VHS MUN 2012
Organization of the Petroleum
Exporting Countries: (OPEC)
Agendas:
1. The Global Energy Scene 2030;
2. The current oil market and development of
alternate fuels
Letter from the Executive Board
Greetings Delegates,
Welcome to the Organisation of Petroleum Exporting Countries of VHS MUN 2012 - Our
expectations from the committee are very simple and clear, and revolve around an aim of
being able to create a situation of an intense and a fruitful debate over the issues to be
discussed, which shall in turn serve as an enriching learning experience for each and every
member of the committee. The agendas that have been decided upon, bear a dual character of
being, plain on the surface of it along with being complex enough to test your research and
intellectual competencies. I am sure that this committee would turn out to be a perfect
amalgamation of sheer work and substance along with enjoyment and ever lasting memories.
Be a part of OPEC, with a motive to contribute in a way to solve the persisting world
problems in hand, mainly relating to The Global Energy Scene 2030 which would give each
one of us a broad vision to picture and foresee the world in terms of Oil crisis which might
take place after a few years and on the contrary would encourage us to plan the development
of alternate fuels, keeping in mind the current oil market.
We as the Executive Board of this committee would like to wish each one of you all the luck
to prepare well, and give your best whilst looking forward to the best MUN'ING experience
of your lives.
However, we would like to mention that each one of us would appreciate your originality and
novelty of ideas and hence would like, if you opt to think out of the box and not refer to the
Background Guide, for every issue.
And for everything else, please feel free to contact the Executive Board of OPEC, at anytime
and under any circumstance.
Thanking You
Kudrat Dutta Chaudhary
Chair
Pranav Sahni
Director
Seerat Brar
Rapporteur
Organisation of Oil Exporting Countries
(OPEC)
Overview:
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent,
intergovernmental Organization, created at the Baghdad Conference on
September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
The five Founding Members were later joined by nine other Members: Qatar
(1961); Indonesia (1962) – suspended its membership from January 2009; Libya
(1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador
(1973) – suspended its membership from December 1992-October 2007;
Angola (2007) and Gabon (1975–1994). OPEC had its headquarters in Geneva,
Switzerland, in the first five years of its existence. This was moved to Vienna,
Austria, on September 1, 1965.
According to the Statutes, OPEC's objective is to co-ordinate and unify
petroleum policies among Member Countries, in order to secure fair and stable
prices for petroleum producers; an efficient, economic and regular supply of
petroleum to consuming nations; and a fair return on capital to those investing
in the industry. One of the principal goals is the determination of the best means
for safeguarding the organization's interests, individually and collectively. It
also pursues ways and means of ensuring the stabilization of prices in
international oil markets with a view to eliminating harmful and unnecessary
fluctuations; giving due regard at all times to the interests of the producing
nations and to the necessity of securing a steady income to the producing
countries; an efficient and regular supply of petroleum to consuming nations,
and a fair return on their capital to those investing in the petroleum industry.
MEMBER COUNTRIES
The Organization of the Petroleum Exporting Countries (OPEC) was founded in
Baghdad, Iraq, with the signing of an agreement in September 1960 by five
countries namely Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and
Venezuela. They were to become the Founder Members of the Organization.
These countries were later joined by Qatar (1961), Indonesia (1962), Libya
(1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971),
Ecuador (1973), Gabon (1975) and Angola (2007).
From December 1992 until October 2007, Ecuador suspended its membership.
Gabon terminated its membership in 1995. Indonesia suspended its membership
effective January 2009.
Currently, the Organization has a total of 12 Member Countries.
The OPEC Statute distinguishes between the Founder Members and Full
Members - those countries whose applications for membership have been
accepted by the Conference.
The Statute stipulates that “any country with a substantial net export of crude
petroleum, which has fundamentally similar interests to those of Member
Countries, may become a Full Member of the Organization, if accepted by a
majority of three-fourths of Full Members, including the concurring votes of all
Founder Members.”
The Statute further provides for Associate Members which are those countries
that do not qualify for full membership, but are nevertheless admitted under
such special conditions as may be prescribed by the Conference.
NOTE : Now, according to this the committee OPEC of the VHS
MUN’2012 , shall be differentiating between the member countries and the
observer countries. The permanent members namely : Algeria, Angola,
Ecuador , Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, U.A.E,
Venezuela, shall be the ‘only’ countries voting upon the resolution that is
deliberated and discussed and collectively decided upon by both the
permanent members and observer countries. However, on the other side,
the observer nations which are : USA, UK, China, France, Russia, India,
Canada, Brazil, Japan, Germany, Egypt, Australia, would be allowed to take
part in the normal procedural voting and also would be as much a part of
the committee as the permanent members and hence their opinions would
be considered in the framing to the Resolution BUT they won’t be allowed
to vote, for or against the resolution in order to pass or reject it. We at the
MUN shall be following the code and conduct of the actual committee and
this rule has been derived from the very same.
OPEC STATUTE
CHAPTER I
Organization and Objectives
Article 1
The Organization of the Petroleum Exporting Countries (OPEC), Herein after
referred to as “the Organization”, created as a permanent intergovernmental
organization in conformity with the Resolutions of the Conference of the
Representatives of the Governments of Iran, Iraq, Kuwait, Saudi Arabia and
Venezuela, held in Baghdad from September 10 to 14, 1960, shall carry out its
functions in accordance with the provisions set forth hereunder.
Article 2
A. The principal aim of the Organization shall be the coordination and
unification of the petroleum policies of Member Countries and the
determination of the best means for safeguarding their interests, individually
and collectively.
B. The Organization shall devise ways and means of ensuring the stabilization
of prices in international oil markets with a view to eliminating harmful and
unnecessary fluctuations.
