil reserve depletion and themyth of the reserves-to-production ratio— Mamdouh G SalamehDoes devaluation improve the trade bal-ance of Iraq? — T M ZaidanWagner’s law and public expendituregrowth in Kuwait — Nadeem A Burneyand Nadia Al-MussallamThe economic cost of oil or gas production:a generalised methodology — Thomas Stauffer
March 1999The price of crude oil — A M SamsamBakhtiariElectricity demand by the commercial sec-tor in Kuwait: an econometric analysis —M Nagy Eltony and Mohammad HajeehThe oil and gas links between Central Asiaand China: a geopolitical perspective —Xiaojie XuThe development and acquisition of oillicences and leases in Nigeria — LawrenceAtsegbua
Estimating oil product demand inIndonesia using a cointegrating error
correction model
The gas dimension in the Iraqi oilindustry
The Russian coal industry in transition:a linear programming application
The future of gaseous fuels in HongKong
Carol Dahl and Kurtubi
Thamir Abbas Ghadhbanand Saadallah Al-Fathi
Bo Jonsson andPatrik Söderholm
Larry Chuen-ho Chow
N E W S L I N E
March 2001 23
N E W S L I N E f r o m t h e O P E C N A N e w s D e s k
Tehran — Iran’s oil production capabil-ity is expected to receive a significant boostwhen a three-year project to develop threeoil fields in the region is completed, ac-cording to a report in the daily Iran news-paper last month.
The paper quoted the head of theLavan region, Mahmoud Farman-Ara, assaying that the total production capacityof the three fields — Salman, Resalat andBalal — could add as much as 240,000barrels/day to the country’s current out-put potential.
The development of the Salman field,with a initial projected capacity of 80,000b/d, had been awarded to the Iraniancompany, PetroIran, under an $800 mil-lion buy-back deal.
The total production capacity of thefield was now expected to reach 130,000b/d after the execution of the plan,Farman-Ara said, adding that some 500mcu ft of gas would also be extracted.
The gas taken from the field would betransferred to the port of Assaluyehthrough a 240-km pipeline, which wascurrently under construction.
Additional crude outputFarman-Ara also noted that around
70,000 b/d of oil would be produced atthe Resalat and Reshadat fields, up from10,000 b/d currently, once they weredeveloped under other projects.
In addition, once the offshore Balal oilfield, currently being developed by theFrench giant TotalFinaElf under a buy-back deal, started operating, another40,000 b/d of crude would be produced.
In a related development, Italy’s ENIwas reported to be buying a 38.25 per centstake in the Balal oil field project fromTotalFinaElf.
A TotalFinaElf official in Paris wasquoted by the Middle East Economic Di-gest as saying that the French company waslooking to reduce its original 85 per centstake in the field because it was too high.The 15 per cent stake held by Canada’sBow Valley Energy is unaffected.
The Balal project, estimated to be
Iran’s oil production capacityto get significant boost as three new fields
come onstream over next few yearsworth $300m, was originally awarded inearly 1999, but has been delayed by adispute over the costs of rehabilitating aderelict 98-km pipeline from the field tofacilities on Lavan island.
The dispute has since been resolvedand the work was now on schedule, saidTotalFinaElf. The first development wellwould start to be drilled soon.
The Anglo-Norwegian firm, Kvaerner,has the detailed engineering contract. Theplatforms and other facilities are beingbuilt by a local firm in partnership withSembawang of Singapore.
Buy-back projectsIt is understood that ENI, which is
already working with TotalFinaElf on theDorood offshore field, will be entitled to9,000 b/d of Balal’s 40,000 b/d outputunder the buy-back formula.
In a separate development last month,Canada’s Tracer Petroleum announced thatit has been invited by a major Iranianbonyad, or foundation, to participate in alarge offshore oil field appraisal and de-velopment project.
Due to the limitations of a confiden-tiality agreement signed between the com-pany and the bonyad, Tracer said it wasunable to release the name of the field atthis time.
It said its technical staff and consult-ants had completed their due diligence onthe technical information of the projectthat was made available to them.
The firm had come to a positive con-clusion to pursue the appraisal and devel-opment of the field in a joint venture withthe bonyad.
The company described the scheme asa potentially very significant project withminimum estimated recoverable reservesof 400m barrels and production potentialof over 100,000 b/d.
It had commenced discussions with anumber of potential partners from withinthe oil industry to join it in the project.
Tracer said it was also in talks with pos-sible sources of project financing and otherforms of debt financing for the scheme.
Construction ofWest African gas pipelinedue to begin in 2002
Abuja — Construction work on theplanned West African gas pipeline is nowscheduled to begin in 2002 and not thisyear, according to a source at the secre-tariat of the Economic Community ofWest African States (Ecowas).
The project will enable Nigeria to sellgas currently being flared at its oil fieldsto its neighbours — Benin, Togo andGhana — to power their electricity plantsand industries.
The Ecowas source said that althoughthe project was originally scheduled forcompletion next year, the environmentalimpact assessment was yet to be completedand would not likely be ready in time forwork to begin this year.
“Taking into account the timetable forthe environmental impact assessment, itis anticipated that 2002 is now a morelikely date for the start of construction,after completion of detailed engineering,as well as meeting environmental require-ments,” the source said.
The consultation process would becompleted to the satisfaction of commu-nities through which the pipeline wouldrun before construction would begin, headded.
Public education programmeAn active programme on public
education on the project had beenlaunched, while a programme for exten-sive stake-holder consultation had beendrawn up.
In March last year, some non-govern-mental environmental organizations andcommunities in Ghana, Nigeria and Togorejected the proposed plan.
They alleged that Chevron and Shell,the two firms due to carry out the project,had not been operating in an environmen-tally friendly manner in the past.
Phase one of the project was originallyslated to export about 50 million cubicfeet/day of gas to Benin, Togo and Ghanaby the year 2002.
The amount is expected to increase toabout 160m cu ft/d of gas by the year2018.
N E W S L I N E
24 OPEC Bulletin
Al-Thani, was quoted as saying by the localGulf Times newspaper.
Stiff competition from Russian gas andcheaper LNG imports from the Mediterra-nean have so far kept Qatar, with theworld’s third-largest gas reserves, on thesidelines in Europe.
In the early 1990s, Qatar was involvedin an LNG project with Italy’s Snamprogetti,but the scheme collapsed in 1994 after thetwo sides failed to reach a price deal.However, the tide now looked set to turn,the paper reported.
“The Italian deal will pave the way forus to penetrate the European gas market,”Al-Ibrahim said, adding that Qatar wasalso working with Spain to lock in amedium-term deal for about 2m tonnes/year of LNG.
Spain imported around 2m t/y ofQatari LNG on short-term contracts dur-ing 1999-2000. Qatar was negotiatinganother deal for five to six years, Al-Ibrahim noted.
“Our innovative pricing formula andflexible contract terms have helped us winnew markets. Backed by our enormousreserves, we do not want prices to be toohigh, or too low,” he said.
Qatar is aiming to export 30m t/y ofgas by 2007 and derive more than half ofits revenue from LNG sales, instead of crudeoil. Currently, its two major LNG projects,QatarGas and RasGas, export around 12mt/y of gas.
Saudis discuss investmentin natural gas sectorwith several oil majorsRiyadh — Saudi Arabia has held a newround of negotiations with the interna-tional oil majors that it has invited to investin the Kingdom’s gas sector, reported theofficial Saudi Press Agency (SPA) lastmonth.
The plan could eventually attract morethan $100 billion in foreign investmentfrom the majors, according to Saudi esti-mates.
SPA said that the team in charge ofconducting the negotiations with foreignfirms was headed by the Foreign Minister,Prince Saud Al Faisal, and included theMinister of Petroleum & Mineral Re-
sources, Ali I Naimi. They held talks withoil giants ExxonMobil, BP Amoco, Chev-ron and Royal Dutch/Shell.
‘‘The meeting was positive and fruit-ful and came at an important phase in thenegotiations which aimed to assess theprogress made and to discuss the nextsteps,’’ Prince Saud said.
“The Kingdom aims to start signingmemorandums of understanding with thecompanies selected in the month of April,’’he added.
Prince Saud stressed that the Kingdomwas seeking to attract major and urgentinvestments to enhance economic infra-structure, improve growth levels, providenew employment and training opportu-nities for citizens and attractive opportu-nities to employ Saudi capital.
Among other companies involved inthe negotiations are US firms PhillipsPetroleum, Texaco, Conoco, Enron/OxyCorp and Marathon Oil, as well as Italy’sENI.
The ten shortlisted companies weredue to have submitted written responsesby the middle of February before givingtheir presentations to the team of Saudinegotiators, which also included the Min-isters of Finance & National Economy,Industry & Electricity and Planning.
100,000 b/d oil refinerybacked by UAE opensin central PakistanPakistan — The Abu Dhabi-based In-ternational Petroleum Investment Com-pany (IPIC) has inaugurated the $866million Parco refinery at Mahmoud Koutin central Pakistan.
The ceremony was attended by Paki-stan’s Chief Executive, General PervezMusharraf, the United Arab EmiratesMinister of Petroleum & Mineral Re-sources, Obaid Bin Saif Al-Nasseri, and anumber of IPIC and Parco managers, aswell as UAE and Pakistani officials.
IPIC Chairman, Sheikh Mansour BinZayed Al Nahyan, said the 100,000 bar-rels/day facility was a landmark in thehistory of the company and a source ofpride.
“The implementation of the projectaccording to the projected timetable and
The first heads of government agree-ment on the project was signed in Lagosin September 1995 and several other pre-paratory accords have been signed sincethen.
The latest feasibility study on theproject was conducted by German con-sulting firm Pipeline Engineering, whichconcluded that the scheme was viable.
It recommended that the most eco-nomic route was an onshore/offshore pipe-line extending from the existing pipelinelinking Escravos in the Niger Delta to theLagos industrial district offshore, all theway to Ghana.
It is believed that the project will en-hance Ghana’s long-term energy goals,which require integration of electricitygrids and development of cheaper gasresources.
Ghana is expected to account for thepurchase of about 84 per cent of the gasto be supplied in the project, under a planinvolving three power plants at Tano,Takoradi and Tema.
The Takoradi power plant would beconserving between 15,000 b/d and20,000 b/d of crude oil used in its opera-tions by taking 60m cu ft/d of gas fromthe project.
About 120m cu ft/d of gas, or 6.8 percent of the 1.75bn cu ft/d of gas beingflared in the Niger Delta, would be soldto the three recipient countries from thescheduled take-off date.
Benefits from the project will includethe creation of 18,000 jobs, a reductionin greenhouse gas emissions, and the sav-ing of $500m on the energy bills of thecountries involved.
Qatar close to new dealwith Italy’s Edison Gasfor supply of LNGDoha — Qatar is close to signing a long-term deal with the Italian energy group,Edison Gas, for the supply of 3.5 milliontonnes/year of liquefied natural gas, offi-cials said last month.
“Negotiations with the Italian grouphave reached an advanced stage and we arelikely to sign a deal within weeks,” IbrahimAl-Ibrahim, Economic Advisor to theEmir of Qatar, Sheikh Hamad Bin Khalifa
N E W S L I N E
March 2001 25
budget will encourage further expansionin energy operations and strengthen Par-co’s position as a successful partner ofIPIC,” Al Nahyan was quoted by the of-ficial Emirates News Agency as saying.
The Minister stressed that the imple-mentation of the refinery was an enormouschallenge for Parco, which is a joint ven-ture between the governments of the UAEand Pakistan.
“It is indeed a great achievement anda cause for celebration to build on timeand within budget such a complex, mod-ern and large 100,000 b/d refinery in aremote area like Multan,” he said.
“The refinery, in conjunction with theParco pipeline, which is still to come, hasthe potential to transform the lives of manymore people, by giving them access toreliable, high-quality sources of power,heating and transport fuels,” the Ministeradded.
Parco has started building an 820-kmpipeline from the port of Qasim toMahmoud Kout at a total cost of $480m.The pipeline will carry 8.9m tonnes/yearof petroleum products, and is scheduledto be completed by December 2002.
“Projects such as this, which are thebuilding blocks of social change, givesocieties the means to move from an ag-ricultural to an industrial base, and tothereby improve the lives of millions ofpeople,” Al-Nasseri went on.
IPIC Managing Director, MohammedAl Khaili, said the project had created 600direct jobs, in addition to many indirectpositions.
“The refinery secures over 50 per centof Pakistan’s energy demand and saves$75m a year from the oil import bill. Itwill stimulate the local economy in thenext few years,” he said.
Qatar, Denmark’s MaerskOil to further developAl Shaheen oil fieldDoha — Qatar has agreed with Danishfirm Maersk Oil on a plan to furtherdevelop the offshore Al Shaheen oil field,according to Energy and Industry Minis-ter, Abdullah Bin Hamad Al Attiyah.
Al Attiyah said last month that the planinvolved an investment of $1.2 billion and
was aimed at increasing the field’s produc-tion capacity to 200,000 barrels/day by theyear 2003, from 112,000 b/d at present.
The Minister said the developmentplan had been worked out by Maersk andthe state-owned Qatar Petroleum andwould start immediately. Work wouldinvolve drilling 40 new production wellsand 20 wells for water injection.
Additionally, 14 production wellswould be turned for water injection, hesaid, adding that production platforms andassociated gas pooling centres would be setup and appraisal wells would be drilled.
He added that the plan was aimed atincreasing the production capacity of theAl Shaheen field in a way that would alsoincrease its life span.
Maersk Oil started production fromAl Shaheen in 1994. The field is locatedin block 5 offshore, in the eastern part ofthe country.
KOC shortlists five firmsfor construction of newstorage and export unitKuwait — The Kuwait Oil Company(KOC) has shortlisted five US firms tocompete for a contract to build new oilstorage and export facilities at Ahmadi, theMiddle East Economic Digest reported lastmonth.
The winner of the engineering, pro-curement and construction contract,worth some $869m-918m, is expected tobe announced in September. The project,for which US firm Parsons Engineeringhas prepared the basic design, will take 32-36 months to complete.
The contract involves construction of17 storage tanks, each with a capacity of500,000 barrels; a booster station with fourpumps; the laying of 4-5 gravity lines, each20 km long, with a 48-inch diameter;construction of three submarine pipelines,of 20-25 km each; three calm buoys; anda control station. It also calls for relatedcivil, electrical, mechanical and instrumen-tation works.
The project is expected to be com-pleted by 2005, when KOC plans to addanother 1.5 million barrels/day to its cur-rent oil production capacity. KOC is theupstream subsidiary of the state-owned
Brunei awards deep-water contractsSINGAPORE — Brunei is expected to awardnew deep-water production-sharing contractsearly in 2002, with bids closing by Novem-ber this year, it was announced last month.The move could yield as much as 4.5 billionbarrels of oil equivalent, according to KimMorrison, Head of Regional Geology at theBrunei-based Fletcher Challenge Energy Bor-neo. To jump-start the new round of explo-ration, the Sultanate had signed a contractwith seismic survey company PGS to shoot3-D data, he noted, adding that 70 per centof the survey had been completed. The 3-Dsurvey would have the key prospects fully de-lineated and almost drill-ready by the timecompanies submitted their bids, which weredue by November 4 this year. Morrison alsopointed out that 28 companies had attendedthe launch of deep-water blocks J and K inJanuary, reflecting the high level of interestin Brunei’s offshore concession acreage, whichwas now being leased under production-shar-ing contract terms.
Ecuador plans to boost outputQUITO — Ecuadorean oil firm Petro-produccion, a subsidiary of the national oilcompany, PetroEcuador, has attained positiveresults from its initial exploration work at theParadise oil fields, in the Amazon region. Af-ter drilling the Pardiso II well, company esti-mates showed that national production wouldbe increased by 3,100 barrels/day of light 27°API crude. The drilling marks the beginningof a development programme by Petro-produccion, under which it plans to drill 23wells, of which 11 will be vertical comple-tions, six horizontal and the other six direc-tional wells.
US introduces new energy billNEW YORK — A controversial new energy billhas been introduced in the United StatesCongress after being delayed because of prob-lems making it acceptable to both sides. “To-day is the first step in ending America’s de-pendence on other nations to power ourprogress,” said Senator Frank H Murkowski,Chairman of the Senate Energy Committee,at the introduction of the National EnergySecurity Act 2001. “Each day, more than eightmillion barrels of crude oil must come in fromforeign shores. That is a dangerous strategyby anyone’s measure,” he added. The bill is acomprehensive package of proposals, includ-ing a plan to promote alternative fuel vehi-cles and encouraging increased production oftraditional sources of energy, including open-ing up the previously off-limits Arctic Na-tional Wildlife Reserve to oil exploration. Itwill also seek to advance cleaner technologiesfor energy sources.
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�������� Kuwait Petroleum Corporation (KPC).Kuwait currently produces an average
of 2.1m b/d of crude, with plans to in-crease production capacity to 3.5m b/dover the next four years.
The majority of this increase will comefrom the four northern oil fields to bedeveloped as part of Project Kuwait. KPCis aiming to enlist international oil com-panies in the project to increase outputfrom the fields to 900,000 b/d from thecurrent 450,000 b/d.
In addition, gathering centres 25 and28 are expected to be commissioned byJune this year, adding another 250,000b/d capacity.
In a separate development, KOC wasreported to have discovered light crude inthe Al-Sabriya field, in northern Kuwait.The OAPEC Bulletin said that the field’sproduction capacity could be 15,000 b/dof oil and 45m cubic metres of natural gas.
The magazine, published by the Or-ganization of Arab Petroleum ExportingCountries, noted that initial tests indicatedthat the field had reserves of 200m b.