C. Due regard shall be given at all times to the interests of the producing nations
and to the necessity of securing a steady income to the producing countries; an
efficient, economic and regular supply of petroleum to consuming nations; and
a fair return on their capital to those investing in the petroleum industry.2
Article 3
The Organization shall be guided by the principle of the sovereign equality of
its Member Countries. Member Countries shall fulfil, in good faith, the
obligations assumed by them in accordance with this Statute.
Article 4
If, as a result of the application of any decision of the Organization, sanctions
are employed, directly or indirectly, by any interested company or companies
against one or more Member Countries, no other Member shall accept any offer
of a beneficial treatment, whether in the form of an increase in oil exports or in
an improvement in prices, which may be made to it by such interested company
or companies with the intention of discouraging the application of the decision
of the Organization.
Article 5
The Organization shall have its Headquarters at the place the Conference
decides upon.
Article 6
English shall be the official language of the Organization.3
CHAPTER II
Membership
Article 7
A. Founder Members of the Organization are those countries which were
represented at the First Conference, held in Baghdad, and which signed the
original agreement of the establishment of the Organization.
B. Full Members shall be the Founder Members, as well as those countries
whose application for membership has been accepted by the Conference.
C. Any other country with a substantial net export of crude petroleum, which
has fundamentally similar interests to those of Member Countries, may become
a Full Member of the Organization, if accepted by a majority of three-fourths of
Full Members, including the concurrent vote of all Founder Members.
D. A net petroleum-exporting country, which does not qualify for membership
under paragraph C above, may nevertheless be admitted as an Associate
Member by the Conference under such special conditions as may be prescribed
by the Conference, if accepted by a majority of three-fourths, including the
concurrent vote of all Founder Members .No country may be admitted to
Associate Membership which does not fundamentally have interests and aims
similar to those of Member Countries.4
E. Associate Members may be invited by the Conference to attend any Meeting
of a Conference, the Board of Governors or Consultative Meetings and to
participate in their deliberations without theright to vote. They are, however,
fully entitled to benefit from all general facilities of the Secretariat, including its
publications and library, as any Full Member.
F. Whenever the words “Members” or “Member Countries” occur in this
Statute, they mean a Full Member of the Organization, unless the context
demonstrates to the contrary.
Article 8
A. No Member of the Organization may withdraw from membership without
giving notice of its intention to do so to the Conference. Such notice shall take
effect at the beginning of the next calendar year after the date of its receipt by
the Conference; subject to the Member having at that time fulfilled all financial
obligations arising out of its membership.
B. In the event of any country having ceased to be a Member of the
Organization, its readmission to membership shall be made accordance with
Article 7, paragraph C.
THE GLOBAL ENERGY SCENE 2030
KEY ASSUMPTIONS
The Reference scenario
The Reference scenario aims at providing a description of the future world
energy system, as if the on-going technical and economic trends and structural
changes were to continue. In this respect, it constitutes the appropriate
benchmark for the economic assessment of future energy and climate policy
options.
The Reference scenario was designed with the following philosophy:
- The main drivers in the future development of the world energy system will
remain the demography and economic growth (Gross Domestic Product). As the
on-going trends for these two sets of variables are differentiated across the main
world regions, their continuation results in significant changes in the regional
structure of population, GDP energy demand and associated emissions.
- Technical change has been a continuous phenomenon through history,
although this process may be submitted to slowdowns or accelerations. Thus,
any projection of the economic system has to take into account the
consequences of the continuous improvement in the technologies’ economic
and technical performances. As far as energy technologies are concerned, the
hypotheses considered in the Reference indeed take into account technological
progress, at least along the lines of past improvements (hypotheses of
breakthroughs are considered elsewhere in the technology cases).
- The availability of energy resources is clearly a potential constraint for the
development of fossil fuel use in the long term, or at least it is a factor that can
bring tensions on the international energy markets and drive the energy prices
up. Coal resources are known to be overabundant, at least for the next century.
But huge uncertainties surround any assessment of the recoverable oil and gas
resources at the world and regional level. The Reference scenario uses median
estimates for resources that are identified at the regional level, with values that
are globally well accepted by the experts, in a "business as usual "perspective.
- As far as energy and climate policies are concerned, the Reference scenario
only includes the consequences of policy measures, which are actually (2000)
embodied in "hard decisions" (investment actually made, regulation actually
enforced in law and voluntary agreement actually signed). It is even considered
by judgement that some measures may
not benefit of a full implementation over the projection period. Thus the
Reference does not include the compliance to the policy decisions or
announcements made by governments, including the European Commission, or
industries, such as the Kyoto commitments, the targeted share of renewable, the
nuclear phase-out in Germany or Belgium, or the removal of existing economic
instruments (eg: subsidies or taxes). This is logical as the cost of these policies,
which are being implemented or will be implemented in the near future, can
only be assessed by comparison with a reference scenario that is free of such
constraints or commitments.
As any model, POLES, the model used in this study, is a simplified
representation of reality, mostly based on the fundamental economic relations
involved in the world energy system .Some important factors, which may have a
decisive impact on the future development of the world energy system, are
either ignored or at least not explicitly dealt with in the model, because too
complex or impossible to quantify. Among these factors: the geopolitical
drivers and constraints that have already played a major role on the energy
scene, such as the industries’ regulation and organisation schemes, which have
changed significantly in the past twenty years.
As a consequence, the “business and technical change as usual” energy
evolutions depicted by the Reference are mostly driven by changes in economic
fundamentals that reflect rational economic behaviours. How these evolutions
would modify the geopolitical constraints or foster complementary changes in
the industries’ regulation and organisation schemes, and, therefore, which
policy response they may induce, is out of the scope of the Reference generated
by POLES.
PRIMARY FUEL SUPPLY
Simulation of Oil and Gas Discovery
World Oil Supply
The Simulation of Oil and Gas Reserves – More Information
World Conventional Oil Resources
Opec and Non- Opec Conventional Oil Resources
World Oil Production
Here are certain conclusions that need to be considered while analysing the
futuristic issue in hand :
The Current Oil Market and development
of Alternate Fuels
ENVIRONMENTAL CONCERNS AND OPEC
OPEC supports sound environmental policies that are fair and equitable, based
on proven needs and designed to address those needs. OPEC is concerned about
the environment and we want to ensure that it is clean and healthy for future
generations.