Algerian state oil firmSonatrach will not beaffected by privatizationAlgiers — The Algerian national oil com-pany, Sonatrach, will not be affected bythe country’s privatization programme, theEnergy & Mines Minister, Dr ChakibKhelil, was quoted as saying last monthby the local daily El Moudjahid.
“It is not a question of the privatiza-tion of Sonatrach, but a separation offunctions between the state and Sonatrach,which will remain public property,” hesaid.
The Minister pointed out that the draftprivatization bill separated what belongedto the state and what belonged toSonatrach, and what finally belonged tothe partner.
“We simply want more investmentsand more jobs through various measures,”he stressed, pointing out that there were“true possibilities in the field for externalinvestments in the sectors of refining,distribution, and petrochemicals”.
This, he added, meant “more jobs andassistance for the development of commu-
nities, in which investments are implanted,and inevitably more financial resources forthe state and the public treasury”.
In a separate development, data re-leased by Sonatrach showed that last year,the company discovered hydrocarbonsestimated at 10 billion barrels of oil equiva-lent.
The figures showed that Sonatrachexploited 82 fields in the period, of whichthree were new. Sonatrach drilled 28 wellslast year, of which nine led to discoveries.
The company’s production of lique-fied natural gas stood at 46 million tonnes,while liquefied petroleum gas output wasput at 8.4m t.
The study also noted that Sonatrachmarketed 144m tonnes of oil equivalentin 2000, while more than 60bn cubicmetres of gas were exported.
Venezuelan Presidentinaugurates Petrozuata’snew upgrading plantCaracas — A state-of-the-art plant toupgrade extra-heavy crude oil extractedfrom the Orinoco oil belt in eastern Ven-ezuela, has been formally inaugurated byPresident Hugo Chavez.
The $3 billion plant is owned andoperated by Petrozuata, a strategic asso-ciation involving state oil firm PDVSA andConoco of the United States.
Accompanying Chavez at the inaugu-ral ceremony were the Energy and MinesMinister, Alvaro Silva Calderon, the Presi-dent of PDVSA, General GuaicaipuroLameda, and Conoco President, ArchieDunham.
Petrozuata, in which Conoco holds a50.1 per cent stake and PDVSA 49.9 percent, is one of four strategic associationsthat were formed to produce, upgrade andexport extra heavy crude oil from theOrinoco oil belt.
The plant, which is located at the Joseindustrial complex in Anzoategui State, isequipped with the most modern technol-ogy. It has a capacity to process some120,000 barrels/day of extra heavy crude,which will be converted into some103,000 b/d of lighter synthetic crude forexport.
In the process, the plant also will pro-
EBRD may finance Baku-Ceyhan pipelineBRUSSELS — The European Bank for Recon-struction and Development (EBRD) has an-nounced that it may help finance the $2.7billion oil pipeline linking Turkey to the Cas-pian Sea, provided that BP Amoco can con-vince it of the benefits. Recently-revised BPAmoco engineering estimates show that theline could be profitable. The proposed pipe-line would transport one million barrels/dayof oil from the Azerbaijani port of Baku onthe Caspian Sea to the Turkish port of Ceyhanon the Mediterranean. EBRD participationin the project hinges on whether transport-ing Caspian oil through the Baku-Ceyhanpipeline proves to be cheaper than alterna-tive routes through the Black Sea. A group ofcompanies interested in the Baku-Ceyhanpipeline have formed the Main Export Pipe-line Company (Mepco), led by Azeri state oilcompany Socar with a 50 per cent share.
Russia’s Lukoil plans downstream expansionBRUSSELS — The Russian oil exploration andproduction firm, Lukoil, has announced thatit is planning an “aggressive expansion” ofits downstream businesses in Europe and theUnited States. “We are holding negotiationswith seven world oil majors about ourplanned projects,” said a Lukoil spokesman.The company is planning to purchase a150,000 barrels/day refinery in the US thatwill be supplied by Lukoil’s giant TimanPechora field in Russia. The transport routewill include an oil terminal at Varandei, onthe Barents Sea. “Our enormous reserves andgrowing crude oil production are forcing usto expand our downstream operations in Eu-rope and the US,” said the spokesman. “Wecannot afford to rely on crude exports aloneand downstream expansion is important if weare to guard against fluctuations in the worldmarket,” he added.
Higher oil prices mean more investmentLONDON — Despite a fall in oil productionin the United Kingdom of 8.1 per cent in2000, strong profits and a healthy cash floware expected to lead to increased investmentin the British oil and gas industry, accordingto a survey by the Royal Bank of Scotland.The Bank’s latest Oil and Gas Index showsthat despite UK oil production in 2000 be-ing at its lowest level since 1993, its value hasremained stable over the year. “Higher pricesand the depreciation of sterling against theUS dollar have offset the falls in output,” theEdinburgh-based bank commented. The re-port showed that UK oil production grew lastDecember by 66,000 barrels/day to 2.39 mil-lion b/d. Meanwhile, gas production during2000 reached record levels, and demand con-tinued to grow strongly.
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��������duce some 145 tonnes/d of sulphur and3,000 t/d of coke.
Speaking at the ceremony, PresidentChavez not only underlined the impor-tance of the plant itself, but also the rolethat the oil price recovery had played inmaking the project viable.
“If oil had been at $8/b over the pasttwo years, what would Petrozuata havedone? Can you exploit the Orinoco oil beltwith a price of $8/b?” he asked rhetori-cally.
He went on to note that oil investorscould be sure that “we are not going to letthe price of oil drop to $20/b or $22/b.We want it to stabilize in the order of$25/b, and we will achieve it becauseOPEC is more solid than it has been inthe last 30 or 40 years.”
For his part, Conoco President ArchieDunham pointed to the successful rela-tionship between his company andPDVSA in ventures such as Petrozuata.
“We believe so strongly in Venezuelathat we have named it our third core area,after the United States and Europe,” saidthe Conoco boss.
Swedish firm Lundin Oilawards developmentdeals for Libyan oil fieldNew York — Lundin Oil of Sweden hasannounced the achievement of anothersignificant step in the development of itsEn Naga North and West field in Libya.
International Petroleum Libya Ltd(IPLL), a wholly-owned subsidiary ofLundin, and operator of the En Nagadevelopment in area NC177, has awardedtwo engineering, procurement, installationand construction contracts for the con-struction of processing facilities and a94.5-km pipeline.
The pipeline will connect the En Nagadevelopment with the existing pipelinenetwork, which will transport the pro-duced oil to export facilities on the Medi-terranean coast.
The President of Lundin Oil, Ian HLundin, commented: “The award of thesecontracts is a significant step towardsbringing the En Naga field into produc-tion.
“We can now expect, with a reason-
able degree of certainty, the achievementof first oil before year-end and we lookforward to achieving our first productionin Libya, together with our partner, theNational Oil Corporation.”
The En Naga North and West field wasdiscovered by IPLL in 1998. It containscertified proven and probable reserves ofover 100 million barrels of oil.
Lundin Oil is a Swedish independentoil company with exploration and produc-tion activities in eight different countriesworldwide.
Indonesian governmentmust raise fuel prices,says Finance MinisterJakarta — Indonesia’s Finance Minis-ter, Prijadi Praptosuhardjo, said last monththat the government must stick to its planto raise fuel prices by April 1 this year toavoid further strain on the country’s fi-nances.
“In my view, we must raise fuel pricesby 20 per cent in April, because if we don’t,we will burden the state budget,”Praptosuhardjo said after a plenary sessionof the House of Representatives.
The Indonesian news agency Antarahad earlier reported that, under the 2001state budget, which has already been passedby the House, fuel oil prices would beincreased by April.
However, the Finance Minister ap-peared to hint that this was by no meanscertain, when he said that he did not know“what decision the government will even-tually take in this matter”.
The country’s Co-ordinating Ministerfor Economic Affairs, Rizal Ramli, had saidpreviously that the government had yet todecide on whether or not to raise fuelprices.
At the same time, Energy & MineralResources Minister, Dr PurnomoYusgiantoro, said that the government wasstill studying the possible impact of higherfuel prices on the socio-political situationin Indonesia.
Under the 2001 state budget, fuel oilsubsidies would be slashed by 45 trillionrupiahs, and therefore the commodity’sprice would have to be raised by 20 percent to cover the cut.
Unocal to invest $1.48bn in ThailandBANGKOK — Unocal of the United States hasannounced a fresh $1.48 billion investmentin Thailand over the next five years, especiallyon natural gas projects. The programmestarted this year with a $380 million invest-ment in two key projects: the gas and con-densate development at the North Pailinphase II development in the Gulf of Thai-land, and the onshore Platong, Plamuk, Suratand Kaphong fields, commented TaraTiradnakorn, Vice-President for Operationsat local unit, Unocal Thailand. The fields willstart producing 15,000 barrels/day later thisyear, and Unocal aims to produce 1.07bncubic feet/d of natural gas by 2005. Tara notedthat the economic situation would be closelywatched and Unocal investment would fol-low the local economic recovery. If the Thaieconomy expanded by 3.9 per cent this yearand by 4.4 per cent next year, the country’sgas demand would grow by 7.5 per cent.
Bad weather hits North Sea outputBRUSSELS — Extreme weather conditions inthe North Sea in February forced drastic oilproduction cutbacks in both the UnitedKingdom and Norwegian sectors, industrysources said last month. The bad weatherforced major offshore operators, includingNorsk Hydro, Statoil, Shell Exploration &Production, and Norske Shell, to reduce orshut in flows from their platforms. Norway’sNorsk Hydro said production from its Snorreand Vigdis fields had to be “cut to a mini-mum” as a result of problems on Statoil’sStatfjord A platform, which received outputfrom the two fields for processing. Accord-ing to Norwegian oil industry sources, only45,000 barrels/day was being produced fromStatoil’s Gullfaks C platform, instead of the250,000 b/d that could have been producednormally. Problems have also affected theOseberg field centre, leading to output beingslashed from 200,000 b/d to 50,000 b/d. ANorsk Hydro spokesman said that so far thecompany had lost some 600,000 b/d of pro-duction, due to weather-related slowdowns.
CERA sees increase in oil demandBRUSSELS — A short-term forecast by US firmCambridge Energy Research Associates(CERA) notes that world production of oiland other petroleum liquids is growing by onemillion barrels/day per year and is expectedto triple to 3m b/d per year by 2005. How-ever, by 2010 another gloomy picture couldlie ahead, when supplies are expected to de-cline sharply, while demand for oil and gaswill grow by 2 and 3 per cent per year respec-tively. Global production capacity for petro-leum liquids is expected to grow to 92m b/din 2005, from 79m b/d.
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�������� Previous attempts by the governmentto raise fuel prices in Indonesia have trig-gered violent protests, forcing aclimbdown.
Iraq submits its latestaid distribution planunder oil deal with UNBaghdad — Iraq has submitted its dis-tribution plan for the aid that it intendsto buy under the ninth phase of the oil-for-food deal with the United Nations, itwas reported last month.
The UN confirmed that it had receivedIraq’s $5.5 billion plan for food, medicineand other humanitarian supplies thatBaghdad intends to buy under the deal.
The new distribution plan is for thecurrent ninth six-month phase of the deal,which runs from December 6, 2000 toJune 3, 2001.
A UN report said that more than$1.27bn was earmarked for the food sec-tor, to cover a daily food ration of 2,472kilocalories per person per day.
Baghdad has allocated $600 million foroil industry spare parts, as permitted bythe UN under the deal, while some $300mhas been set aside for the purchase ofmedicines and medical supplies.
The report said it was not known yethow much money Iraqi oil exports wouldgenerate in the current phase. In the pre-vious eighth phase, almost $7.8bn wasmade available for the humanitarian pro-gramme from oil export revenues.
During the previous phase, Baghdadexported an average of 2.2m barrels/day.However, the report added that Iraqi oilexports have fallen sharply during the lasttwo months.
“The week of February 3-9 registeredthe lowest level of Iraqi oil exports underthe UN oil-for-food programme,” notedit noted, adding that only 1.6m b of oilwere lifted during that week.
The report put Iraq’s total oil exportssince the beginning of the ninth phase ofthe oil-for-food deal at 55.3m b of oil, withrevenues totalling an estimated 1.26bneuros. The average price for Iraqi crudeduring the period was $22.35/b.
The oil-for-food deal allows Iraq to sellunlimited quantities of oil over six-month
periods, on a renewable basis, to buy food,medicine and other humanitarian needsfor the Iraqi people.
Nigeria, oil firms mullplans for a secondmajor LNG complexAbuja — Nigeria is considering plans toset up a second liquefied natural gas plantin addition to the existing Nigeria LNGcomplex on Bonny Island, it was an-nounced last month.
The new plant would be located westof the Niger Delta, the Presidential Advi-sor on Petroleum & Energy, Dr RilwanuLukman, said at the signing of a memo-randum of understanding for a feasibilitystudy on the plant.
The agreement was signed between thestate-run Nigerian National PetroleumCorporation (NNPC) and a group ofmultinational oil companies, includingExxonMobil, Conoco, Chevron andTexaco, which will be in charge of con-ducting the feasibility study.
Lukman said the study would identifyand evaluate gas requirements, sources,quality and availability for the project;location, design and scope of the LNG plant;potential markets; transportation require-ments; LNG loading and receiving facili-ties; project economics and sensitivities.
ExxonMobil, which had completed acomprehensive gas utilization study forNigeria last year, had been chosen to leadthe joint study team.
“The federal government and all par-ties involved expect the study to be com-pleted within 12 months from today,”Lukman said.
He added that the Nigerian govern-ment was determined to monetize thecountry’s large volumes of associated aswell as non-associated gas, and use it togenerate substantial export earnings.
In order to meet the project’s objec-tives, consideration should be given tolarge volume commercialization schemes,such as liquefied petroleum gas produc-tion and marketing, gas-to-liquids projectsand LNG, said Lukman.
He noted that the multinationals cho-sen for the study had been carefully se-lected to ensure that the companies in-
Ecuador plans new oil pipelineQUITO — Ecuadorean Minister of Energyand Mines, Pablo Teran, has signed a con-tract with OCP to build a pipeline from LagoAgrio in the Amazon region, to a terminal atBalao in the province of Esmeraldas, on thePacific coast. The 500-km heavy crude pipe-line system will include the necessary instal-lations for storage, measuring, heating,pumping, pressure reduction, as well as load-ing tanks for the oil. The OCP line will runparallel with the trans-Ecuadorean pipeline,except for one deviation in the north ofQuito. The pipeline is being designed totransport crude oil with an API of between18° and 24°. Its maximum capacity will be518,000 barrels/day with a sustainable capac-ity of 450,000 b/d.
Enlarged EU could face energy crisisBRUSSELS — The European Union’s EnergyCommissioner, Loyola de Palacio, has warnedthat an enlarged EU could face an energy cri-sis. De Palacio voiced her concerns about “theviability of the European Union’s currentmodel of energy supply in the light of theaccession of new member states.” In a recentEU green paper on energy policy she pointedto “growing energy demand, which is increas-ing the EU’s dependency on fossil fuels.”According to the paper, “current forecasts arethat the EU’s dependence on imported en-ergy will grow from around 50 per cent to-day to 70 per cent in thirty years’ time. Thisis a major weakness in Europe’s energy situa-tion. Other weaknesses are the disproportion-ate influence of oil prices on the widereconomy, and the failure of policies in favourof energy efficiency and renewable energy toprevent consistent rises in energy demand.”
BG to invest further in TunisiaBRUSSELS — United Kingdom gas explorationand production company, BG, has an-nounced it will make further major invest-ments in Tunisia. BG, which has already in-vested some $600 million in the country, isto invest an additional $450m. The funds willbe invested over a nine-year span and will beprimarily spent in expanding the Miskar fieldand in developing the recent Hasdrubal gascondensate discovery. Over the past 10 years,BG has stepped up its investments in Tuni-sia. It is now the largest foreign investor inthe country and the primary source for thecountry’s gas requirements, at 65 per cent.Most of this gas comes from the Miskar gascondensate field, in the Mediterranean Gulfof Gabes, some 125 km off the coast of Tuni-sia. The Miskar field has reserves of around650m barrels of oil equivalent, which isenough to meet Tunisia’s energy requirementsfor the next 10 years.
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��������volved in the existing LNG plant gave roomto others that could set up a rival plant inanother part of the Niger Delta.
Nigeria’s proven gas reserves are esti-mated at some 182 trillion cubic feet or25 billion barrels of oil equivalent, nearlyas much as the estimated proven oil re-serves of 27bn b.
Current domestic demand is less than500m cu ft/day of gas, but is forecast torise to 1.8bn cu ft/d by 2010 and to 4.8bncu ft/d by 2020.
Iran puts 17 oil and gascontracts out to tenderon a buy-back basisTehran — The Iranian Petroleum Min-istry has decided to put 17 oil and gascontracts out to international tender on abuy-back basis in the upcoming months,it was reported last month.
Local papers quoted Deputy Oil Min-ister, Hojjatollah Ghanimifard, as sayingthat the tenders would include the giantSouth Pars field in the southern waters ofthe Gulf.
Under Iran’s buy-back programme,foreign firms receive crude as compensa-tion and profit in return for investing inprojects, under a formula that denies thema direct equity stake.
Last November, the Majlis (parlia-ment) energy and oil commission said thata committee would examine all buy-backdeals signed so far with foreign investors,because of possible fraud.
Buy-backs began in the mid-1990s, ina bid to help the government skirt consti-tutional bans on foreign ventures and at-tract much-needed capital to revamp Iran’sageing energy infrastructure.
Last year, Shell won an $800m buy-back deal to develop the Soroush andNowruz offshore fields, together with theNational Iranian Oil Company, and iscompeting for a project to develop thegiant Bangestan field.