OPEC also supports sustainable economic development, which requires steady
supplies of energy at reasonable prices. Many countries have already introduced
heavy taxes on oil products. In some countries, the price that motorists pay for
gasoline is three or four times higher than the price of the original crude oil.
Taxes account for up to 70 per cent of the final price of oil products in some
countries. As a result of these taxes, some of the oil-consuming countries
(especially those in Europe where taxation levels are highest) receive much
more income from oil than OPEC does. OPEC is concerned that many of the socalled 'green' taxes that are currently levied on oil do not specifically help the
environment. Instead, they simply go into government budgets to be spent on
other things. Taxes might lead to instability in the oil industry, creating
problems for many countries and industries.
Industrialised countries are developing policies to limit the use of fossil fuels in
order to reduce their emissions of carbon dioxide. Many are already levying
heavy taxes, particularly on oil products. Yet studies have shown that OECD
members could cut their carbon dioxide emissions by 12 per cent by 2010 and
still maintain their tax revenues, if they adopted a pro rata tax system that levies
tax on all forms of energy according to their carbon content.
OPEC is concerned that some countries may impose environmental and taxation
policies that are harmful to those who rely on fossil fuels for a substantial part
of their income. Some countries with high oil taxes actually subsidise domestic
coal production, yet coal produces more carbon dioxide than oil. Carbon
dioxide is one of the greenhouse gases which are believed to contribute to
global warming.
OPEC is worried about discriminatory oil taxes because we are committed to
providing a stable petroleum market. The OPEC feels that there is a need to
invest in oil exploration and development in order to have production capacity
available as demand rises in the years ahead, but we also need to be sure that
there will be enough demand for that oil and that we will get a reasonable price.
If there is no investment in expanding oil production capacity before it is
needed, the world could face sudden price shocks, leading to serious global
economic problems.
OPEC is also concerned that many of the environmental policies now being
proposed and adopted do not have the full support of the scientific community.
There is still considerable debate about the impact of global warming, and how
it can best be addressed. OPEC supports further research into these important
issues.
OPEC is also spending heavily to improve its environmental impact, by locating
sources of higher quality oil and gas, by developing cleaner fuels for consumers,
and by reducing the impact of its activities through safer, cleaner drilling,
transportation and refining processes.
OPEC also participates in many international meetings in order to remind
governments and others who are debating environmental policies that they must
consider the needs of developing countries, especially those that rely on their
income from oil
TOP OIL PRODUCING NATIONS
Source : CIA World Factbook
ALTERNATIVE SOURCES TO OIL
High oil prices, growing concerns over energy security, and the threat of climate
change have all stimulated investment in the development of alternatives to
conventional oil.
Substitutes for existing petroleum liquids (ethanol,biodiesel, biobutanol,
dimethyl ether, coal-to-liquids, tar sands, oil shale),are both from biomass and
fossil feedstocks.
The technology pathways to these alternatives vary widely, from distillation and
gasification to bioreactors of algae and high-tech manufacturing of photonabsorbing silicon panels. Many are considered “green” or “clean,” although
some, such as coal-to-liquids and tar sands, are “dirtier” than the petroleum they
are replacing. Others, such as biofuels, have concomitant environmental impacts
that offset potential carbon savings. Unlike conventional fossil fuels, where
nature provided energy over millions of years to convert biomass into energydense solids, liquids, and gases—requiring only extraction and transportation
technology for us to mobilize them—alternative energy depends heavily on
specially engineered equipment and infrastructure for capture or conversion,
essentially making it a high-tech manufacturing process.
However, the full supply chain for alternative energy, from raw materials to
manufacturing, is still very dependent on fossil-fuel energy for mining,
transport, and materials production. Alternative energy faces the challenge of
how to supplant a fossil-fuel-based supply chain with one driven by alternative
energy forms themselves in order to break their reliance on a fossil-fuel
foundation.
The public discussion about alternative energy is often reduced to an assessment
of its monetary costs versus those of traditional fossil fuels, often in comparison
to their carbon footprints. This kind of reductionism to a simple monetary
metric obscures the complex issues surrounding the potential viability,
scalability, feasibility, and suitability of pursuing specific alternative technology
paths. Although money is necessary to develop alternative energy, money is
simply a token for mobilizing a range of resources used to produce energy. At
the level of physical requirements, assessing the potential for alternative energy
development becomes much more complex since it involves issues of end-use
energy requirements, resource-use trade-offs (including water and land), and
material scarcity.
Similarly, it is often assumed that alternative energy will seamlessly substitute
for the oil, gas, or coal it is designed to supplant—but this is rarely the case.
Integration of alternatives into our current energy system will require enormous
investment in both new equipment and new infrastructure—along with the
resource consumption required for their manufacture— at a time when capital to
make such investments has become harder to secure. This raises the question of
the suitability of moving toward an alternative energy future with an assumption
that the structure of our current large-scale, centralized energy system should be
maintained. Since alternative energy resources vary greatly by location, it may
be necessary to consider different forms of energy for different localities.
DEMAND OF OIL – PAST PRESENT AND FUTURE
OPEC believes that oil demand will continue to grow strongly and oil will
remain the world's single most important source of energy for the foreseeable
future. The OWEM reference case sees oil's share of the world fuel mix falling
slightly from over 41 per cent today to just over 39 per cent in 2020. However,
oil will still be the world's single largest source of energy. The reduction in oil's
market share is largely due to the stronger growth enjoyed by other forms of
energy, particularly natural gas
In June 2012, OPEC closed one of their sessions with an assessment of the
long-term oil outlook, which underlined that oil will remain the leading fuel
type in satisfying the world's growing energy needs for the foreseeable future
and that resources are clearly sufficient. Moreover, OPEC is investing in
accordance with perceived demand for its crude. Nevertheless, great
uncertainties remain, including the path of the global economic recovery; policy
announcements that offer confusing signals to investors; industry costs;
technology; and human resources.
OPEC underscored the final conclusions of a study on technological advances
in the road transportation sector. The study covers conventional technologies,
alternative technologies and fuels, possible bottlenecks, potential drivers (such
as legislative requirements and consumer preferences) and expectations for
alternatives penetrating both the light and heavy duty vehicle markets. The
report also looked at how the impacts of these technology advances could
translate into changes in oil demand, as well as the potential differences
between the big economic blocks/regions.
OPEC believes that oil demand will continue to grow strongly and oil will
remain the world's single most important source of energy for the foreseeable
future. OPEC’s World Oil Outlook reference case sees oil’s share of the world’s
primary energy mix falling slightly from 34.5 per cent in 2010 to just over 32
per cent in 2020 and to 28.4 per cent in 2035. However, oil will still be the
world's single largest source of energy. The reduction in oil's market share is
largely due to the stronger growth enjoyed by other forms of energy,
particularly coal and natural gas.
Oil is a limited resource, so it may eventually run out (although not for many
years to come). At the rate of production in 2010, OPEC's oil reserves are
sufficient to last for more than 113 years, while non-OPEC oil producers’
reserves might last less than 18 years. The worldwide demand for oil is rising
and OPEC is expected to be an increasingly important source of that oil. If we
manage our resources well, use oil efficiently and develop new fields, then our
oil reserves should last for generations to come.
Source : WOO 2011
OPEC LONG TERM STRATEGY:
The OPEC Ministerial Conference adopted a comprehensive new Long- Term
Strategy (LTS) in Vienna on 14 October 2010. This coincided with the
celebration of OPEC’s 50th Anniversary.
The LTS, which has been prepared over the past year, incorporates extensive
research and analysis, and provides a clear and consistent framework for the
Organization’s future. It defines three overall objectives, identifies the key
challenges that the Organization faces now and in the future, explores a number
of scenarios that depict plausible, consistent and contrasting futures of the
energy scene, and formulates the elements of strategy to successfully attain its
objectives and adequately address the identified challenges.
The projections show that future demand levels are well below what was
expected at the time of the previous LTS (released in 2005), a consequence of
the impacts of the global economic recession and the introduction of new
policies that have reduced expectations for oil demand growth. However,
growing supply needs in emerging markets will continue to fuel development,
especially as the axis of the global economy increasingly shifts towards
developing Asia.
World oil demand in the three scenarios
The substantial decline in crude oil demand — as a result of the global
economic downturn, coupled with the wave of new refining capacity that has
come on stream in the past few years — has significantly impacted refining
sector fundamentals.
In the medium-term, low utilization rates and depressed profitability are likely,
especially in the Atlantic basin. Consequently, there is in- creasing potential for
refinery closures in the US, Europe and Japan.
In the longer term, the proportion of crude oil that needs to be refined per barrel
of incremental product declines further as the percentage share of biofuels, gasto-liquids, coal-to-liquids, NGLs and other non- crudes in total supply continues
to rise. Combined with projected developments on the demand side, this will
limit future requirements for additional distillation capacity.
From a regional perspective, new capacity — driven by a further shift towards
middle distillates and light products — will be needed primarily in the AsiaPacific and Middle East regions. This underscores the emerging contrast
between the Atlantic and Asia-Pacific basins. The former of these, dominated
by Europe and the US, is the centre of the refining surplus. Conversely, the
Asia-Pacific basin is the hub of capacity growth. Therefore, the prospect is for a
substantial reshaping of the oil downstream and a regional shift toward Asia.
OPEC National Oil Companies should further enhance technology- based
cooperation among themselves, as well as with other international institutions.
For example, research and development collaboration among Member
Countries should be encouraged to rapidly develop a portfolio of projects in
such areas as oil-use efficiency, as well as in advancing research into the
production of cleaner crude oil-based transportation fuels.
In climate change-related multilateral for a, OPEC Member Countries will
continue to play an active role. In this regard it is essential that the international
community ensures the full and sustained implementation of the principles and
provisions included in the United Nations (UN) Framework Convention on
Climate Change, such as the principles of ‘equity’ and ‘common but
differentiated responsibilities’. Equally important is its ongoing commitment to
minimize the ad- verse impacts of policies and measures on developing
countries, whose economies are heavily dependent on the production and export
of fossil fuels; the use of flexible mechanisms and sinks such as forests; the
provision of additional, sustained and adequate financial resources for
adaptation; and the transfer of technology.
The active engagement of OPEC in global trade negotiations is also important.
In this respect, it is crucial to constantly adhere to the principle of the permanent
sovereignty of nations over their natural resources, and the use of the
comparative advantage provided by this resource.
Non OECD Demand:
China’s oil demand experienced its weakest quarterly growth in the third
quarter of 2011 since the first quarter of 2009. Many factors led to this weak
performance, such as the slowdown in economic activity, high retail prices and
the government’s energy-savings programme. However, the fourth quarter’s oilusage rose by 5.5 per cent, so that the year ended with 5.1 per cent growth.
Despite the substantial weakening in the months after the summer and the
expiry of sales incentives in the form of tax-breaks for small-engined vehicles,
Chinese auto sales rose, adding 18 million units, or 2.5 per cent, during the year.
As one would expect, the Japanese earthquake had a negative effect on the auto
industry in China (and the USA).
Indian oil consumption in the transportation (which had a boom in new car
registrations) and industrial sectors displayed solid growth during the year, but
was offset slightly by fuel substitution to gas in the petrochemical and power
plant industries. Furthermore, shortages in electricity supply led to a push for
independent diesel-operated generators, and this resulted in more diesel
consumption during the year. As a result of India’s oil demand, ‘Other Asia’s’
oil demand grew by 0.3 mb/d for the year. The Indian auto market experienced
negative growth in December. But, for the whole of 2011, Indians bought three
million more cars, due to the government’s new car sales incentives.