Although US firms are prohibitedfrom getting involved in Iran, other for-eign firms have largely ignored US legis-lation which theoretically enables compa-nies that invest more than $20m in Iran’senergy sector to be punished. The law hasbeen only half-heartedly enforced.
Emirate of Sharjah hostsinternational conferenceto discuss solar energy
Sharjah — The Emirate of Sharjah inthe UAE last month hosted a major four-day conference on the theme of solarenergy in the Arab world.
More than 400 energy experts from 75countries gathered for the conference,which was opened by the Head of Sharjah’sEmiri Court, Sheikh Abdullah Bin SalimAl Qsimi.
The conference was organized bySharjah University, in collaboration witha number of local, regional and interna-tional energy agencies.
Dr Abdullah Abdul Aziz Al Najar,Head of the Research and Studies Sectionat the University, said renewable energyhad become an inevitable necessity and astrategic option for Arab and MiddleEastern countries.
“We should develop new means toadapt the output of scientific advances tomeet our demands for energy in the Arabworld,” he said.
Work is under way in the UAE onintroducing solar power to meet energyneeds, particularly in some of the moreremote areas.
In collaboration with one of the world’sleaders in the field, BP Solar, the UAE hasalready set up a number of solar powerprojects in the oil and gas industry.
The same is happening in the telecom-munications industry, where the use ofpower systems that are not connected tothe national grid is the most convenientoption.
The bulk of the UAE’s power supplyis currently generated by costly plants thatutilize substantial supplies of natural gas.
One of the objectives of the confer-ence was to establish a special group towork within the UAE to focus on thedevelopment of new solar energy projectsin the country.
Research is already under way atSharjah University to identify the mostfeasible and cost-effective applications ofthe new technology in the UAE and inthe wider Middle East. Over the next fewyears, the use of solar power in the Emir-ates is likely to expand rapidly.
UK oil output sharply down in 2000LONDON — Oil output from the British sec-tor of the North Sea fell by eight per cent lastyear, according to the latest figures relased bythe UK Department of Trade and Industry.This contributed to an overall decline in thecountry’s energy production of 2.5 per cent,compared with 1999, said the DTI. The dropin oil production was attributed to routinemaintenance during the summer months tak-ing longer and having a bigger impact lastyear than in 1999. Oil consumption in theUK fell by one per cent last year, including a2.1 per cent drop in total use of petroleum.The fall in overall energy production includeda drop of 13 per cent in coal, 10.5 per cent inboth primary electricity and nuclear electric-ity generation, 7.5 per cent in hydro output,while natural gas production was up by 9.5per cent.
BP to develop Clair field next yearBRUSSELS — BP Amoco expects to clear allobstacles to the development of its $900 mil-lion Clair oil field in the North Sea by theend of this year, and to award contracts in2002, according to a company statement. Themassive, 4 billion barrel oil field was discov-ered in July 1977 and is located to the westof the Shetland Islands, but development hasbeen delayed due to the difficult geology. BPAmoco executives said that because of the po-tential for development costs to soar, theywould have to develop straightforward fit-for-purpose technologies and systems for Clair.
Thai power use up 7.6 per centBANGKOK — Thailand’s power consumptionincreased by 7.6 per cent to 98,418 gigawatthours last year, despite a slow economic re-covery and high imported oil prices, a seniorindustry official said last month. Coupledwith reduced usage of fuel oil for power gen-eration due to high oil prices, this resulted inan 11.4 per cent increase in domestic gasconsumption or the equivalent of two billioncubic feet/day, said Dr Chitrapongse Kwang-sukstith, President of PTT Exploration &Production (PTTEP). The firm’s total pro-duction amounted to 18 per cent of the do-mestic petroleum supply or about 80,000 bar-rels/d of oil equivalent, which was mostlynatural gas, he said. Dr Chitrapongse addedthat PTTEP planned to capitalize on thecountry’s growing need for gas, demand forwhich would continue to grow at a rate ofeight per cent per year, while power demandwould continue to grow by six per cent peryear. PTTEP, a privatized and listed unit ofthe Petroleum Authority of Thailand, has al-located more than $803.9m to expand do-mestic gas production from fields in the Gulfof Thailand over the next five years.
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��������Malaysia’s Petronas completes gas projectKUALA LUMPUR — Malaysian state oil and gasfirm Petronas has announced the completionof phase one of its Angsi gas developmentproject, which is being jointly undertaken byits subsidiary Petronas Carigali and Esso Pro-duction Malaysia, offshore peninsular Malay-sia. Phase one of the project, also known asthe Southern Gas Pipeline System, consistsof the design, fabrication and installation ofthe ANDR-A drilling and riser platform,modifications to the Guntong-D satelliteplatform, and the installation of 222 km of32-inch gas pipeline from Guntong-D toANDR-A and on to the onshore facility. Gasfrom Guntong-D started flowing on Febru-ary 2, 2001 to the onshore facility via ANDR-A, the largest such platform in the SouthChina Sea.
PetroChina reports good results for 2000BEIJING — PetroChina has announced that itachieved good results in the year 2000, in-cluding outperforming all of its productionand operational targets. The company saidthat its oil and gas production saw a slightincrease in 2000, with crude output rising to765.4 million barrels and marketed gas pro-duction to 503.9 billion cubic feet. In thedownstream sector, crude oil processed in2000 increased by 6.89 per cent to 536.6mb, while gasoline production reached 15.26mtonnes, an 8.74 per cent increase over theprevious year. The total number of servicestations owned, controlled or franchised byPetroChina or its parent company, the Chi-nese National Petroleum Corporation,reached 11,350, of which 4,530 were new,representing a 66.42 per cent increase over2000.
ExxonMobil confirms Crazy Horse findsIRVING, TEXAS — ExxonMobil has announcedthe success of two wells drilled during 2000in the Crazy Horse exploration unit, locatedin the Gulf of Mexico approximately 125miles south-east of New Orleans. The wellsconfirmed Crazy Horse to be a world-classdiscovery and development opportunity.ExxonMobil owns a 25 per cent interest inthe Crazy Horse unit with BP (the operator)owning the other 75 per cent. Results so farconfirm that Crazy Horse is at least a billion-barrel discovery, in addition to which a ma-jor new discovery called Crazy Horse Northwas drilled in Mississippi Canyon block 776,located 5 miles north-west of the 1999 CrazyHorse discovery. These results make CrazyHorse the largest oil field discovered in theUS Gulf of Mexico. Planning for a phaseddevelopment is under way, and initial out-put is expected by 2005 from a floating250,000 b/d production facility.
BP Amoco to start workon Algeria’s In Salahnatural gas project
Algiers — BP Amoco expects to start thedevelopment of the $2.5 billion In Salahnatural gas project in southern Algeriasoon, it was announced last month.
The Algerian News Agency quoted BPsources as saying that the exploitation andevaluation phase of the scheme had beencompleted and the development of thefields should begin in the second quarterof this year.
This, the sources added, would followthe delivery of the exploitation permitfrom the Algerian Energy and MinesMinistry.
The project, which involves a produc-tion-sharing contract with the national oilcompany, Sonatrach, should return pro-duction of gas of more than 10 billioncubic metres/year over a 30-year period.
The sources also indicated that nego-tiations for the marketing of In Salah gas— again through a joint venture formedbetween BP and Sonatrach — had endedand the contracts should be signed soon.
In a related development last month,Sonatrach’s General Manager, AbdelhakBouhafs, announced the sale of 5bn cum/y of gas from In Salah to Gas Naturalof Spain. Under another gas sales contract,4bn cu m/y will also go to Italy’s Enel.
Japan and Kuwait todiscuss drilling rightsin the Neutral ZoneTokyo — Japan and Kuwait are expectedto open crucial negotiations as early as thisspring on extending the Arabian OilCompany’s (AOC) drilling rights in theKuwaiti portion of the Neutral Zone,according to a report in the Japan Timeslast month.
The paper said that renewal of thecontract was absolutely crucial to the Japa-nese-owned AOC, which has already lostits rights to the Saudi Arabian-controlledside of the same field.
It quoted sources as saying that theKuwaiti parliament would grant the gov-
ernment authority to negotiate on theKhafji field in the Neutral Zone, remov-ing a major legal obstacle to the openingof the negotiations between the two coun-tries.
Japan is trying to keep its rights in thehuge field and its Foreign Minister, YoheiKono, stressed the field’s importance forthe Japanese energy sector during his lastvisit to Kuwait.
Japan buys 80 per cent of its crude oilneeds from the Middle East, and the re-covery in global oil prices last year madeTokyo more aware of the need to main-tain friendly ties with Saudi Arabia andKuwait, two of the main sources of itscrude imports.
Japan has been trying to mend ties withSaudi Arabia, following the collapse of thenegotiations over the renewal of AOC’srights in the Saudi portion of the NeutralZone in February last year.
It has also been strengthening relationswith Iran, which supplies nearly 10 percent of the country’s total crude imports.
Japanese firms have been given prefer-ential negotiating rights to develop themassive 26 billion barrel Azadegan oilfield, in south-western Iran, following avisit last November to Tokyo by IranianPresident Mohammad Khatami.
PDVSA staff to benefitfrom Alto Technologymapping, training projectNew York — Alto Technology Re-sources, a company specializing inhyperspectral remote sensing imaging, hasopened an office in the Venezuelan capi-tal Caracas, as part of a project it is car-rying out for state oil firm PDVSA.
The project combines a technologytransfer training programme for PDVSApersonnel and an airborne hyperspectralremote sensing study of the country.
Alto Technology, in co-operation withFundacion de Geografia y CartografiaMilitar, is acquiring hyperspectral andradar data for four major areas that includemountainous, coastal and wetlands terrainin Venezuela.
The project will encompass process-ing and interpreting the data and gener-ating various maps of specific zones that
N E W S L I N E
March 2001 31
��������identify onshore hydrocarbons, soil andlithology, fractures, water bodies andwetlands, vegetation and thermal anoma-lies.
In addition, Alto will provide an in-tensive three-month technology transfertraining programme for PDVSA person-nel at the company’s Houston centre ofexcellence, Stanford University and Alto’sCaracas office.
“Our objective with the training pro-gramme is to give PDVSA personnel theopportunity to work side-by-side withsenior Alto Technology professionals as weintroduce them to a wide range of remotesensing topics,” said Alto President, DrAlfredo Prelat.
“Students will learn mission planning,data acquisition, hyperspectral processingand interpretation techniques, using ac-tual data from our PDVSA project.
“When we say technology transfer, wemean it. By the time the course has beencompleted, PDVSA will have the internalexpertise to interpret data we have pre-processed and stored at our Caracas office,”he added.
Indonesia to call fortenders on 23 oilblocks, says MinisterJakarta — The Indonesian governmentplans to call for tenders on 23 oil blockssoon under a new system, taking over fromthe state oil and gas firm, Pertamina.
“We will start the tender process gradu-ally with nine blocks in March,” an-nounced Energy and Mineral ResourcesMinister, Dr Purnomo Yusgiantoro.
The blocks include six concessions inthe deep-sea area of the Makassar Strait,which would need investment of $200million for the exploration stage, he said.
Bid invitations would be sent out inMarch, with June set as the closing datefor submission, said the Ministry in astatement.
Meanwhile, the Jakarta Post reportedthat the government would evaluate bidsaccording to their cost competitiveness inoperating the blocks, as well as companies’investment commitments.
The successful bids would be subjectto approval from President Wahid, after
which production-sharing contracts mustbe signed with Pertamina, which was beingpromoted as an independent upstreamoperator, taking a 15-25 per cent stake ineach block.
Purnomo said the tender process, withfirst results likely to be announced in earlyJuly, was taken over from Pertamina afterthe company complained that it wasspending about $10m a year in negotiat-ing concessions.
Shell to start drillingat Iran’s offshore fieldsSoroush and NowruzDubai — Oil giant Royal Dutch/Shellwill start drilling at the Soroush andNowruz offshore oil fields in Iran soon, asenior official of the company announcedlast month.
The Managing Director of Shell AbuDhabi, Mohamed Defrawi, told reportersthat there would be substantial progresson the project in the coming months.
He pointed out that Iran remained oneof the largest markets for the company’sproducts and Shell would commercializethe country’s huge gas reserves.
Shell Exploration BV has signed anagreement with the National Iranian OilCompany (NIOC) to re-develop theSoroush and Nowruz oil fields.
The fields, which were discovered inthe early 1960s, are located in shallowwaters some 80 km west of Kharg Island.
Dubai’s daily Khaleej Times said lastmonth that under the buy-back agree-ment, Shell would act as a contractor tothe NIOC to develop the fields.
In return, it would be repaid to thevalue of the capital expended, plus a re-muneration fee. Development costs for thetwo fields amounted to over $1 billion.
The paper said that reserves to bedeveloped by the projects at Soroush andNowruz were estimated at some 500 mil-lion and 550m barrels, respectively, ofheavy crude oil. Peak production levelswere expected to reach 100,000 b/day atSoroush and 90,000 b/d at Nowruz.
Early production from Soroush wasexpected to start in the autumn of this year,with full production from both fields setfor two years later.
Chevron closes its online marketplaceSAN FRANCISCO — Chevron has announcedit has discontinued the operations of its Sili-con Valley Oil Co (SVOC) online market-place. Launched last June, SVOC facilitatedspot-market sales of fuels to commercial andindustrial customers via the Internet and be-gan its online unbranded fuels auction sitein August 2000. Chevron said that while feed-back concerning SVOC was positive, thenumber of customers did not increase at arate needed to sustain long-term growth ob-jectives. Chevron Vice-President and Presi-dent of Chevron Products Co, PatriciaWoertz, commented: “As a first-generatione-business, SVOC was an excellent testingground for ideas and technology, and we be-lieve the lessons learned from SVOC will helpstrengthen and develop our competitive ad-vantage.”
Shell reports excellent results for 2000LONDON — Royal Dutch/Shell Chairman, SirMark Moody-Stuart, has reported recordfourth quarter and full year results for thegroup, with all businesses delivering resultsin 2000 ahead of target. Moody-Stuart com-mented: “At the end of 1998 we set out ourprogramme to restore Shell to full health bythe end of 2001, and I am proud to say thatwe have more than achieved this recoveryfaster than planned.” He noted that the grouphad already exceeded its target of $4 billion ayear of cost improvements by end-2001, andthat the return on average capital employedwas 20 per cent, ahead of the end-2001 tar-get of 14 per cent. This, in combination withhigher oil prices, resulted in a strong cash flowthat was supporting a dividend increase inexcess of inflation and a significant share buy-back programme that would start immedi-ately, he said.
Conoco finds oil near Heidrun fieldSTAVANGER, NORWAY — Norske Conoco, theNorwegian subsidiary of US major Conoco,has made an oil discovery near the giantHeidrun field in the Norwegian sector of theNorth Sea. The firm said that exploration well6507/7-13 proved the presence of oil in theJurassic formation. An extended evaluationprogram was carried out to collect reservoirand geological data, which included drillinga sidetrack hole to obtain core samples. Thewell was not drill-stem tested, but Conocosaid that it held future interest due to its prox-imity to the Heidrun platform. Explorationlicense 095 was awarded to Norske Conocoin Norway’s eighth round of offshore licens-ing in 1984. The partners in the license areNorske Conoco (the operator with 20 percent), Statoil with 75 per cent, and FortumPetroleum with five per cent.
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32 OPEC Bulletin
The report also said that an agreementhad also been reached with NIOC to usethe associated gas from the fields. Theutilization scheme would be determinedand implemented during the course ofdevelopment activities, it added.
Algerian oil and gasoutput and revenuesboth climb in 2000Algiers — Algerian production of hy-drocarbons exceeded 200 million tonnesof oil equivalent last year, compared with188.46m toe in 1999, according to theVice-President of state oil firm Sonatrach,Mohamed Hamel.
The country’s hydrocarbon receipts in2000 were worth more than $20 billion,up sharply from the 1999 levels, he toldan industry conference in Algiers lastmonth.
Output of liquefied petroleum gas lastyear amounted to 8.4m t, compared with7.3m t in 1999. Hamel also said the in-crease in hydrocarbons production hadbeen coupled with an increase in reserves,estimated at 10bn barrels of oil equivalent.
During the period under review,Sonatrach marketed 144m toe of hydro-carbons, including more than 60bn cubicmetres of natural gas.
Hamel also indicated that by the year2004, Sonatrach was aiming to produce1.5m b/d of oil and to market 186m toe/year of hydrocarbons.
Nigeria LNG exports itsone hundredth cargoto Italian customerLagos — The one hundredth cargo ofliquefied natural gas produced by NigeriaLNG (NLNG) set sail out of the countrylast month, the firm has announced.
“This cargo, which constitutes a ma-jor milestone for the company, will bedelivered to Enel of Italy through its re-ceiving terminal at Montoir in France,”said the company’s General Manager forExternal Relations, Ms Siene Allwell-Brown.
NLNG began product exports in
October 1999 and has delivered six LNG
spot cargoes to buyers in the United States.Ms Allwell-Brown quoted NLNG’s
Managing Director, Andrew Jamieson, assaying that the shipping of the 100th cargofurther confirmed Nigeria as a major playerin the world LNG market.
He pointed out that the company’sworld-class performance had resulted inthe endorsement of plans to build a thirdLNG train, which would come onstreamlate next year.
NLNG also had plans to developfourth and fifth trains, scheduled to comeonstream in 2005, Jamieson was quotedas saying.
The company began production onSeptember 16, 1999 and exported its firstcargo on October 9 of the same year.
Its 50th cargo was exported on August5, 2000, while the first spot cargo to theUS was shipped on May 25, 2000.