Energy-intensive projects in the Middle East, especially Saudi Arabia, saw a
hike in the region’s oil demand of 2.4 per cent in 2011. The region’s demand
has been growing steadily in the past few years. The product that was consumed
the most in 2011 was diesel, which was used by both the transport and industrial
sectors. Due to the weak- ness in Iranian demand, growth in the region’s
consumption lagged behind that of Latin America.
The non-OECD region’s demand accounted for all the global demand growth in
2011, totaling 1.2 mb/d y-o-y. The strongest growth was seen in China,
followed by Other Asia, Latin America and, finally, the Middle East.
Shale Oil:
Following on from what have some have termed the ‘US shale gas revolution’,
which is also now having some impact globally, questions are being asked as to
whether shale oil will have a similar effect, particularly in the US. Shale
deposits rich in organic matter and movable oil are very common and exist in
almost all known oil fields, but to date there has been very little exploitation of
this resource. Is this about to change?
It is important to stress that there has been much interchangeable use of the
terms ‘shale oil’, ‘oil shale’ and kerogen. The focus of this box is on the
production of crude oil from shale deposits, not the conversion of kerogen from
shale into crude oil. Here, the term ‘shale oil’ (sometimes described as ‘tight
oil’) will be used to refer to crude oil produced by the hydraulic fracturing of
shale.
Despite widespread shale deposits, it is not yet clear whether the availability of
economically viable shale oil is as great as that for shale gas. It is already
evident that some deposits will not be sufficiently mature to contain liquids, and
some will be over-mature. The geographical, geological and operational
challenges and associated costs across countries and regions will be diverse.
Nevertheless, given the size of known shale oil deposits, even if only a fraction
of them contain viable liquids, it translates into a significant resource.
Known shale oil resources cover several basins in the US (Bakken, Eagle Ford,
Niobrara, Utica, Leonard Avalon, Woodford and Monterey), but also in other
parts of the world (Beetaloo in Australia, Exshaw and Macasty in Canada, Paris
in France and Vaca Muerta in Argentina). Due to the lack of data, estimates of
oil in place and recoverable volumes from these formations are still the subject
of huge uncertainties.
To date, only the Bakken oil shale formation in North Dakota and Eagle Ford in
Texas have been exploited for a sufficient period of time to have a clear
understanding of actual resources and reserves. A number of other deposits are
being targeted, but given that many are in their infancy, data on the resources in
place and the estimated recoverable reserves is generally limited, and beset with
uncertainties. As a result, a wide variety of claims – both conservative and
optimistic – have been made, but so far it remains difficult to ascertain the longterm prospects for shale oil.
At the global level, a very conservative estimate of global shale oil ‘proved’
reserves, based on a 3% recovery factor, is less than 100 billion barrels. In this
case, shale oil will only add incremental amounts to the medium-term global oil
supply.
A more optimistic estimate of global shale oil ‘proved’ reserves, again with a
3% recovery factor, is projected to be more than 300 billion barrels. In this case,
shale oil might prove to be a significant long-term contributor to global oil
supply.
In terms of development and production, what makes shale oil unusual is that it
does not involve a new technology or a newly-discovered resource. The
hydraulic fracturing technology has been used for many years – especially in the
US – and the resource, although not exploited, exists in most known fields. As
in the case of shale gas, this can be expected to speed-up the rate at which
exploitation occurs and implies that the time it will take to spread will be faster
than if these were completely new fields. On the other hand, supply is very
dependent on the drilling effort and, thus, is more price elastic.
Significant constraints over the next ten years include: the need for geological
analysis of other shales; trained people to perform hydraulic fracturing; and
acquiring the horizontal drilling and fracturing equipment. In the US already,
costs have accelerated sharply as the demand for fracing equipment cannot be
met. Thus, delays in initiating fracturing jobs are common. In some areas, such
as northern Europe, environmentally-driven political opposition can also be
expected to slow or possibly prevent development.
Outside of the US and Canada, there are at present only three basins that have
been analyzed sufficiently to be viewed as having potential for near-term
production. These are the Vaca Muerta in Argentina, the Beetaloo in Australia,
and the Paris basin in France. The last, however, faces strong political
opposition and develop- ment will likely be delayed for years.
Elsewhere, China is moving aggressively to study and exploit its shale oil
resources and production there is likely to start growing following a few years
of evaluation and human resource training. And if other countries such as
Brazil, as well as those with shale oil deposits in North Africa, encourage
operations, then after around five years, perhaps small increments may also be
observed from these areas. Regions such as central Africa and Siberia will not
be developed soon, because of their lack of infrastructure, and regions such as
the Middle East have no need at present to develop a higher-cost,
unconventional resource.
Development costs for shale oil appear to be roughly in the $30–$80/b range,
excluding taxes and royalties. However, as the industry develops and moves
further along the learning curve, costs can be expected to come down, perhaps
sharply over the medium-term, before flattening out. Depletion will not be a
significant factor, due to the size of the resource, but in the short-term, pressure
on the limited amount of crews and equipment could drive costs up.
Looking ahead, it is evident that output from new shale oil deposits will not
grow at a similar rate of 60,000 b/d per year as the Bakken basin is presently,
but capacity will expand for years to come as more and more rigs and fracing
equipment are brought in. Within a decade, it is quite possible that shale oil
production could rise at relatively significant levels year-on-year, assuming
prices remain well above $60/b, and regions such as Argentina, Australia and
Canada do not significantly restrict operations. At present, however, shale oil
should not be viewed as anything more than a source of marginal additions.