NLNG is a joint venture between thestate-run Nigerian National PetroleumCorporation (NNPC), which owns 49 percent equity in the project, Royal Dutch/Shell (25.6 per cent), France’s TotalFinaElf(15 per cent), and Italy’s Agip (10.04 percent).
India mulls purchasesof natural gas from theUAE’s Dolphin projectAbu Dhabi — India is discussing thepossibility of receiving gas supplies fromthe United Arab Emirates-based Dolphinproject, according to K C Singh, the In-dian Ambassador to the UAE.
Singh said the talks were part of ini-tiatives taken by the Indian government,in order to increase co-operation with theUAE in the oil and petrochemical sector,reported the official UAE News Agency,WAM.
Speaking after the inauguration ofIndexpo 2001 in Dubai last month, Singhdiscussed demand for gas in India, and saidhis country was open to supplies from anysource.
Regarding the Dolphin gas supplies,Singh said that the Indian government wasawaiting an agreement on the price, andonce that was completed, India wouldbegin negotiations.
Norway’s Statoil delivers record resultsSTAVANGER, NORWAY — Norway’s Statoil hasannounced a profit before tax of NOK 38.1billion for 2000, an increase of 183 per centfrom the year before, and the best result inthe group’s history. Net profit for the yearcame to NOK 11.3bn, an improvement ofNOK 6.6bn from 1999. Return on capitalemployed rose from 5.9 per cent in 1999 to15.1 per cent. “This is a very satisfactory re-sult,” said the firm’s Chief Executive OlavFjell. “We have benefited from developmentsin the oil and gas market, and our improve-ment efforts have also contributed. Our costshave been reduced in line with the targetswe’ve set for ourselves, and we have improvedthe overall portfolio by concentrating opera-tions on our core assets,” he noted. However,Fjell added that he was still not satisfied withthe group’s safety record and said there hadbeen “too many serious incidents” last year.
TotalFinaElf begins Bolivian gas outputPARIS — France’s TotalFinaElf has announcedthe start-up of production in the first devel-opment phase of the San Alberto natural gasreserves in Bolivia as scheduled, only a yearand a half after the project was launched. TheSan Alberto block, located in the southerndepartment of Tarija, came onstream at thebeginning of January. Partners in the projectare TotalFinaElf with 15 per cent, PetrobrasBolivia (the operator with 35 per cent) andEmpresa Petrolera Andina (50 per cent). Witha production capacity of 6.6 million cubicmeters/day, the first phase is supplying theBrazilian gas market through the Bolivia-Bra-zil pipeline under a 20-year take-or-pay con-tract with Petrobras. Under the terms of thesame contract, TotalFinaElf and its partnersplan to increase their gas deliveries to 12mcu m/d when the project’s second phase isbrought on stream in 2002.
IPE to launch electricity futures contractLONDON — The International Petroleum Ex-change is to launch its electricity futures con-tract in March this year. The new electricityfutures contract will trade on the IPE’s elec-tronic energy trading system, alongside theexisting successful natural gas futures con-tract, creating the UK’s first integrated utili-ties marketplace. The first contract month forelectricity futures will be May 2001, offeringtraders the opportunity to manage their pricerisk exposure for the new physical electricitycontract year starting in April. The contractwill be cleared by the London ClearingHouse, acting as central counter-party to alltrades, offering security of the contract andmaintaining anonymity for traders. Marginoffsets with gas futures will be considered oncesufficient price history has built up.
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March 2001 33
M A R K E T R E V I E W
Table A: Monthly average spot quotations of OPEC Reference Basket and selectedcrudes including differentials $/b
The average monthly price of the Basketchanged direction in February and in-creased by $1.35 per barrel to register$25.41/b for the month. The biggest con-tributors to the rise were Arabian Lightand Dubai, which gained $2.51/band $2.23/b, respectively. They were fol-lowed by Brent-related Bonny Light andSaharan Blend, which added $1.97/b and$1.72/b to their values, respectively. Mi-nas also moved higher, by $1.59/b, whileTia Juana Light and Isthmus lost 39¢/band 17¢/b, respectively (see Table A).
In the first week of February, theaverage price of the Basket surged by$2.01/b to $26.86/b, as prices in the USAmoved higher on cold weather forecastsand fund-buying in the futures markets.Freezing temperatures in the North Seaalso supported prices, with one millionb/d being taken out of production tempo-rarily. During the second week, the weeklyBasket lost most of its early gains, drop-ping by 89¢/b as market sentiment turnedbearish. A downward revision by the In-ternational Energy Agency (IEA) of itsdemand growth projection for 2001, from1.9m b/d to 1.5m b/d, at a time when US
weekly stock data showed a build in crudeinventories of 4.08m b, according to theDepartment of Energy, undermined mar-ket confidence; this was further burdenedby signs of a slowdown in the US economyand signals that OPEC might not cutproduction in March. Adding furtherpressure was the sharp fall in Brent prices,after the squeeze, that had appeared in theearlier week, was abated. The slide in pricescontinued into the third week, amid vola-tility and uncertainty. Expectations thatOPEC would cut production by a further1m b/d at its March Meeting of the Con-ference and tensions in the Middle East,especially related to Iraq, were bullishfactors. However, these were overcome byconcern regarding a decline in demand, aswinter began drawing to a close, and withuncertainty regarding increases in Chinesedemand and Iraqi exports, and the Basketlost $1.14/b. In the fourth week of Feb-ruary, the Basket witnessed a further de-crease of 73¢/b and registered $24.10/b,as some OPEC officials stated that nofurther cuts were needed if prices remainedstable and as comments from Mexico andNorway pointed in the same direction.
US and European marketsThe very low crude oil stock level
(58m b) in the US Midlands caused WestTexas Intermediate (WTI) to disconnect
February1
1. This section is based on the OPEC MonthlyOil Market Report prepared by the ResearchDivision of the Secretariat — published inmid-month and containing up-to-date analy-sis, additional information, graphs andtables. Researchers and other readers maydownload the publication in PDF formatfrom our Web site (www.opec.org), providedOPEC is credited as source for any usage.
2. An average of Saharan Blend, Minas, BonnyLight, Arabian Light, Dubai, Tia JuanaLight and Isthmus.
from the international market. The situ-ation continued throughout the month, asthe lack of pipeline space prevented im-ported cargoes from being moved inlandto replenish inventories. This also causedmany sweet grades traded in the GulfCoast to come under pressure, especiallysince there was an abundance of availableWest African supplies. Sour crudes, on theother hand, were weakening under theweight of the overhang, causing BasrahLight to be traded at a discount of over$5.5/b to WTI.
In Europe, dated Brent surged by$3/b in the first week of the month, dueto traders’ play with dated Brent, in addi-tion to the freezing weather in the NorthSea which disrupted production. This riseundermined refiners’ margins for all NorthSea grades. However, in the followingweek, Brent lost $4.5/b, as the traders’position unwound and as the IPE Marchcontract, which a European major hadtaken long positions on, expired. The lowerprices for Brent, that caused refiners’margins to revive, did not tempt refinersenough, especially since there was main-tenance ahead. Dated Brent again sufferedlosses, due to a distortion in the Contractfor Differences market, as buyers of car-goes loading in early March asked fordeferred prices, and hence spot prices wereopaque.
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M A R K E T R E V I E W
In the Mediterranean, initially poorrefiners’ margins put pressure on Urals,but even their improvement in the secondweek of the month could not support thegrade, as unsold prompt cargoes main-tained the pressure. The abundance ofUrals cargoes in the second half of themonth also kept the differential to Brentwide.
Far Eastern marketsPlanned refinery maintenance in
North-East Asia (Japan and South Korea),in addition to the end-of-winter seasonalfactors, limited buying interest. However,strong naphtha prices in the second halfof the month supported light sweet Asiancrudes. There were extra volumes of heavysweet crudes (Minas) due to prolongedrefinery maintenance at the Balongan re-finery, but China and South Korea clearedthe excess in a bargain-hunting exercise.
Product markets andrefinery operations
Oil product prices exhibited divergenttrends in February across the three prod-uct market centres. They gained in bothRotterdam and Singapore, largely on theback of soaring crude prices, which spurreda number of refinery run cuts on top ofongoing refinery turnarounds, while thelight product market lost ground in the USGulf, undermined mainly by thin demand.Refiners’ margins declined significantly inthe US Gulf Coast, but still enjoyed posi-tive values due to the strength of the fueloil market; they fell further in both Rot-terdam and Singapore, hampered by surg-ing crude oil prices, despite restrictedrefinery runs (see Table B).
US Gulf marketLight product prices plunged in the
US Gulf market in February, while theheavy end of the barrel remained wellsupported. Following its tremendous gainsin January, the average gasoline price ex-perienced a significant loss of $2.05/b inFebruary; this largely reflected a shift inthe refinery operational mode that favouredgasoline over distillate products, coupledwith a disproportionate unleaded wintergasoline sell-off, in order to dispose ofwinter grades in the transition to stricter
market is strong, is sometimes used as asupplement to low sulphur fuel oil, thuspromoting US electrical utilities to in-crease the share of less expensive fuel oilvis-à-vis gas. This, together with healthyMexican demand, comprised the mainreasons for the dislocation of strong fueloil from the weaker crude markets and,consequently, led to fuel oil soaring by anaverage of $2.05/b, compared with a slightclimb in WTI prices (+6¢/b) (see Table B).
After witnessing peaks in the preced-ing month not seen for at least five years,US refiners’ margins in the US Gulf marketretreated considerably in February, as aconsequence of weakening light productmarkets. Nonetheless, continuously soar-ing fuel oil prices, at the time of a slightincrease in US crude oil, lent good support
Table C: Refinery operations in selected OECD countries
1. Refinery capacities used are in barrels per calendar day. na Not available.2. European Union plus Norway. R Revised since last issue.Sources: OPEC Statistics, Argus, Euroilstock Inventory Report/IEA.
summer gasoline specifications, therebyresulting in abundant supply at a time ofusually thin demand. Moderate weatherweakened heating oil demand, amid levelsof US distillate inventories which sur-passed those of last year, and these factorsconstituted the main reasons for gasoilplummeting by an average of $3.55/b. Itis worth noting that tumbling US GulfCoast light product prices paved the wayfor their counterparts on the US EastCoast to retain their usual premiums,which, in turn, allowed product shippingfrom the former region’s refiners to thelatter region.
Despite the continued falling cost ofnatural gas, it was still well above both lowand high sulphur fuel oil prices. Highsulphur fuel oil, especially if the fuel oil
OPEC President, Dr Chakib Khelil, thatthere was no need for further cuts, all putheavy pressure on prices. The collapse ofthe spreads between the first and the sec-ond front-month and between the secondand the third front-month added to thepressure.
In the third week, NYMEX WTI didnot respond to news regarding tensions inthe Middle East, nor to the huge draw onUS crude oil inventories, which was causedby conditions in the US Gulf Coast. Sig-nals from OPEC also failed to move themarket higher.
The price of the NYMEX WTI con-tract continued to fall in the final week ofFebruary, ending at $25.57/b, as com-ments from OPEC officials and non-OPEC Mexico and Norway pointed awayfrom the possibility of production cuts inMarch.
The tanker market
OPEC area spot-chartering decreased by1.86m b/d to a monthly average of 12.02mb/d in February, a month in which OPECfixtures decline seasonally. The downturnin OPEC spot fixtures was the result of thecut in OPEC oil production, which cameinto effect on February 1, and, to someextent, lower Asian demand, due to refin-ery run cuts and maintenance. Comparedwith year-ago fixtures, the current volumeis 1.61m b/d lower. The OPEC produc-tion cut also affected the downtrend forglobal spot-chartering, which fell by 2.30mb/d to stand at a monthly average of 21.34mb/d; this was 4.68m b/d below last year’slevel. OPEC’s share of global spot fixturesstood at 56.34 per cent, which was 2.37percentage points lower than its share inthe preceding month. Middle East east-bound and westbound long-haul fixturesdeclined by 560,000 b/d to 4.28m b/d andby 490,000 b/d to 1.87m b/d, respec-tively. The share of eastbound long-haulchartering rose by 0.76 percentage pointsto 35.62 per cent, while that of westbounddeclined by 1.49 percentage points to 15.53per cent. Together, they accounted for51.16 per cent of total chartering in theOPEC area, and this was 2.21 percentagepoints below last month’s level. Prelimi-nary estimates of sailings from the OPECarea for the weeks ending February 3, 10,
to margins, which remained modestly inpositive territory (see Table C).
US refinery throughput fell slightly,by 33,000 b, to register an average of14.99m b in February, which is equivalentto a 90.6 per cent utilization rate; this was4.9 percentage points higher than theprevious year’s figure.
Rotterdam marketEuropean crude prices (ie, Brent)
surged by an average of $1.70/b in Feb-ruary, thereby causing a tightness in prod-uct supply, as most regional refineries wereforced to cut runs, while others opted forearly turnaround maintenance; both, inturn, supported product markets. Gaso-line gained significantly, by an average of$2.64/b, boosted by transatlantic ship-ping to the USA in the first half of themonth, followed by strong demand fromthe UK and West Africa.
Despite thin regional demand, on theback of prevailing moderate weather acrossEurope and restricted arbitrage move-ments, the average gasoil price rose by73¢/b, helped by decent German demand.Fuel oil surged by an average of $2.72/b,on a number of supporting factors: first,rising crude markets; secondly, arbitragetrading to the USA and the Far East, whichalso spurred strong bunker demand; andthirdly, lower fuel oil stocks in Europe (seeTable B).
Refiners’ margins deteriorated furtherin Rotterdam, with all crude grades re-maining well in negative territory. Sizeablecrude gains, particularly during the firstweek of the month, impacted marginsheavily.
Refinery throughput in Eur-16 hov-ered at 12.39m b/d in February, a fall of1.64m b from January’s runs (see TableC). Furthermore, the equivalent utiliza-tion rate was 90.4 per cent, which wasbarely 0.3 percentage points above lastyear’s level.
Singapore marketApart from gasoil, which declined
further on sustained ample supply in theface of limited regional demand, productmarkets were generally bullish in Febru-ary. This was in line with crude gains andhealthy regional demand, combined withcontinued refinery run cuts in Singaporeand South Korea and ongoing Asian refin-
ery maintenance in Indonesia and Thai-land. Gasoline surged by an average of$1.31/b, helped by prevailing strong In-donesian buying. Gasoil continued itsdowntrend and lost an average of 84¢/b,as the North Asian winter approached itsend; this was despite short-lived, soaringkerosene regional buying interests, includ-ing from India, following an earthquakethat hampered production at Reliance’sgiant refinery. Fuel oil regained most ofthe previous month’s losses and reboundedby an average of $1.70/b, supported byrising crude markets and healthy regionaldemand, particularly from the top regionalimporter, China, which purchased aboutone million tonnes (see Table B).
Refiners’ margins plunged into nega-tive territory in Singapore in February,reflecting an upsurge in Asian crude, withDubai being the highest among other crudemarkers, registering an increase of $2.51/b.
Refinery throughput in Japan increasedby nearly 38,000 b to an average 4.56mb/d in January. Hence, the equivalentutilization rate also rose, to 91.9 per cent,which was 5.8 percentage points above theprevious year’s level (see Table C).
The oil futures market
During the first week of February, NYMEXWTI gained $1.77/b amid volatility, toreach a high for the month of $29.90/b.The basic driver of prices was fund-buy-ing, after the Commitment of TradersReport showed that, as of January 30, non-commercials were set short by 17,033contracts. A draw on gasoline stocks alsosupported the unleaded market, whichgave further momentum to the rally andoccurred despite a build-up in crude oilstocks, especially in the US Midlands andthe US Gulf Coast. However, stocks in theUS Midlands are still considered low, atthe 58m b level.
NYMEX WTI fell to $28.80/b in thesecond week, losing around $2.8/b inresponse to the IEA report, which loweredits demand forecasts, and as US weeklystock data showed builds in crude oil anddistillate inventories. Concern about theUS economic slowdown and remarks bythe Federal Reserve Chairman, AlanGreenspan, that high prices would reducedemand, in addition to a statement by the
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17 and 24, are 21.85m b/d, 22.51m b/d,19.38m b/d and 20.77m b/d, respectively.The Middle East’s share of OPEC sailingswas 69.96 per cent, which was 0.57 per-centage points higher than the figure re-corded last month. Arrivals in the US Gulfand East Coasts, including the Caribbeanand NW Europe, moved down by 580,000b/d to 7.65m b/d and by 170,000 b/d to6.11m b/d, respectively, while arrivalswithin Euromed rose by 190,000 b/d to4.32m b/d. The estimate of oil-at-sea onFebruary 25 is 465m b, which was 9m bless than that observed at the end of Janu-ary.
Freight rates for VLCC long-haulcargoes from the Middle East to the FarEast and the West showed further de-creases in February, when they fell by 47and 28 points to monthly average levels ofWorldscale 100 and W91, respectively.The cut in OPEC production, which wasannounced on January 17, had a negativeimpact on VLCC freight rates; these werealso affected by plummeting Suezmaxfreight rates, as traders were discouragedfrom combining cargoes. Suezmax freightrates saw the largest plunge among theother tanker rates, as they slipped by 73points to stand at W148. The lower numberof inquiries resulted in a very high level ofavailable tonnage. Thus, Suezmax freightrates were depressed to their lowest levelsince June 2000. Aframax freight ratesmoved in different directions during Feb-ruary, as they suffered from further losseswithin the Mediterranean and from thereto NW Europe, when they plunged by 34points to W216 and by 22 points to W236,respectively, on the back of stagnant de-mand.
On the Caribbean/US East Coast route,Aframax freight rates enjoyed a gain of 13points to W294, due to strong activity.Aframax freight rates for 70–100,000 dwttankers for cargoes from Indonesia to theUS West Coast almost stabilized at theprevious month’s average level, experienc-ing a decline of just two points to W251,due to steady activity.
Lower activity in the Far East, espe-cially in the second half of the month,pushed down product freight rates formedium-range tankers in February. Therates on the routes from the Middle Eastand Singapore to the Far East dropped by38 points to a monthly average of W321
and by 41 points to W373, respectively.Within the Mediterranean, clean cargorates moved down marginally, by fourpoints, to a monthly average of W329, onthe back of steady activity. Along theMediterranean/NW Europe and Carib-bean/US Gulf Coast routes, product freightrates gained 23 points to W380 and sevenpoints to W326, respectively.
World oil demand
Figures for 2000
WorldAs we prepare to enter the second
quarter of the year, it is the first time thatwe have a complete set of data on oilconsumption for the OECD countries forthe year 2000. OECD petroleum productconsumption data have a two-to-three-month time-lag; therefore, the oil demandfigures for December 2000 were onlyreleased by the middle of March 2001. Inthe case of developing countries, the time-lag is approximately one year; thus, as ofthe time of writing this issue of the report,the only available preliminary DC de-mand data include only 1Q2000, with theremaining three quarters based on esti-mates. From past experience, it is possibleto affirm that, after all data are compiledfor a given year for DCs, the final figurescan swing up or down by 100,000 b/d. Asfor the former CPEs, there is also a com-plete set of preliminary apparent demanddata for the past year, even though it isimportant to mention that the prelimi-nary figures are exactly that, preliminary,and that they can always be, and mostlikely will be, revised in future issues. Withthis prelude, we wish to bring to the at-tention of our readers the fact that the oildemand figures presented below for 2000are the best estimates, according to thelatest available data. However, they are byno means final and most likely will besubject to further revision.
World oil demand growth has onceagain been revised down for the year 2000.According to the most up-to-date data,demand grew by 730,000 b/d, or 1.0 percent, and averaged 75.71m b/d last year.The quarterly data show that consump-tion fell by 0.4 per cent in 1Q, but recov-ered for the remaining three quarters, rising
by 1.6 per cent, 2.0 per cent and 0.7 percent, respectively. It is important to notethat, even though consumption posted anincrease during the last quarter, the weakgrowth rate was evidence of a deceleration.The slowdown in consumption was par-ticularly apparent in Japan and SouthKorea, as well as in major Asian developingcountries. On a regional basis, OECDconsumption registered a marginal de-cline of 40,000 b/d, or –0.1 per cent, toaverage 47.58m b/d. DC consumption isprojected to have risen by 510,000 b/d, or2.8 per cent; however, as mentioned above,due to the limited reliability and availabil-ity of the data, no definite conclusionsshould be drawn. Finally, apparent con-sumption for ‘Other regions’, derived fromproduction and trade statistics, seems tohave risen by 260,000 b/d, or 2.9 per cent,to 9.25m b/d.
Projections for 2001The world oil demand forecast for the
year has been revised down by 140,000b/d and now stands at 77.01m b/d, whichtranslates into a growth rate of 1.7 per centor 1.30m b/d. However, there is a possi-bility that demand growth in 2001 will belower than we all expect. There are alreadyincreasing signs that demand growth isweakening. Western Europe’s consump-tion contracted by 2.5 per cent in 4Q2000,after signs of recovery in 2Q (1.1 per cent)and 3Q (2.4 per cent). The same can besaid about Japan and South Korea, whereinland deliveries of petroleum productsdeclined by 4.4 per cent and 2.0 per centin 4Q2000, respectively. In the USA, thebiggest global oil consumer, demandshowed almost no growth during 4Q2000,having risen only modestly in earlier quar-ters (0.4 per cent in 2Q and 0.2 per centin 3Q). Not to be taken lightly is thepossible strengthening of petroleum prod-uct prices in the USA (especially gasolineand heating oil), which, in turn, coulddampen demand. Low gasoline and heat-ing oil inventories ahead of the driving andheating oil seasons and refinery bottle-necks could result in a price hike similarto the one experienced last year. Tempera-ture could be another factor underminingdemand in the USA. In terms of degreedays, January has been 6.5 per cent warmerthan normal. In Europe, the factors affect-ing demand growth are more of a struc-
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tural nature. The continued phasing-outof fuel oil (especially in Italy), high taxa-tion of petroleum products, stricter envi-ronmental measures and restructuring inthe energy industries will have negativerepercussions on demand for oil in theshort and the long terms. Another factorundermining demand is the ongoing phas-ing-out of government subsidies in manydeveloping countries, especially in Asia,which will ultimately translate into higherprices for consumers.
OECDOECD inland delivery of petroleum
products is projected to rise by 560,000b/d, or 1.2 per cent, to average 48.14mb/d in the present year. Slightly more thanhalf the incremental consumption willoccur in North America. The USA willaccount for the lion’s share of this group,with Mexico and Canada providing one-third of the total demand growth in theregion. Consumption in Western Europeis projected to rise modestly by 140,000b/d, or 0.9 per cent, to 15.11m b/d, afterdeclining in the last two years. The pro-jection is based on a healthy 2.9 per centregional forecast rate of economic growth;nonetheless, recent signs of economicweakness could dampen consumption onthe continent. Deliveries of petroleumproducts in OECD Pacific countries areexpected to rise by little more than 100,000b/d, which translates into a growth rate of1.2 per cent. Healthy projected economicgrowth in South Korea, Australia and NewZealand will be the main force driving oildemand growth. However, Japan’seconomy, by far the biggest oil consumerin the region, is expected to feature a mild0.7 per cent economic expansion, whichwill ultimately result in lower oil con-sumption.
Developing countriesDC oil demand has been revised down
by 30,000 b/d for 2001. Consumption isnow expected to rise by 590,000 b/d, or3.1 per cent, to average 19.47m b/d for theyear. The estimated growth rate in con-sumption has been lowered to 3.7 per centfor the Asian countries from the previous4.2 per cent. The correction captures theperceived slowdown in consumption ob-served in January. Projections for the re-maining regions of this group (Latin
America, Middle East and Africa) havebeen kept unchanged from the last report.
Other regionsCurrent projections set apparent con-
sumption for ‘Other regions’ at 9.41mb/d, rising by 160,000 b/d, or 1.7 per cent,during the year. Apparent demand in theFSU is projected to shrink by 0.9 per cent,or 30,000 b/d, a very conservative estimatewhen compared with the previous year.We expect the continued significant de-cline in apparent consumption seen in2000 to be somehow capped by the healthyrate of economic expansion anticipated for2001. Nonetheless, the high levels of debtand the incentive to maximize exports atthe expense of domestic consumption couldtranslate into another considerable declinein consumption. As we stated in our lastreport, China remains the wild card, whenassessing demand for the present year.There are signs which suggest that appar-ent demand in China experienced a decel-eration during the last month of 2000 andthe beginning of 2001. In our forecast, weestimate that apparent demand will expe-rience a growth rate of 3.5 per cent for thepresent year, even though the estimate foreconomic expansion remains very healthyat 7.0 per cent. The reasons for the low rateof growth are twofold: on the one hand,it is believed that China is holding highinventories of products, while, on the other,there is the fact that government subsidieshave been continuously eliminated, re-sulting in higher prices for consumers.China’s oil consumption will be critical,in order to balance the global supply/demand equation. A small increase inChinese consumption or, even worse, adecline will mean that the critical balancebetween supply and demand will have tobe adjusted, in order to avoid a negativeimpact on prices. This became evident lastyear, when two-thirds of the total growthin consumption originated in China.
World oil supply
Non-OPEC
Historical data, including 1999There are no revisions to non-OPEC
supply historical data, compared with thelast report’s figures.
Figures for 2000The non-OPEC supply total for 2000
has been revised down by around 80,000b/d to 45.81m b/d, since the last report.This is the result of revisions made to thefigures for the quarterly non-OPEC sup-ply distribution, which have been reviseddown by 30,000 b/d to 45.85m b/d, 30,000b/d to 45.54m b/d, 60,000 b/d to 45.67mb/d and 180,000 b/d to 46.17m b/d, re-spectively. The yearly average increase isestimated at around 1.23m b/d, comparedwith the 1999 figure.
Expectations for 2001The non-OPEC supply forecast for
2001 has been revised down by around320,000 b/d to 46.50m b/d, which is690,000 b/d more than revised figure for2000. Also, the expected non-OPECquarterly distribution is down by 130,000b/d to 46.67m b/d, 170,000 b/d to 46.32mb/d, 350,000 b/d to 46.32m b/d and620,000 b/d to 46.69m b/d, respectively.
The FSU’s net oil export figuresfor 2000 and 2001 have been revisedup by 10,000 b/d to 4.14m b/d and200,000 b/d to 4.52m b/d, respectively,compared with the last report’s figures (seeTable D).
OPEC natural gas liquidsOPEC NGL data for the 2000 estimate
and 2001 forecast remain unchanged, at2.91m b/d and 2.95m b/d, respectively.
that, in February, OPEC output was27.56m b/d, which was 580,000 b/d lowerthan the revised January level of 28.14mb/d. Table E shows OPEC production, asreported by selected secondary sources.
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Stock movements
USAUS commercial onland oil stocks
showed a further slight draw, of 7.9m b,or 230,000 b/d, to 914.7m b, duringJanuary 26–March 2. Most of the drawtook place on ‘Other oils’, which fell by7.2m b to 144.2m b, and, to a lesser extent,on crude oil, as stocks moved down by5.3m b to 277.3m b, on the back ofdelayed offloadings of imported crudes atthe US Gulf Coast, due to bad weather.Gasoline also showed a slight decrease, of2.9m b to 203.0m b, as a result of lowergasoline output, due to refinery shutdownsand closed transatlantic arbitrage. A buildof 5.0m b to 93.7m b in unfinished oilsand slight increases of 3.1m b to 37.5mb in fuel oil and 1.1m b to 115.6m b indistillates diminished the overall draw.Total oil stocks were about two per centabove the year-ago level.
During the same period, the US Stra-tegic Petroleum Reserve (SPR) rose by1.0m b to 541.7m b (see Table F).
Western EuropeIn February, commercial onland oil
stocks in Eur-16 (EU plus Norway) showeda minor draw of 1.5m b, or a rate of 50,000b/d, to 1,068.8m b. This draw resulted
basically from a decrease of 4.3m b to646.3m b in total major products; middledistillates accounted for most of this draw,declining by 3.4m b to 338.0m b, on theback of lower distillate production and, tosome extent, healthy demand, especiallyin the second half of the month, due tocolder weather. A build of 2.8m b to422.5m b in crude oil was due to a dropin refinery throughput, which declined by3.36m b. The overall level was 3.6m bhigher than that registered a year earlier(see Table G).
JapanIn Japan, commercial oil stocks de-
creased marginally, by 2.0m b, or a rate of60,000 b/d, to 176.5m b in January. Adraw of 3.5m b to 36.8m b on middledistillates, which was due to relativelystrong demand, contributed mainly to thisdecline, while a build of 1.9m b to 14.6mb in gasoline outpaced this draw. Crudeoil remained almost unchanged from theprevious month’s level. The total level wasabout six per cent lower than last year’sfigure (see Table H).
Balance of supply/demandThe non-OPEC supply estimate for 2000has been revised down from last month’sreport by less than 100,000 b/d to 48.7mb/d, and that for world oil demand bymore than 100,000 b/d to 75.7m b/d. Thedifference item therefore remains un-changed at 27.0m b/d. The balance itemshave been revised down by 200,000 b/dto 2.0m b/d for 2Q and up by 400,000b/d to 900,000 b/d for 4Q. The overall2000 balance has been revised up margin-ally, by 100,000 b/d (see Table I).
The non-OPEC supply and world oildemand forecasts for 2001 have been re-vised down by more than 300,000 b/d to49.4m b/d and by 100,000 b/d to 77.0mb/d, respectively; the annual difference is,therefore, estimated at 27.6m b/d, up byless than 200,000 b/d from last month’sreport. The quarterly distribution fore-casts have been revised up by 100,000b/d to 27.3m b/d, by 300,000 b/d to25.9m b/d and by 300,000 b/d to 27.8 forthe first three quarters, while 4Q remainsunchanged at 29.2m b/d.
Table E: OPEC crude oil production, based on secondary sources 1,000 b/d
Note: Totals may not add up due to independent rounding.1. Secondary sources.2. Stock change and miscellaneous.
Table I above, prepared by the Secretariat’s Energy Studies Department, shows OPEC’s current forecast of world supply and demand foroil and natural gas liquids.
The monthly evolution of spot prices for selected OPEC and non-OPEC crudes is presented in Tables One and Two on page 42, whileGraphs One and Two (on pages 41 and 43) show the evolution on a weekly basis. Tables Three to Eight, and the corresponding graphson pages 44–49, show the evolution of monthly average spot prices for important products in six major markets. (Data for Tables 1–8 isprovided by courtesy of Platt’s Energy Services).
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Graph 1:Evolution of spot prices for selected OPEC crudes,
1. Tia Juana Light spot price = (TJL netback/Isthmus netback) x Isthmus spot price.2. OPEC Basket: an average of Saharan Blend, Minas, Bonny Light, Arabian Light, Dubai, Tia Juana Light and Isthmus.Kirkuk ex Ceyhan; Brent for dated cargoes; Urals cif Mediterranean. All others fob loading port.Sources: The netback values for TJL price calculations are taken from RVM; Platt’s Oilgram Price Report; Secretariat’s calculations.
2000Member Country/ Feb Mar April May June July Aug Sept Oct Nov Dec Jan Februarytype of crude (API°) 5Wav 4Wav 4Wav 5Wav 4Wav 4Wav 5Wav 4Wav 5Wav 4Wav 4Wav 5Wav 1W 2W 3W 4W 4Wav
2000Country/ Feb Mar April May June July Aug Sept Oct Nov Dec Jan Februarytype of crude (API°) 5Wav 4Wav 4Wav 5Wav 4Wav 4Wav 5Wav 4Wav 5Wav 4Wav 4Wav 5Wav 1W 2W 3W 4W 4Wav
M E M B E R C O U N T R Y F O C U SM E M B E R C O U N T R Y F O C U S
opecna news desk ... from the opecna news desk ... from the opecna
Iran plans to export waterto five Middle East states
Tehran — Iran is planning to supply water to five Gulf statesto help them overcome water shortages, it was report in thegovernment daily Iran last month.
The paper quoted First Vice-President Hassan Habibi assaying: “The five Gulf states of Kuwait, Qatar, Saudi Arabia,Bahrain and the United Arab Emirates are among eight coun-tries facing water shortages.”
He added that it would be beneficial both for Iran and forregional security to supply water to the five countries concerned.
Earlier this month, the Kuwaiti government said it wasconsidering a project to transport fresh water from Iran to theEmirate, with the former Kuwaiti Minister of Electricity &Water, Dr Adel K Al-Sabeeh, saying that his country wouldannounce its stance after a thorough survey of the plan.
The Iranian Energy Ministry has said that Iran could exportone billion cubic metres/year of water to the southern Gulflittoral states, and had submitted a related plan to the govern-ment.
Last year, reliable sources said Iran was prepared to go aheadwith a plan to sell drinking water to neighbouring Kuwait.
The project, to be completed within the next five years,would be carried out by a consortium of investors from Iran,Kuwait and the UK. Under the scheme, some 760 million litres/day of water would be supplied to the Emirate by Iran.
The total investment cost of the project was estimated at$2bn. Around 35 per cent of this amount would be met by Iranand the rest financed by the Kuwaiti and British partners.
The project envisions a 540-km pipeline to be built toconduct water from the Karkheh dam in southern Dasht-E-Abbas in Iran’s Khuzestan Province.
Some 330 km of this pipeline, valued at $800m, would beconstructed through Iranian territory, while another 210 km ofline would be laid under the sea.
According to an initial agreement, Iran would supply waterat a cost of $1.5-2.0/litre to Kuwait for a span of 30 years.
However, according to an earlier report in UK newspaperthe Daily Telegraph, the plan may put excessive strain on thewater resources of the Karkheh dam.________________________________________________
Gas supply deal clears wayfor fertilizer project in Dubai
Dubai — The $180 million fertilizer project run by SPICFertilizers & Chemicals (SFC) in Dubai’s Jebel Ali free zone isset for take-off, now that the Dubai government has made a long-term commitment on gas supply, it was reported last month.
The government has agreed to supply natural gas for an
period of initial 15 years, and a gas supply and purchaseagreement will be signed soon, according to SFC DeputyManaging Director, S Chandramohan. Commercial produc-tion at the Jebel Ali plant would begin in the last quarter of nextyear, he added.
Some 400,000 tonnes/year of urea and 226,000 t/y ofammonia would be produced at the plant, all for export to Indiaunder a buy-back arrangement between SPIC India and SFC,reported the Dubai-based paper Gulf News.
The Jebel Ali plant is a joint venture between south Indianagribusiness firm SPIC and Dubai’s ETA group. The projectwas set up in 1996 with an initial investment of $160m, whichwas later revised to $180m.
Construction began in 1998 after SPIC brought a second-hand fertilizer plant from Sri Lanka to Jebel Ali, but the projectmade little headway, due to high naphtha prices and the absenceof a reliable gas supply.
However, over 50 per cent of the project has now beencompleted at an estimated cost of $70m, and the gas is expectedto come from the Abu Dhabi-Dubai gas pipeline.
M W Kellogg is the prime engineering contractor for theammonia plant and Stamicarbon BV of the Netherlands istechnology provider for the urea plant.
The investment in the project is the largest by any overseascompany in the Jebel Ali free zone. It is also the first overseasurea/ammonia project by any Indian company.