Biofuels:
The pattern of biofuels supply follows three distinct phases. Over the mediumterm, there is an initial supply surge, with first generation technologies used to
supply the vast bulk of this. In the medium-term, biofuels rise from 1.8 mb/d in
2010, to 2.7 mb/d in 2015 (Table 3.6). This increase is focused mainly on the
US, Europe and Brazil.
Increasingly, however, in the second of these phases, sustainability issues place
a limitation on how much first generation biofuels can be produced. Indeed,
recently, some countries have revised their policy push in favour of biofuels by
relaxing their blending mandates, for example, in Germany, or by developing
sustain- ability criteria, as seen in the EU as a whole. Higher sugar prices have
also led to a downward revision of ethanol mandated blending in Brazil.
Moreover, the economic crisis and the resulting pursuit of fiscal consolidation
in many countries will likely make it more difficult to justify and sustain
expensive support programmes that favour biofuels. This means that, after the
medium-term period, the Reference Case sees a slowdown in the rate of
increase. This will be particularly apparent in the US and Europe, which in turn
may mean that some ambitious targets may not be met.
In the longer term, the third phase, it is assumed that second generation
technologies – and third generation biofuels technology, such as algae-based
fuels – be- come increasingly economic, leading to a resurgence in biofuels
supply growth. The Reference Case sees biofuels supply rising by more than 5
mb/d from 2010, to reach 7.1 mb/d by 2035 (Table 3.7). The growing
importance of second and third generation biofuels over the longer term
introduces considerable uncertainty to the outlook. Increases could feasibly be
considerably higher, once these technologies become a commercial reality and
should costs decline substantially. The development of these technologies is
also likely to be sensitive to how oil prices evolve.
The considerable uncertainty in the biofuel outlook will be addressed through
continuous monitoring of its main drivers; mainly government mandates and
policies that provide the required incentives to increase biofuel production.
These mandates, although varying considerably from country-to-country, will
continue to be the most important factor in the biofuel equation. So far, and
regardless of all the fiscal challenges (increased feedstock costs, the food versus
fuel debate and the argument that biofuels are not as environmentally-friendly
as was previously believed), new man- dates continue to be introduced in
support of biofuel programmes. For example, in the US, the reinstatement of the
biodiesel blender tax credit at the end of 2010 is the main reason behind its
production increase in 2011.
OPEC upstream investment activity
In 2010, OPEC’s spare capacity stood at more than 5 mb/d. While this capacity
fell to about 4 mb/d during the second and third quarter of 2011 as a result of
the disruption in Libya’s production, it is expected to stabilize at about 8 mb/d
over the medium- term. Given the industry’s long-lead times and high upfront
costs, it is indeed an extremely challenging task to strike the right balance for
investment in new capacity. The ever-evolving dynamics of supply and demand,
as well as other market uncertain- ties, adds further to the budgeting and
planning complexity.
Of utmost importance, in respect to investments, is a stable and realistic oil
price; one that is high enough for producers to continue to invest and develop
resources and low enough to not hinder global economic growth. It is important
not to forget the renewed sense of caution that the financial crisis of 2008
planted in investors’ minds. The oil and gas industry, which has typically been
slow to increase investment when the oil price goes higher, will likely continue
to respond faster to low oil prices. Nonetheless, this does not mean that costs
will respond in the same way, as even during the financial crisis the high cost
environment persisted. Costs did fall a little towards the end of 2009, but they
are now back to the same high levels of 2008.
Regardless of all the challenges and uncertainties, OPEC Member Countries
continue to invest in additional capacities. On top of the huge capacity
maintenance costs that Member Countries are faced with, they continue to
invest in new projects and reinforce their commitment to the oil and gas market
and as well as to the security of supply for all consumers. Needless to say, this
is only a reflection of OPEC’s well- known policy that is clearly stated in its
Long-Term Strategy and its Statute.
Based on the latest upstream project list provided by Member Countries, the
OPEC Secretariat’s database comprises 132 projects for the five-year period
2011– 2015. This could translate into an investment figure of close to $300
billion should all projects be realized. This shows how large OPEC’s project
portfolio is. Investment decisions are influenced by many factors, such as the
price of oil and the perceived need for OPEC oil. Under the Reference Case
conditions, and taking into account all OPEC liquids, including crude, NGLs
and GTLs, as well as the natural decline in producing fields and current
circumstances, the net increase in OPEC’s liquids capacity by 2015 is estimated
to be close to 7 mb/d above 2011 levels, with more thereafter, leading to
comfortable levels of spare capacity.
SUPPLY OF OIL
OPEC has a policy of maintaining stability in the oil market, and its Member
Countries have often done this by increasing or decreasing the amount of oil
they produce. Only OPEC nations have a significant spare oil production
capacity, and this enables them to increase production at relatively short notice.
However, because OPEC is not the only source of oil in the market, it cannot
guarantee the movement of oil prices, or the availability of supplies to all
consumers at all times.
OPEC has around 81 per cent of the world's oil reserves, and this will enable us
to expand oil production to meet the growth in demand. But in order to expand
our output, we need to be sure that the oil industry will continue to be
profitable. Oil producers invest billions of dollars in exploration and
infrastructure (drilling and pumping, pipelines, docks, storage, refining, staff
housing, etc) and a new oil field can take 3-10 years to locate and develop.
If oil producers do not invest enough money and do it far enough in advance,
then the world could face a shortage of oil supplies in future.
Therefore, OPEC is concerned about issues that undermine the prosperity of the
oil industry and thus threaten the security of world oil supplies. One such issue
is oil taxation in the consuming countries.
Although OPEC does try to maintain stability and invest in a timely manner, our
efforts to guarantee the security of oil supplies can be undermined - or
supported - by the actions of oil consumers.
Yes, oil consumers need steady supplies of oil, and oil producers rely on steady
demand. If demand changed suddenly it would have a major impact on the
profitability of oil producers and the economies of many countries around the
world.
Oil production is a long-term affair: the oil industry works 24 hours a day, 365
days a year, excluding maintenance or bad weather and other disruptions. Oil
facilities require many millions of dollars of investment, and the investors try to
earn a reasonable return on their capital.