SPIC has another Middle East interest: Indo-Jordan Chemi-cals, which is a $170m joint venture based at Eshidiya in Jordanproducing phosphoric acid.________________________________________________
Heads of World Bank and IMFvisit Nigeria to discuss economy
Abuja — The heads of the World Bank and the InternationalMonetary Fund (IMF) visited Nigeria last month and met withPresident Olusegun Obasanjo to discuss economic matters.
Speaking at a joint press conference with World BankPresident James Wolfensohn, the IMF’s Managing DirectorHorst Köhler noted that it could not be said that everything waswell with the Nigerian economy.
Finding the right economic balance would encourage do-mestic and foreign investments to flow into the country, the IMFboss said, adding that it was important for Nigeria to take theright decisions on liquidity, expenditure and fixing the rightprices for basic services.
He added, however, that the Fund was not in the businessof dictating to the Nigerian government what decisions it shouldtake, but it wanted to work with the country in a co-operativemanner.
Köhler said that while it was true that deregulated prices forservices improved the conditions and growth of the economy,
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it was also imperative to consider the “appropriateness” of anydecision relating to prices.
The Nigerian government has come in for a lot of domesticcriticism for blindly accepting decisions from the World Bankand the IMF. Many claim that the government’s plan to deregulatethe nation’s oil industry — which they believe will impoverishordinary Nigerians — was one of the decisions it had thought-lessly followed from the two institutions.
Köhler said the Fund had genuine concerns over the plannedhuge capital expenditure in Nigeria’s 2001 budget, as it hadreservations on the sustainability of such huge expenditure andwhether or not the economy could absorb it.
Nigeria plans to spend some $4.5 billion on the provisionof infrastructure this year, an amount which the IMF and theWorld Bank have said will result in too much money incirculation and hyper-inflation.
He emphasized the need for the people to benefit from thedividends of democracy. He stressed, however, that projectexecution must be transparent and all procurement proceduresmust be open and competitive.
Köhler added that useful discussions had been held not onlywith President Obasanjo, but also with the economic policy co-ordinating committee chaired by Vice-President Atiku Abubakar,and with the legislative arm of government. He emphasized thatthe idea was to offer sound advice based on best practices acrossthe globe.
He said that he believed it was possible for Nigeria’s economyto grow at the rate of between nine and 10 per cent annually,as against the government’s projection of seven per cent, addingthat the country needed to rediscover the fact that it was a richnation.
For his part, the World Bank’s Wolfensohn added that thetwo Bretton Woods institutions were willing and ready tosupport the growth of African economies, and the Bank wouldassist in creating the required atmosphere for achieving rapidgrowth.________________________________________________
Price recovery helps Qatar recordstrong economic growth in 2000
Doha — Qatar recorded strong growth last year and willcontinue to do so in 2001, because of the continuing recoveryin energy prices and higher revenues from the export of liquefiednatural gas, according to a new report issued last month.
The report was presented to the annual general meeting ofthe Qatar National Bank by its Chairman, Yousef HussainKamal, who is also the country’s Minister of Finance, Economy& Trade.
In the report, the Minister noted that the nation’s exportsof LNG rose from 6.5 million tonnes in 1999 to almost 11m tlast year.
He also noted that the country’s gross domestic product wasseen expanding by more than 20 per cent, following an increaseof 18.9 per cent in 1999.
The state budget was forecast to record a surplus, which
would enhance the government’s domestic and internationalreserves, Kamal added.
The Qatar National Bank achieved record results in 2000,with net profits rising by nine per cent and total assets improvingby 10 per cent.
At the same time, the annual inflation rate had remainedbelow three per cent throughout the past two years.________________________________________________
Indonesian exports reach newrecord level of $62bn in 2000
Jakarta — Indonesia earned a record $62.02 billion fromexports last year, reversing a two-year decline, according to thelatest figures from the Central Bureau of Statistics.
Non-oil and gas exports rose by 22.91 per cent to $47.78bn,and oil and gas exports surged by 45.39 per cent to $14.24bn.
The Head of the Bureau, Soedarti Surbakti, said that totalexports for 2000 increased by 27.43 per cent from $48.67bnin 1999. Comparatively, the government had estimated exportslast year at $55bn.
The country’s import bill for 2000 also increased by 39.76per cent to $33.55bn, from $24bn the year before, Soedarti said.
The import of raw materials, mostly used for the re-exportoriented manufacturing sector, shot up by 40.51 per cent to$23.54bn, while the import of capital goods surged by 47.91per cent to $4.09bn. Imports of consumer goods rose by 8.47per cent to $2.52bn.
The nation’s trade surplus for the year under review rose to$28.47bn, up from $24.57bn in 1999, against a backdrop ofthe continuing recovery in oil prices.
Separately, the latest figures from Bank Indonesia, which isthe central bank, said the country’s foreign exchange reservesstood at $29.26bn in the fourth week of January.________________________________________________
Algeria’s foreign debt declinesby $3 billion to ten-year low
Algiers — Algeria’s foreign debt stood at a ten-year low of$25.26 billion at the end of 2000, according to the latest figuresfrom the country’s Central Bank.
The end-2000 level was down by more than $3bn from the$28.31bn recorded in December 1999, noted the Bank.
It added that the ratio between annual debt servicing andexports also fell from 39.05 per cent in 1999 to 19.80 per centlast year. The country’s debt servicing costs were $4.50bn in2000, in comparison with $5.11bn in 1999.
This result, said the Bank, was achieved thanks to firmer oilprices and the corresponding rise in oil and gas export revenueson the one hand, and to better control of macro-financialequilibrium on the other.
At the end of 2000, the country’s short-term debt stood atjust $173 million, out of the total debt of $25.26bn. Themedium and long-term debt of $25.08bn was denominated 73
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per cent in US dollars, French francs, Deutschmarks and Japa-nese yen.
However, the Bank pointed out that in spite of exceptionalexport receipts in 2000 of $22bn and foreign exchange reservesat $11.9bn, the nation’s foreign debt still weighed on its eco-nomic development.
To ease the debt burden, the Bank said that the authoritieswere considering different debt-handling techniques, such asconversion of debt into shares in the Algerian state-owned firmsthat are due to be privatized by the current government.
Meanwhile, the latest figures from the country’s statisticsoffice show that Algeria’s rate of inflation in Algeria has fallensharply over the last six years. From a rate of 30 per cent in 1995,inflation fell to just 0.34 per cent at the end of 2000.
The annual rate of inflation started to come down in 1996and 1997, reaching 18.7 per cent and 5.7 per cent, respectively.The fall continued in the following years to five per cent in 1998,2.6 per cent in 1999, and 0.34 per cent last year.
The office noted that the drop in the inflation rate was oneof targets fixed by the three-year financing facility accord thatAlgeria signed with the International Monetary Fund in 1995.________________________________________________
Iraq and Jordan seeking tosign free trade agreement
Baghdad — Iraq and Jordan have opened talks aimed atreaching a free trade agreement, similar to those signed recentlyby Baghdad with Egypt and Syria, newspaper reports said lastmonth.
The talks were being held between a visiting Jordaniandelegation headed by Trade & Industry Minister, Wasef Azzar,and the Iraqi side led by Trade Minister, Dr Mohammed MehdiSaleh.
“Iraq is seeking to increase the volume of trade exchangeswith Jordan to help reach a free trade agreement, similar to thosesigned with Egypt and Syria,” the papers quoted Saleh as sayingduring a meeting with the Jordanian delegation.
“Iraq’s market is open to Jordanian commercial and indus-trial companies to set up joint projects to achieve economicintegration between the two countries,” he added.
Sources said that the current talks would also tackle problemsfacing Jordan in exporting $450 million worth of goods to Iraq.The exports are part of a barter deal under which Baghdadsupplies Jordan with all its energy needs.
Iraq exports some 4.8 million tonnes/year of crude oil andproducts to Jordan, worth a total of around $600m. These oilexports to Jordan are exempt from the United Nations traderestrictions on Iraq, which have been imposed since 1990.
Earlier, Iraqi newspapers reported that Baghdad had con-cluded a free trade agreement with Syria, along the lines of aprevious deal signed with Egypt.
The deal was signed in Damascus by Iraqi Vice-President,Taha Yassin Ramadan, the most senior Iraqi official to visit Syriafor 20 years, and Syrian Prime Minister, Mohammed MustafaMero.
The free trade agreement stipulates the removal of all cus-toms duties and related taxes on goods originating in either ofthe two countries.
It is expected to increase the volume of trade between Syriaand Iraq to $1 billion this year, up from $500m in 2000.________________________________________________
Saudi Arabia’s SABIC postsbig jump in profit in 2000
Riyadh — The Saudi Arabian Basic Industries Corporation(SABIC) posted a $968 million profit in 2000, an increase of113 per cent over the 1999 figure of $455m, it was announcedlast month.
SABIC Chairman, Hashim A Yamani, was quoted by theSaudi Gazette as saying that the result could be attributed to twomain factors.
One was a rise in global petrochemical prices and the otherwas the firm’s increased efficiency, which was the result of severalprogrammes to improve performance in operations, productionand marketing, that were being implemented by the manage-ment.
SABIC also announced record sales revenues of $6.56bn forlast year, sharply up from 1999’s $5.11bn, noted Yamani, whois also the country’s Industry & Electricity Minister.
The company’s Vice-Chairman & Managing Director,Mohammed H Al-Madhi, said he was pleased with the financialresults.
“SABIC will go ahead with its strategic plans to expand asa global company,” he said.
The SABIC boss added that several expansion programmesthat came onstream last year would boost the corporation’sannual production this year.________________________________________________
Venezuela’s President Chavezannounces Cabinet reshuffle
Caracas — Venezuelan President Hugo Chavez has an-nounced a significant reshuffling of his Cabinet, appointing newDefence, Foreign, Interior & Justice, and Infrastructure Min-isters.
Chavez has appointed Jose Vicente Rangel to become hisnew Defence Minister, replacing General Eliecer Hurtado Soucre,who was named Infrastructure Minister.
Rangel, who had been serving as Foreign Minister, willbecome the first civilian to hold the post of Defence Ministerin about 70 years.
Chavez also named Luis Alfonso Davila to replace Rangelas the new Foreign Minister. Davila had been holding the postof Interior & Justice Minister.
Luis Miquilena has been chosen to replace Davila at the helmof the Interior & Justice Ministry. He had previously served asInterior & Justice Minister at the start of Chavez’s term in officeat the beginning of 1999.
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Kuwait Fund lends Syria $65mto boost power station capacity
Damascus — Kuwait and Syria have finalized an agreementunder which the latter will receive $65 million to expand theNaseriya power station, the Kuwait News Agency (KUNA)reported last month.
The deal was signed by Dr Mohammad Sadeqi, representingthe Kuwait Fund for Arab Economic Development (KFAED),and officials from the Syrian Planning Authority.
KUNA quoted Sadeqi as saying that the loan would financethe import and installation of gas turbines, steamers and twosteam turbines to produce around 300 megawatts of electricity.
The total output of the station, which is located to the north-east of the Syrian capital Damascus, will be about double thatamount.
The project’s total cost is around $217m, with the venturebeing co-financed by the Kuwait-based Arab Fund for Eco-nomic and Social Development.
KFAED has so far extended some $254m in loans to developthe Syrian power generation sector.________________________________________________
Iranian President Khatami opens$100 million petrochemical plant
Mahshahr, Iran — Iranian President Mohammad Khatamihas opened a $100 million plant for the production of paraxylenein southern Iran, reported the official Islamic Republic NewsAgency (IRNA) last month.
The plant’s director, Mohammad-Reza Rezaie, said that itwould produce 180,000 tonnes/year of paraxylene, all of whichwould be exported.
Since March last year, 50,223 t of paraxylene had beenproduced in the country, Rezaie said, adding that 36,820 t ofthe total, worth $15m, had been exported.
Executive operations on the project started in March 1997and ended in March 1999. Rezaie noted that it was partly fundedby a French company, which he declined to name.
The plant is part of the Bandar Imam Khomeini petrochemi-cal complex, Iran’s biggest and one of the largest in the MiddleEast. It took nearly three years to build.________________________________________________
Firm oil prices boost GCC’strade surplus with Japan
Dubai — The value of Japan’s trade with the six membersof the Gulf Co-operation Council (GCC) increased by 68 percent to $23 billion in the first half of 2000, according to figuresreleased by the Japanese External Trade Organization (Jetro).
This compared with $13.77bn during the same period in1999, said Jetro, and attributed the rise to the continuingstrength in crude oil prices.
As a result of this, the cost of Japan’s imports from the GCCnations rose by a hefty 92 per cent, while the value of Japan’sexports to the GCC declined by four per cent.
“Due to the sharp climb in the import value and the declinein exports, the balance of trade grew in favour of the GCCcountries,” Jetro noted.
At the end of June 2000, the GCC nations enjoyed a tradesurplus with Japan to the tune of $16.3bn, an increase of 142.5per cent over the first half of 1999.
The GCC countries, as a single block, supplied more thanthree-quarters (76 per cent) of Japan’s crude oil imports in theperiod under review.
Japan’s total imports from GCC countries in the first halfof 2000 surged to $19.69bn from $10.24bn during the sameperiod in 1999. Fossil fuels constituted 98.5 per cent of the total.
The cost of Japan’s crude oil imports from the GCC surgedby 101.8 per cent to $14.96bn in the first half of last year, upfrom $7.4bn in the corresponding period in 1999.
“Out of the 568 million barrels of crude imported from theGCC in the first half of 2000, 204m b, or 35.9 per cent, camefrom the United Arab Emirates, 194m b (34.2 per cent) camefrom Saudi Arabia, 73m b (12.9 per cent) came from Qatar, 60mb (10.6 per cent) came from Kuwait, and 36m b (6.4 per cent)came from Oman. Imports from Bahrain were limited to refinedproducts only,” said Jetro in a statement.________________________________________________
Algeria not realising its potentialin petrochemicals, says Minister
Algiers — Algeria’s achievements in the petrochemical sectorhave fallen well short of its potential, according to the country’sMinister of Energy & Mines, Dr Chakib Khelil.
Addressing an industry seminar in Algiers last month, henoted that output levels were paltry, in comparison with the levelof installed capacity, which was about 1.5 million tonnes/year.
Even though the sector had been developed in the 1970s,the fall in oil prices in the 1980s had led to all investments inpetrochemicals being stopped, said Khelil.
The seminar examined Algeria’s downstream activities, mostnotably the advantages being offered under the nation’s newhydrocarbons law, related to investments in storage, refining,petrochemicals and the distribution of petroleum products.
In a separate development in the petrochemical sector lastmonth, Algerian state oil and gas company Sonatrach andMalaysia’s Petronas were reported to be finalizing a $1.5 billioncontract.
Sources at the Energy & Mines Ministry said that the dealwould involve construction of a unit to produce ethylene andpropylene, which would be transformed into propylene andPVC. Most of the unit’s production would be used for exports,the sources added.
Also last month, the Vice-President of France’s TotalFinaElf,Christophe de la Margerie, announced that his company washolding discussions with Sonatrach concerning a contract forgas exploration and development.
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Speaking to reporters on the sidelines of an industry con-ference, Margerie indicated that his firm was interested in blocksin the Hamra and Rhourde Nouss regions, in south-easternAlgeria.________________________________________________
EC officials in Nigeria for talkson development co-operation
Abuja — Officials of the European Commission (EC) haveheld discussions with Nigerian President Olusegun Obasanjo,as part of efforts to establish guidelines for development co-operation.
The team of officials was accompanied to the talks by theHead of the EC Delegation in Nigeria, Ambassador VeliOllikainen.
He said in a statement after the session that the talks centredon various areas of mutual co-operation between the EuropeanUnion (EU) and Nigeria.
The visiting team, led by the EU’s Nigeria Desk Officer NickCostello, would spend two weeks visiting six of Nigeria’s 36states which had been identified as potential beneficiaries ofEuropean development assistance.
Ollikainen explained that the six states — Abia, Cross River,Gombe, Kebbi, Osun and Plateau — represented Nigeria’s sixgeo-political zones.
Visits to the states, he added, would be carried out inconjunction with Nigeria’s National Planning Commission, theAfrican Leadership Forum and the Development ResearchNetwork.
During its stay in Nigeria, the team would hold discussionswith state governors, leaders of relevant state legislatures andnon-governmental organizations, Ollikainen noted.________________________________________________
Dubai’s GDP grew by recordnine per cent in year 2000
Abu Dhabi — The Emirate of Dubai posted a record nineper cent growth in its GDP last year, according to a new studyby the Dubai Economic Development Department.
Dubai’s GDP in 2000 totalled $15.1 billion, compared with$13.86bn a year earlier, the local Gulf News quoted the Depart-ment’s report as saying.
Previous years saw rises in GDP of 5.9 per cent in 1999, 2.6per cent in 1998, 4.8 per cent in 1997 and 8.5 per cent in 1996.
The study attributed the improvement last year to higheroil sector revenues, which grew by 38.8 per cent, from $1.27bnin 1999 to $1.77bn last year. This was achieved despite a declinein production.
Dubai’s oil sector contributed around $1.36bn to theEmirate’s GDP in 1997, but the figure dropped to $1bn in 1998,and rose again to $1.27bn in 1999.
The non-oil sector’s contribution to GDP rose by six per cent,totalling $13.35bn in 2000, compared with $12.58bn in 1999.
Saudi Arabian private sectorregisters 2.4 per cent growth
Riyadh — The Saudi Arabian private sector continued itspositive performance during 1999 by registering a rate of growthestimated at nearly 2.4 per cent, it was reported last month.
The annual report of the Council of Saudi Chambers ofCommerce & Industry showed that the share of the privatesector in the Kingdom’s gross domestic product during the yearwas 38 per cent.