A downturn in oil demand could force oil production to slow down or stop. This
could physically damage the oil fields, reducing the amount of oil that can be
recovered in future. The oil installations could also be damaged. Some facilities,
such as those operating in the oceans, are very difficult and expensive to shut
down.
When production slows down, oil producers might be forced to lay off staff.
Downstream operators, such as gasoline retailers, refiners and transport
companies, could also be forced to shed staff.
If oil producers receive lower incomes they must spend less money and import
fewer goods from oil consumers. If investors are unsure about the risks and the
likely returns from petroleum investments they may not make those
investments. If we do not invest enough money, or do it far enough in advance,
then the world could face a shortage of oil supplies and a downward spiral in
the global economy. However, if oil producers continue to receive reasonable
prices and stable demand, they will maintain their production and invest far
enough in advance to meet the growth of demand.
Thus the security of oil supplies relies upon the security of oil demand. Oil
producers - and oil consumers - need to work together to ensure that the security
of oil supply and demand is preserved.
OIL TAXES
Oil taxes reduce the incomes of oil producers, and limit the funds they have
available for maintenance, exploration and production activities.
Oil taxes also limit the growth in oil demand and raise costs for other industries.
As a result, oil producers and other investors are unsure of the future
development of oil prices and profits, and they might hesitate from making the
necessary investments
This graph illustrates the inter-country variations in the price of one litre of oil
across the G7 countries during 2010. The price variations, however, are not due
to differences in crude oil prices but rather to the widely varying levels of oil
taxes (shown in red) in those major oil consuming nations. These can range
from relatively modest levels - in the USA and Canada - to very high levels in
Europe. In the UK, for example, the government earned US $1.15 (or around
65%) from the US $1.78 retail price of a litre of pump fuel in 2010, while oil
producing countries (including OPEC) earned only US $0.51 (or around 29%)
of this total pump fuel price.
EVALUATION OF OIL PRICES- THE MECHANISM
OPEC does not control the oil market. OPEC Member Countries produce about
42 per cent of the world's crude oil and 18 per cent of its natural gas. However,
OPEC's crude oil exports represent about 60 per cent of the crude oil traded
internationally. Therefore, OPEC can have a strong influence on the oil market,
especially if it decides to reduce or increase its level of production.
OPEC seeks stability in the oil market and endeavours to deliver steady supplies
of oil to consumers at fair and reasonable prices. The Organization has achieved
this in a number of ways: sometimes by voluntarily producing less oil,
sometimes by producing more when there is a shortfall in supplies (such as
during the Gulf Crisis in 1990, when several million barrels of oil per day were
suddenly removed from the market).
One of the most common misconceptions about OPEC is that the Organization
is responsible for setting crude oil prices. Although OPEC did in fact set crude
oil prices from the early 1970s to the mid-1980s, this is no longer the case. It is
true that OPEC's Member Countries do voluntary restrain their crude oil
production in order to stabilize the oil market and avoid harmful and
unnecessary price fluctuations, but this is not the same thing as setting prices.
In today's complex global markets, the price of crude oil is set by movements on
the three major international petroleum exchanges, all of which have their own
Web sites featuring information about oil prices. They are the New York
Mercantile Exchange (NYMEX, http://www.nymex.com), the International
Petroleum Exchange in London (IPE, http://www.ipe.uk.com) and the
Singapore
International
Monetary
Exchange
(SIMEX,
http://www.simex.com.sg). The Web sites of the Paris-based International
Energy Agency (IEA, http://www.iea.org) and the US Energy Information
Administration (EIA, http://www.eia.doe.gov), also have extensive historical
information on oil prices.
The Oil and Energy Ministers of the OPEC Member Countries meet at least
twice a year to co-ordinate their oil production policies in light of the market
fundamentals, ie, the likely future balance between supply and demand. The
Member Countries, represented by their respective Heads of Delegation, may or
may not alter production levels during the Meetings of the OPEC Conference.
Given that OPEC Countries produce about 42 per cent of the world's crude oil
and about 60 per cent of the crude oil traded internationally, any decisions to
increase or reduce production may lower or raise the price of crude oil.
The impact of OPEC output decisions on crude oil prices should be considered
separately from the issue of changes in the final prices of oil products, such as
gasoline or heating oil. There are many factors that influence the prices paid by
end consumers for oil products. In some countries taxes comprise over 60 per
cent of the final gasoline price paid by consumers, so even a major change in
the price of crude oil might have only a minor impact on consumer prices.
Alternate Energy Sources:
Nuclear Energy:
As countries seek to find the right balance in the energy trilemma we have seen
that many governments have reviewed their plans for the utilisation of nuclear
in the energy mix. A perspectives report by the World Energy Council titled
“Nuclear Energy One Year After Fukushima” shows that 50 countries are still
building, operating or and that 60 reactors are currently under construction, 20
in China alone, with the majority being in emerging countries. This can mean
two things :
a) Climate change is considered as a real threat and that countries envisage
nuclear energy as an efficient means to contributing and curbing climate
change.
b) These nations believe in the concept of nuclear energy and are willing to
strengthen nuclear safety through reinvigorated international governance.
Coal:
The Global Coal industry has experienced an incredible decade, with demand
growth for this one fuel alone nearly matching the aggregate growth seen across
gas, oil, nuclear and all forms of renewable energy sources.The importance of
coal in the global energy mix is now the highest since 1971. It remains the
backbone of electricity generation and has been the fuel underpinning the rapid
industrialisation of emerging economies, helping to lift hundreds of millions of
people out of energy poverty.Maintaining current policies would see coal use
rise by a further 65 per cent by 2035, overtaking oil as the largest fuel in the
global energy mix.