This, it said, was less than the previous year, when it reached40 per cent, but went on to point out that the share was around48 per cent when it was evaluated in terms of fixed prices.
These figures demonstrated the continued expansion andthe increase of efficiency in economic and social developmentin the Kingdom, the report added.
Giving a breakdown of activities in the private sector, itnoted that non-oil manufacturing industries registered growthof 6.3 per cent, the construction and building sector 2.1 per cent,and the electricity sector 3.9 per cent.
The report said that the private sector was expected tocontinue its positive growth within the framework of the in-crease in government expenditure and the positive effects ofvarious economic reforms that had been implemented since1998.________________________________________________
Algiers — Algeria and Egypt have signed several economicpartnership accords and agreements, it was reported last month.
The accords covered such topics as the elimination of doubletaxation and the reciprocal protection of investments.
The agreements were been signed at the end of a session ofthe Algeria-Egypt Joint Commission, which was co-chaired bythe Foreign Affairs Ministers of the two countries, Algeria’sAbdelaziz Belkhadem and his Egyptian counterpart, Amr Moussa.
Regarding the twelve accords signed, eight involved Egyp-tian investments in projects tied to Algeria’s food and pharma-ceutical industry sectors.________________________________________________
UAE firm signs investmentpromotion deal with Yemen
Dubai — The United Arab Emirates Offsets Group (UOG)and Yemen’s Ministry of Oil & Mineral Resources have signeda declaration of principles, under which they are to promote andfacilitate the development of long-term economic ties betweenthe two countries.
The declaration was signed by UOG Chief Executive Of-ficer, Mohammed Saif Al Mazroui and the Yemeni DeputyMinister for Oil & Mineral Resources, Dr Rasheed Ba-Rabaa,
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on the sidelines of a two-day conference on investment oppor-tunities in Yemen.
“We are pleased to reach an understanding with UOG forexploring avenues of investment in our country’s mineral andpetroleum sectors, which offer a wide range of opportunitieswith high potential for forging joint ventures,” said the YemeniMinister for Oil & Mineral Resources, Mohammed Khadim AlWajeeh, who was heading his country’s delegation.
For his part, Ba-Rabaa added: “We look forward to co-operating with the government and people of the UAE, andworking towards creating a mutually beneficial economic andcommercial relationship.”
Both parties are to commence discussions with a view toentering formal agreements, enabling the UAE to make com-mercially viable investments in Yemen.
Ba-Rabaa discussed the infrastructure facilities and invest-ment climate in his country, where the oil sector offered explo-ration opportunities at prices much more attractive than thoseprevalent in neighbouring countries.
He noted that Yemen’s production capacity was currentlyat 450,000 barrels/day, with proven reserves of 3.7bn barrels ofoil and 17 trillion cubic metres of gas. The recent discovery inYemen of two more oil fields was encouraging, he added.
Yemen has already signed a production-sharing agreementwith Occidental of the United States and is set to sign anotherwith Canada’s Mexen.________________________________________________
Nigerian committee says smelterneeds new management structure
Abuja — The Nigerian government should develop a newmanagement structure for the Aluminium Smelter Company ofNigeria (Alscon) according to the National Economic Intelli-gence Committee.
“One of the reasons for shutting down Alscon may beattributable to the management structure, by which the tech-nical partner, with a minority share, provides the managingdirector and all key staff,” the committee stated at a pressbriefing.
The government established the committee in February1994 to analyse and work out details of enforcing the imple-mentation of the country’s annual budget and to assess andreport on any project being carried out by the administration.
The committee also proposed that the contribution by thegovernment to the smelter be reviewed, with a view to increasingits equity shareholding in the company.
It also said that the government should compel the smelterto pay the $5.38 million it owed the Nigerian Gas Company,which supplied it with gas while it was in production.
The smelter, located at Ikot Abasi in Nigeria’s south-eastregion, was shut in June 1999, due to a lack of working capital.It had begun production less than a year earlier, in October 1998.
Nigeria has a 70 per cent equity holding in the smelter, whilethe technical partner, Ferostaal of Germany, has 20 per cent andReynolds of the United States has the other 10 per cent.
Algeria, Libya sign agreementto co-operate on tourism
Algiers — OPEC’s two North African Members, Algeria andLibya, have signed a tourism co-operation accord, it was offi-cially announced last month.
The agreement, signed by the Algerian Tourism &Handicrafts Industry Minister, Lakhdar Dorbane, and his Libyancounterpart, Fethi Mustapha Al-Masrati, focuses on an actionplan to promote tourism in the Saharan regions of the twocountries.
The two sides also agreed to create working groups toexamine the guidelines of the plan for 2001 and 2002.
Speaking at the signing ceremony in Algiers, Dorbane stressedLibya’s pioneering experience in developing Saharan tourism,where investments have allowed the development of attractivedestinations for foreign visitors.
Meanwhile, the Libyan official indicated that his countryhad found in Algeria an excellent partner for tourism ventures,and noted that the two countries had in recent years launchedjoint tourism projects worth $165 million.________________________________________________
Saudi Investment Authorityplans more service centres
Dubai — The Saudi Arabian General Investment Authority(Sagia), which has now been in operation for a year, plans toset up two more comprehensive service centres (CSCs) to attractforeign investment, according to a top official in the Kingdom.
Prince Abdullah Bin Faisal Bin Turki Al Abdullah Al Saud,the Head of Sagia, noted that Saudi Arabia’s new foreigninvestment law had already attracted foreign direct investmenttotalling $50 billion in joint ventures, mostly in petrochemicalsand refining.
“We have set up the first CSC in Riyadh and will open twomore in early 2001, in Jeddah and Dammam,” he told the Shellin the Middle East magazine.
CSCs are one-stop shops where investors may gain accessto representatives from the Kingdom’s government departmentswith whom they must deal.
“With the new policies being implemented by the govern-ment, we expect that investment will come from domestic andforeign investors and Sagia’s role will be to monitor and overseethis investment,” said the Prince.
“These may be representatives from departments, such asimmigration, finance and customs, so that potential investorsdo not have to go all over town gaining access to the individualdepartments,” he explained.
However, foreign investment would not be allowed in realestate in the holy places, such as the holy cities of Makkah andMadinah. It was also unrealistic to expect a big opening up ofthe financial services sector, he noted.
Prince Abdullah also pointed out that Sagia also planned toback the Kingdom’s gas initiative.
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No 6/2001Vienna, Austria, February 9, 2001
OPEC Fund supportsmicro-financeinstitution in Bolivia
An agreement for a $2 million line ofcredit has been signed between the OPECFund for International Development andCaja Los Andes SA (CLA), a Bolivian-based, private financial institution.
The loan will allow CLA to respondmore effectively to the financing require-ments of the country’s small entrepre-neurs and farmers. Micro-enterprises playa significant role in wealth generation andemployment in Bolivia, supporting some60 per cent of the working population andaccounting for 90 per cent of the jobscreated over the past few years. Caja LosAndes has developed remarkable micro-lending skills and experience: in over threeyears it has granted 160,000 micro-loansto over 42,000 micro-entrepreneurs.
The line of credit represents the OPECFund’s first private sector operation inBolivia. Substantial assistance totaling$39.7m, however, has previously been
directed to the public sector in the formof project loans in the transportation,agriculture, water supply and sewerage andhealth sectors. Additionally, the Fund hasapproved debt relief to Bolivia under theHeavily Indebted Poor Countries initia-tive, and the country has also been therecipient of technical assistance grantsbenefiting education and health schemes,as well as one grant for emergency aid. InDecember 2000, an agreement for theprotection and encouragement of invest-ment was entered into between the Fundand the government of Bolivia.
The signing ceremony took place atthe Fund’s headquarters in Vienna. Theagreement was signed on behalf of CajaLos Andes SA by Javier Lupo Gamarra,Vice-Chairman of the Board and PedroArriola Bonjour, General Manager, andby HE Dr Saleh A Al-Omair, Chairmanof the Governing Board of the OPECFund.
No 07/2001Vienna, Austria, February 9, 2001
Honduras to pursueflood protection projectwith $5m Fund loan
The OPEC Fund for International Devel-opment has signed an agreement with theRepublic of Honduras for a loan of $5million to help prevent flood damage to
the country’s vital agricultural areas. Oncecompleted, the project is expected to dra-matically reduce widespread crop destruc-tion and lost revenues, which have placedadditional hardships on a six million-strongpopulation still recovering from the dev-astation wreaked by Hurricane Mitch in1998.
Agriculture plays a crucial role inHonduras’ economy, and is responsiblefor producing the majority of food for thecountry. Fertile soils and a diverse climatelend themselves to an ideal growing envi-ronment. However, the sector suffersnumerous setbacks during the rainymonths, when severe flooding causesmassive damage to the agricultural re-gions, jeopardizing food security and de-stroying livelihoods, especially among therural poor. These problems are particu-larly severe in the country’s northerly-located Sula Valley area, where the highestconcentration of agricultural andpastureland is found.
Three major rivers that run throughthe valley, the Chamelecon, Choloma andUlua, experience serious flooding due toan inadequate drainage and protectionsystem. Sula Valley has been deemed ahigh-risk area by the Government ofHonduras, and is in urgent need of reha-bilitation.
In response to these challenges, a va-riety of sub-projects will be established toentirely revamp the infrastructure sur-rounding the flood plain areas. Specialemphasis will be placed on halting currentenvironmental degradation and preserv-ing the region’s fragile ecosystem. Inter-ventions will include the excavation ofnew canals, enlarging existing water courses,constructing and reinforcing dikes, reha-bilitating bridges, and installing gabionsand syphon control works. Once fullyoperational, an estimated $2.8m in yearlydamage to agricultural production will beprevented, and the quality of land willimprove from a more regulated moisturecontent.
Additionally, the region’s 650,000 in-habitants will benefit from the employ-ment opportunities generated by increasedland development potential, and will expe-rience fewer constraints in the transport ofagricultural produce and inputs, as wellhaving better access to social services. Asa result, the standard of living for thou-
OPEC Fund for International Development,Parkring 8, PO Box 995, 1011 Vienna, Austria.Tel: +43 1 515640; fax: +43 1 513 9238; tx: 1-31734 fund a; cable: opecfund; e-mail:[email protected]; Web site: http://www.opecfund.org.
OPEC Fund signs eight loansworth more than $47m withvarious developing countries
In February, the OPEC Fund for International Development signed eightagreements for loans totalling $47.5 million with Bolivia, Honduras, Kenya,Korea DPR, Kyrgyz Republic, Mauritania, Morocco and Nepal.
March 2001 57
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sands of families should receive a consid-erable boost.
The OPEC Fund has previously ex-tended 14 other loans to Honduras; earlierloans consist of one for balance of pay-ments support, and 13 project loans in themultisectoral, water supply and sewerage,energy and transportation sectors.
The agreement was signed in Viennaby Sonia E Carpio Mendoza, Chargéd’Affaires at the Embassy of the Republicof Honduras in Germany, and by HE DrSaleh A Al-Omair, Chairman of the Gov-erning Board of the OPEC Fund.
Data summary
Project:Sula Valley flood protection.
Sector:Agriculture.
OPEC Fund loan:$5m
Lending terms:Interest rate of 1.5 per cent per annum,with an annual service charge of oneper cent on amounts withdrawn andoutstanding; maturity of 20 years,including a grace period of five years.
Borrower:Republic of Honduras.
Executing agency:Executive Commission of the SulaValley.
Implementation period:Three years.
Appraising agency:Kuwait Fund for Arab EconomicDevelopment (Kuwait Fund).
Loan administrator:Kuwait Fund.
Co-financiers:Kuwait Fund; Government of Hon-duras.
Total cost:$71.28m
Project description:The project comprises the followingcomponents:— excavation of 40 km of new canals;— enlarging existing water courses;— construction and reinforcement ofdikes;— rehabilitation of bridges;— installation of 45,000 cu m ofgabions; and— syphon control works.
No 08/2001Vienna, Austria, February 9, 2001
Kenya to pursue roadconstruction with $7mOPEC Fund loan
The OPEC Fund for International Devel-opment has signed a $7 million loan agree-ment with the Republic of Kenya in supportof a road rehabilitation project in thesouthern province of Makindu. By up-grading the road, the project will aid agovernment initiative to provide Kenya’smore isolated regions with a more reliableroad network, thus reducing transporta-tion costs, promoting economic activityand facilitating the integration of domes-tic and regional markets.
Kenya has a fairly extensive road net-work, but it is mostly concentrated in theheavily populated Mombasa-Uganda cor-ridor. Government strategy is now focus-ing on developing an efficient roadinfrastructure in rural areas, where agricul-tural potential and economic expansionare currently restricted due to the poorcondition of the road system. The trans-portation of agricultural outputs and basiccommodities has become a serious prob-lem, particularly during the rainy seasonand, to make matters worse, many existingroads are unconnected to the main roadnetwork.
The route earmarked for rehabilita-tion is the 67-km Wote-Makindu road.Following the existing gravel road, andstarting outside Wote, the province’s capi-tal, the new road will run southwardsthrough towns and villages until it joinsthe main Nairobi-Mombasa highway atthe town of Makindu. It will be paved todouble bituminous standard with a six-metre wide carriageway and a 1.5-metrewide shoulder on each side.
Upon completion, the upgraded roadwill greatly improve communicationlinks between the province and the restof the country, thereby strengtheningsocial and economic integration and pro-moting interregional exchange of goods,benefiting both rural and urban pop-ulations.
In addition, it will offer improved accessto employment and social services, result-
ing in raised incomes and better livingstandards for the region’s 800,000 inhab-itants.
The OPEC Fund has previously ap-proved 12 other loans for developmentoperations in Kenya, including three linesof credit to the Kenya Commercial BankGroup, one balance of payments supportloan and eight project loans spread acrossthe transportation, agriculture, health andwater supply and sewerage sectors.
The agreement was signed in Viennaby Michael D Kinyanjui, Chargé d’Affairesat the Embassy of the Republic of Kenyain Austria, and by HE Dr Saleh A Al-Omair, Chairman of the Governing Boardof the OPEC Fund.
Data summary
Project:Wote-Makindu road.
Sector:Transportation.
OPEC Fund loan:$7m
Lending terms:Interest rate of one per cent perannum, with an annual service chargeof one per cent on amounts withdrawnand outstanding; maturity of 17years, including a grace period of fiveyears.
Borrower:Republic of Kenya.
Executing agency:Ministry of Public Works and Hous-ing.
Implementation period:3½ years.
Appraising agency:Arab Bank for Economic Develop-ment in Africa (BADEA).
Loan administrator:BADEA.
Co-financiers:BADEA; government of Kenya.
Total cost:$17.5m
Project description:The project comprises the followingcomponents:— construction works for the upgrad-ing of 67 km of dirt road to bitumenstandard, including drainage systems,bridge works, signs and markings; and— design and supervision services.
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No 09/2001Vienna, Austria, February 9, 2001
OPEC Fund supportsirrigation project with$8m loan in Korea DPR
The OPEC Fund for International Devel-opment has signed a $8 million loan agree-ment with the Democratic People’sRepublic of Korea to help finance thesecond phase of a project to rehabilitatethe extensive Pyongnam Irrigation Scheme.With the dual aim of increasing agricul-tural production and at the same timeconserving energy supplies, the projectinvolves replacing the existing pump-driven system with one using more reli-able, gravity-fed technology.
Agriculture, which accounted for al-most one-fifth of Korea’s gross domesticproduct in 1998, has suffered a decline inrecent years due to a series of naturaldisasters, including hailstorms, floods anddroughts. As a result, the production ofrice and maize, the country’s main staples,has fallen drastically, creating widespreadproblems of food insecurity. Strategies toreverse this decline and boost crop yieldsdepend heavily on the existence of anefficient and reliable irrigation sub-sector,a requirement currently not being met dueto the sporadic nature of electricity sup-plies. These energy shortages have particu-larly severe implications for the farmingindustry due to the fact that almost 80 percent of irrigated land is watered by elec-trically operated, and therefore unreliable,pumping systems.
Covering over 106,000 hectares, thePyongnam Irrigation System is located inthe country’s prime grain-producing areaand consists of over 130 co-operative farmsaveraging about 500 hectares each. Reha-bilitation of the scheme, which began in1999 and is now entering its second phase,aims to provide the delivery of a steadysupply of gravity-fed water to cultivatedareas.
Upon completion of the project, riceand maize production is expected to in-crease substantially, and savings of around115 million kilowatt hours of electricityare anticipated. In addition, the new irri-gation system will allow farmers to expand
areas used for fodder and green manure,which will increase the production of live-stock and have a positive long-term effecton soil fertility and conservation. Alongwith improving the livelihoods of farmers,these benefits will also help achieve foodsecurity for the country.
The project represents the Fund’s thirdlending operation in Korea DPR. Of theearlier loans, one supported the first phaseof the Pyongnam Irrigation Rehabilita-tion scheme, and the other a project in thehealth sector.
The agreement was signed in Viennaby HE Kim Gwan Sop, Ambassador andPermanent Representative of the Demo-cratic People’s Republic of Korea to theUnited Nations and other InternationalOrganizations in Vienna, and by HE DrSaleh A Al-Omair, Chairman of the Gov-erning Board of the OPEC Fund.
Data summary
Project:Pyongnam Irrigation Rehabilitation,Phase II.
Sector:Agriculture.
OPEC Fund loan:$8m
Lending terms:Interest rate of 1.5 per cent per annum,with an annual service charge of oneper cent on amounts withdrawn andoutstanding; maturity of 20 years,including a grace period of five years.
Borrower:Democratic People’s Republic ofKorea.
Executing agency:Ministry of Agriculture.
Implementation period:3½ years.
Appraising agency:OPEC Fund.
Loan administrator:OPEC Fund.
Co-financier:Government of the Democratic Peo-ple’s Republic of Korea.
Total cost:$39.49m
Project description:The project comprises the following:— construction of intake barrage and100 km of canal;
— excavation of 25 tunnels;— installation of hydraulic structures,distribution works; and— construction of bridges.
No 10/2001Vienna, Austria, February 9, 2001
Kyrgyz Republicobtains $4m loan forcardiology centre
The OPEC Fund for International Devel-opment has signed a $4 million loan agree-ment with the Kyrgyz Republic to helpupgrade facilities at the country’s leadingcardiovascular medical institute, the Na-tional Centre for Cardiology and Thera-peutics. Located in the capital, Bishkek,the 285-bed centre is the immediate focusof priorities under the Government’s ten-year health care reform programme, whichseeks, above all, to reduce the inordinatelyhigh number of deaths caused every yearby cardiovascular disease.
As a direct result of the economictransition programme launched followingKyrgyzstan’s independence in 1991, steepcuts in public expenditure have led toneglect of the country’s social infrastruc-ture. The health care system, in particular,has undergone a major funding crisis. Notonly has there been a damaging curtail-ment of basic supplies, but the mainte-nance and repair of equipment has alsosuffered. The ensuing deterioration inhealth services has had a seriously detri-mental effect on the health status of thepopulation, especially in the area of car-diovascular disease. Deaths from cardio-vascular illnesses have risen steadily andnow account for 40 per cent of the totalmortality rate.
Addressing this problem is the coreaim of the country’s health sector reformstrategy, and one tackled by the proposedproject, which will finance the acquisitionof equipment for the diagnosis, monitor-ing and treatment of heart disease at theNational Centre for Cardiology and Thera-peutics. To provide space for the newequipment, the project will also supportthe implementation of civil works tomodify and expand existing buildings.
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The upgraded facilities will improvethe Centre’s diagnostic and treatmentcapabilities and enable it to triple thenumber of heart operations performedeach year from 350 to 1000. From a widerperspective, an improved capacity in thetreatment of cardiovascular disease willhave a positive effect on economic produc-tivity by reducing mortality rates amongthe working population.
This is the third lending operationconducted by the Fund in the KyrgyzRepublic. Two previous loans supportedprojects in the education and rural devel-opment sectors.
The agreement was signed in Viennaby HE Alikbek Djekshenkulov, Ambassa-dor of the Kyrgyz Republic to Austria, andby HE Dr Saleh A Al-Omair, Chairmanof the Governing Board of the OPECFund.
Data summary
Project:National Centre for Cardiology andTherapeutics.
Sector:Health.
OPEC Fund loan:$4m
Lending terms:Interest rate of 1.5 per cent per annum,with an annual service charge ofone per cent on amounts withdrawnand outstanding; maturity of 17years, including a grace period of fiveyears.
Borrower:Kyrgyz Republic.
Executing agency:Ministry of Health.
Implementation period:1½ years.
Appraising agency:Islamic Development Bank.
Loan administrator:OPEC Fund.
Co-financier:Government of the Kyrgyz Republic.
Total cost:$4.5m
Project description:The project comprises the followingcomponents:— provision and installation of equip-ment for cardiac investigations, sur-
Mauritania obtains$3.5m loan forlivestock development
The OPEC Fund for International Devel-opment has signed a $3.5 million loanagreement with the Islamic Republic ofMauritania to help finance a livestockdevelopment project. To be implementedwithin the framework of a governmentinitiative aimed at rural development andpoverty reduction, this scheme will intro-duce strategies to increase the availabilityof pastureland and strengthen food secu-rity in southern regions of the country.
Although Mauritania’s desert climateand barren terrain does not lend itself wellto crop cultivation, over 40 million hec-tares are, nevertheless, suitable pastureland.With over 9.9 million head of cattle, cam-els, sheep and goats, animal husbandrycontributes significantly to the economy,producing over 60,000 tons of meat peryear, one-quarter of which is exported.However, problems are arising in southernMauritania where nomadic farmers arebringing their herds in vast numbers dueto the higher rainfall and more plentifulwater sources.
As a result, land is being overgrazedand water supplies are drying up, causingerosion and desertification of this already-fragile environment. These constraints,along with a shortage of sanitary meat-processing facilities and inadequate veteri-nary coverage, are causing widespread fooddeficits and lost revenues.
Under the project, activities will focuson five distinct regions in Southern Mau-ritania. Immediate action will be taken toprotect and rehabilitate pastureland bydrilling a series of boreholes and wells, andby deepening existing watering holes. Toregenerate depleted areas and guard againstdesertification, some 400,000 trees and10,000 fodder species will be planted, and
160-km of fire belts constructed. Oncethese measures are put in place, the foodneeds of approximately two million morelivestock will be met. Additionally, haypackaging and storage facilities will berefurbished and vaccination depots, barnsand livestock fattening units constructed.To assist small farmers with their microlivestock activities, 10 co-operative creditand savings bank offices will also be estab-lished.
At least 200,000 people are expectedto benefit from more abundant and saferfood supplies, better health from cleandrinking water, and a higher householdincome from increased job opportunitiesand access to credit services.
This project represents the OPECFund’s 20th public sector loan to Maurita-nia. Of the earlier loans, five were ex-tended for balance of payments support,one financed a commodity imports pro-gramme, and 13 were project loans in theenergy, agriculture, transportation andeducation sectors. The Fund has alsoapproved the delivery of debt relief toMauritania under the Heavily IndebtedPoor Countries Initiative. In addition,through its private sector window, theFund has extended a line of credit andinvested in the share capital of a leasingcompany.
The agreement was signed by TouréBadra Ali, Chargé d’Affaires at the Em-bassy of the Islamic Republic of Maurita-nia in Germany, and by HE Dr Saleh AAl-Omair, Chairman of the GoverningBoard of the OPEC Fund.
Data summary
Project:Livestock development.
Sector:Agriculture.
OPEC Fund loan:$3.5m
Lending terms:Interest rate of 1.25 per cent per an-num, with an annual service charge ofone per cent on amounts withdrawnand outstanding; maturity of 20 years,including a grace period of five years.
Borrower:Islamic Republic of Mauritania.
Executing agency:Project Implementation Unit, Direc-
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torate for Livestock and Agriculture,Ministry of Rural Development andEnvironment.
Implementation period:Five years.
Appraising agency:African Development Bank (AfDB).
Loan administrator:AfDB.
Co-financiers:African Development Fund; benefici-aries; government of Mauritania.
Total cost:$12.65m
Project description:The project will comprise the follow-ing:— drilling of boreholes and wells;— planting trees and fodder plants;— construction of 160 km of fire belts;— procurement of cattle, farm equip-ment, chemicals;— construction of vaccination depots;and— setting up micro credit facilities.
No 12/2001Vienna, Austria, February 9, 2001
Nepal receives $10mloan from OPEC Fundfor rural electrification
The OPEC Fund for International Devel-opment has signed a $10 million loanagreement with the Kingdom of Nepal insupport of an initiative aimed at develop-ing the country’s power sector. To addressthe growing need for electricity in ruralareas, the project seeks to improve theavailability and efficiency of power sup-plies in the Eastern, Central and Westernregions, as well as in the Kathmandu Valley.
In a country where the power sector isstill in the early stages of development andmore than 85 per cent of the populationis still without access to electricity, theprovision of reliable public power supplieshas become a prerequisite for Nepal’seconomic growth. In recognition of thisneed, several hydroelectric plants are cur-rently under construction and expected toalmost double the country’s electricitygenerating capacity when they go on-line.
To effectively utilize this increased capac-ity, a corresponding expansion of trans-mission and distribution systems isessential.
Under the project, some 2,300 km ofnew power lines will be installed, and anumber of existing systems upgraded toincrease transmission efficiency and re-duce losses. The project will also financethe development of distribution systemsfor isolated power projects. Upon comple-tion, it is anticipated that some 240 newVillage Development Councils will beconnected to the electricity network,thereby giving 154,000 rural householdsaccess to the benefits of electric lights andelectric-powered labour-saving devices. Ad-ditional project activities include consul-tancy services to strengthen the sector’sinstitutional capacity and the introduc-tion of computerized billing systems.
The loan represents the Fund’s 13thlending operation in Nepal. Of the earlierloans, one was approved for balance ofpayments support, one financed a com-modity imports programme and ten helpedfinance projects in the energy, transporta-tion, agriculture, education and telecom-munications sectors.
The agreement was signed in Viennaby HE Dr Bimal Prasad Koirala, FinanceSecretary, Ministry of Finance, Kingdomof Nepal, and by HE Dr Saleh A Al-Omair, Chairman of the Governing Boardof the OPEC Fund.
Data summary
Project:Rural electrification, distribution andtransmission.
Sector:Energy.
OPEC Fund loan:$10m
Lending terms:Interest rate of one per cent per an-num, with an annual service charge ofone per cent on amounts withdrawnand outstanding; maturity of 17 years,including a grace period of five years.
Project description:The project comprises the followingcomponents:— rural electrification in the Eastern,Western and Central regions of Nepal;— development of electricity distri-bution systems for isolated power sup-ply projects;— distribution system reinforcementto bring systems to a satisfactory level;— transmission development to im-prove the power supply in theKathmandu valley;— computerized billing systems; and— consultancy services.
No 13/2001Vienna, February 9, 2001
Morocco expandshospital services with$8m OPEC Fund loan
The OPEC Fund for International Devel-opment has signed a $8 million loan agree-ment with the Kingdom of Morocco tohelp improve medical services in andaround the southern city of Marrakech.Loan proceeds will be used to co-financethe creation of a new university hospitalin the city by expanding and rehabilitatingtwo existing facilities, the Ibn Tofail andIbn Nafess hospitals. In addition to pro-viding enhanced health care, the univer-sity hospital will offer increasedopportunities for medical training andresearch in the region.
With a rapidly-growing population anda shortage of adequately equipped hospi-tals, severe strain has been placed on south-ern Morocco’s existing medical facilities,causing a decline in the region’s ability todeliver appropriate health care services.Furthermore, as well as being the coun-try’s poorest region, there is a large dis-crepancy in the quality and availability of
March 2001 61
O P E C F U N D N E W S
health services available in urban and ruralareas, with only half of the rural popula-tion receiving proper health care.
Accorded high priority by the Govern-ment, the project will involve the con-struction of seven new buildings, with atotal floor area of 43,000 square metres,to house facilities for surgical wards,maternity services and radiotherapy. Itwill also cover the rehabilitation of 29,000sq m of existing buildings to accommo-date radiology and psychiatric wards. Inaddition, medical equipment, spare partsand supplies, along with necessary furni-ture such as desks and chairs, will be pro-vided for both the new and rehabilitatedpremises.
Upon completion, the project will helpmeet the demand for better hospital facili-ties, while alleviating pressure on univer-sity hospitals in Rabat and Casablanca.Not only will the region expand its capac-ity by 310 beds but, because of the newFaculty of Medicine under constructionnear Ibn Tofail Hospital, the project willalso help meet the region’s urgent need formedical training and teaching facilities.Under the proposed project, some sevenmillion people, of whom over 60 per centlive in rural areas, will benefit from im-proved medical services.
Morocco has been the recipient ofFund support on nine previous occasionswith loans supporting projects in the sec-tors of energy, agriculture and nationaldevelopment banks.
The agreement was signed in Viennaby HE Dr Tajeddine Baddou, Ambassa-dor of the Kingdom of Morocco to Aus-tria, and by HE Dr Saleh A Al-Omair,Chairman of the Governing Board of theOPEC Fund.
Data summary
Project:Marrakech University Hospital.
Sector:Health.
OPEC Fund loan:$8m
Lending terms:Interest rate of 2.25 per cent per an-num, with an annual service charge ofone per cent on amounts withdrawnand outstanding; maturity of 17 years,including a grace period of five years.
Borrower:Kingdom of Morocco.
Executing agency:Ministry of Public Health.
Implementation period:3½ years.
Appraising agency:OPEC Fund.
Loan administrator:OPEC Fund.
Co-financiers:Saudi Fund for Development; govern-ment of Morocco.
Total cost: $51.17mProject description:
The project comprises the followingcomponents:— construction of seven new build-ings with a floor area of 43,000 sq m;— rehabilitation of 29,000 sq m ofexisting buildings;— provision and installation of medi-cal equipment;— provision of all necessary furni-ture; and— consultancy services.
No 14/2001Vienna, Austria, February 8, 2001
Fund approves grantof $40,000 towardsMinisterial Meeting
The OPEC Fund for International Devel-opment has approved a grant of $40,000to help finance a high-level MinisterialMeeting that will be held in Rabat, Mo-rocco from May 20-21, 2001. Its aims areto promote co-operation among policymakers and donor agencies to addressgrowing rural poverty and degradation ofnatural resources in the dryland areas ofWest Asia and North Africa (WANA).
Characterized by extreme aridity andlimited water resources, the WANA re-gions are experiencing severe environmen-tal deterioration and desertification due toover-exploitation of natural resources. Asa result, soil fertility has dropped, and cropand livestock productivity has declined,exacerbating the extent of rural poverty formillions of people.
Goals of the Ministerial Meeting are
to develop a strategic policy frameworkand make recommendations towards fa-cilitating its future implementation withthe support of the donor community.Eleven countries will be represented: Al-geria, Egypt, Iran, Jordan, Lebanon, Libya,Oman, Syria, Morocco, Tunisia andYemen. Participants will include ministersof finance/planning, ministers of agricul-ture/rural development and ministers ofenvironment, as well as representatives ofmulti/bilateral agencies operating in theconcerned regions.
Specific objectives will be to: identifyopportunities for collaboration that wouldincrease the flow of resources to drylandareas and optimize productivity; arrestdesertification and reduce vulnerability todrought; sensitize the donor communityand concerned ministries to opportunitiesfor investing in the ecosystems of the re-gion, and alert them to the cost of neglect-ing these fragile areas; reach a betterunderstanding of the policy environment,including institutional and regulatoryframework; increase allocation of domes-tic resources directed at the infrastructuralbase in dry areas in order to help meetgrowing demands of the population; and,share experiences and encourage knowl-edge transfer among countries and acrossinstitutions.
No 15/2001Vienna, Austria, February 9, 2001
Eight loans totalling$47.5m extendedby the OPEC Fund
Eight agreements for loans totalling $47.5million were signed between the OPECFund for International Development andeight developing countries in Africa, Asiaand Latin America. The loans were ex-tended to two least-developed countries,namely Mauritania and Nepal, and otherdeveloping countries, ie Bolivia, Hondu-ras, Kenya, Korea DPR, Kyrgyz Republicand Morocco. Seven of the loans will helpfinance public sector projects in the agri-culture, energy, health and transportationsectors. The seventh has been extendedunder the Fund’s Private Sector Facility
62 OPEC Bulletin
O P E C F U N D N E W S
and comprises a line of credit to a micro-finance institution in Bolivia.
All seven public sector projects will beco-financed by the concerned governmentsand by a number of international develop-ment institutions, including OPEC aidagencies such as the Arab Bank for Eco-nomic Development in Africa, the KuwaitFund for Arab Economic Developmentand the Saudi Fund for Development.Other contributors include the AfricanDevelopment Fund and the Asian Devel-opment Bank.
The OPEC Fund’s public sector loanscarry interest at rates ranging from one percent to 2.25 per cent. Four out of the sevenloans have a maturity of 17 years, whilethree have a maturity of 20 years; all in-clude a grace period of five years.
As of the end of December 2000,cumulative lending of the OPEC Fund,for project and programme financing,balance of payments support and HIPCdebt relief, stood at $4.6 billion. A further$53.2m had been extended in support ofprivate sector operations. Total commit-ments, inclusive of grants and contribu-tions to other international institutions,had reached $5.8 billion and benefited107 countries. Total disbursements hadamounted to $3.9bn.
No 16/2001Vienna, Austria, February 23, 2001
OPEC Fund and Jamaicasign agreement toprotect investment
An agreement for the encouragement andprotection of investment has been signedbetween the OPEC Fund for Interna-tional Development and Jamaica. Drawnup within the framework of the Fund’sPrivate Sector Facility, the convention wasinitialled by HE Omar Davies, Ministerof Finance and Planning of Jamaica, andby HE Dr Y Seyyid Abdulai, Director-General of the OPEC Fund.
The Fund’s Private Sector Facility is anew financing window, endowed with itsown resources, through which the Fundchannels support directly to the privatesector in developing countries. The objec-tives of the Facility are to promote eco-nomic development by encouraging thegrowth of productive private enterpriseand supporting the development of localcapital markets.
Under the Facility, loans are made tofinancial institutions for on-lending to
small, medium and micro-enterprises, aswell as directly to specific projects. Equityparticipation in private enterprises is alsoundertaken, either directly or throughcountry or regional investment funds. Asa pre-condition to such investment, theFund requires signature of a standardagreement with the country concerned forthe encouragement and protection of in-vestment.
Recognized as a gesture of trust andconfidence, the agreement accords theOPEC Fund the same privileges as thosenormally given to international develop-ment institutions in which the countryholds membership.
Jamaica, a Caribbean island country,has a population of 2.6 million (1999) andits GNP per capita reached $2,330 in thatsame year. The mainstays of the economyare primary agricultural exports, includingsugar and bananas, bauxite mining, andtourism.
Jamaica is well endowed with naturalresources and has a relatively well educatedand skilled labour force. It has made someprogress in stabilizing the economy sincethe mid-1990s, following the financialcrisis of 1995-96. It is, however, highlydependent on changes in the internationaleconomy due to its extreme openness.
March 2001 63
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