So it is clear that energy and environmental policy will play a decisive role in
future coal use. In some countries, its use may be deliberately encouraged for
economic, social or energy security reasons. For instance, if action were taken
to provide electricity access by 2030 to the 1.3 billion people in the world
without it today, coal would be expected to account for more than half of the
fuel required to provide additional on-grid connections. In other countries,
policies may be designed to encourage switching away from coal to more
environmentally benign or lower carbon sources, such as through air quality
regulations or carbon penalties. While a global agreement on carbon pricing has
been elusive, a growing number of countries are taking steps to put a price on
carbon emissions. In the longer term, the deployment of carbon capture
is another potential “game-changer” for coal. If widely deployed, CCS
technology could potentially reconcile the continued widespread use of coal
with the need to reduce carbon dioxide emissions. While the technology exists
to capture, transport and permanently store these emissions in geological
formations, it has yet to be demonstrated on a large scale in the power and
industrial sectors and so costs remain uncertain. The current picture is still one
in which many legal, regulatory and economic issues need to be resolved. The
experience yet to be gained from the operation hence, the prospects for
widespread deployment of CCS.
In the longer term, the deployment of carbon capture and storage technology is
another potential “game-changer” for coal. If widely deployed, CCS technology
could potentially reconcile the continued widespread use of coal with the need
to reduce carbon dioxide emissions. While the technology exists to capture,
transport and permanently store these emissions in geological formations, it has
yet to be demonstrated on a large scale in the power and industrial sectors and
so costs remain uncertain. The current picture is still one in which many legal,
regulatory and economic issues need to be resolved. The experience yet to be
gained from the operation hence, the prospects for widespread deployment of
CCS.
Taken together the widspread adoption of coal power plants and of CCS would
help secure the position of coal in our future energy mix and make an important
contribution to tackling climate change. But without these technologies, the
world will need to move gradually away from coal towards low-carbon
technologies, seeing global coal demand and coal’s share of the energy mix
decline in the process.
Energy situation by continent:
Africa
In Africa, energy poverty is more prominent than in any other regions due to the
high level of social poverty and the low access to modern energy. About 70 per
cent of Sub-Saharan Africa’s (SSA) population (and 58 per cent of Africa’s
population) lack access to electricity, while some 80 per cent of SSA’s
population without access to electricity live in rural areas. Among all the
regions Africa shows the highest interest in the energy-water nexus. There is an
expressed concern that if dry cooling is not implemented at power plants, then
there will not be enough water to sustain the current population plus cooling for
the region’s power plant.
Conversely, large-scale hydro is seen as an important asset for Africa and holds
great potential for development, but its further development and exploitation
requires huge amount of investment, suitable social and environmental
framework, political stability and bold economic reforms. It could take time to
address all these challenges and to make development happen in a sustainable
way. Solar is also viewed with great interest as the prices of photovoltaics
continue to fall.
Asia
Asian countries, especially emerging economies, have experienced increasing
demand for electricity as a result of rapid economic growth. To meet the
increasing demand, Asian economies are relying heavily upon coal and nuclear
as their main energy sources.
Understandably, the impact of the events in Japan following the accident at the
Fukushima Daiichi nuclear power plant, while having affected the world, are
probably more directly felt in Asia. The fact that Japan has seen the equivalent
of a 72 per cent decrease in nuclear power generation, taking into account
installed nuclear capacity, has led to other issues. To replace this supply, Japan
has estimated US$6bn on increased additional gas imports in 2011. LNG
imports to Japan were up 28.2 per cent year on year in January 2012 and,
according to the Institute of Energy Economics of Japan and the Japanese
Ministry of Finance, Japanese LNG imports in 2011 were 12 per cent higher
than in 2010. This understandably brings the issue of energy security to the
front for Asia.
Europe
In Europe, climate framework is clearly an important issue, but it has also
become clear that Europe is globally in a other regions to follow a similar
climate agenda. Weaker economic activity has led to dramatically lower
greenhouse gas emissions, driving down carbon prices for emissions trading,
and our survey suggests that carbon prices will continue to decrease. Indeed,
new EU data suggests that emissions fell 2.6 per cent last year, prompting
carbon prices to fall to a record low of just over €6 a tonne, in line with our
analysis.
Energy infrastructure, including regional interconnection, is an important
agenda for Europe. However, progress in areas such as large-scale, high-voltage
transmission projects have been delayed by a lack of regulatory coherence.
Transmission bottleneck issues could become more serious in future. The lack
of an effective carbon market and a stagnating economy raise uncertainty
regarding the future of technologies. In order to reach higher shares of green
electricity there is a need for proper integration of renewables. So this strong
need for new infrastructure is up against an economic situation that is currently
a stress to investment.
Latin America and the Caribbean
Transforming energy wealth into social development and reducing energy
poverty is key to the region. Energy subsidies for demand side in particular are
important for developing countries as they are seen to help guarantee access of
energy for low-income people. Energy price concerns grow bigger as they could
slow down economic development, since we expect energy demand to increase
on the other. This region is the only region that has little doubt about the future
of biofuels.
North America
Energy issues are becoming extremely challenged in the North American
region. We see that nuclear is both a source of high uncertainty and high impact.
With 104 reactors operating in the United States, accounting for 20 per cent of
America’s electricity output, and two new reactors having been given Middle
East dynamics are an important issue to the North American region as we now
see coming to the fore with the impact of oil price on the United States’ political
landscape.
Unconventional's are critical to the agenda in terms of their abundance and
impact on energy prices. Shale gas, oil sands, fracking and tight oil have
transformed North America’s energy outlook. Shale gas plays an important role
in the global energy market as its global production will increase to 30 per cent
by 2030, and 70 per cent of this will come from the US and Canada. As for oil
sands, their environmental acceptability, including pipeline construction, will be
the key element for their timely development and even the creation of a new
market. However, without agreement the Canadian government will look to
new, emerging markets such as China. With the anticipated penetration of
photovoltaic and wind energy into the grid and the much anticipated advent of
the smart grid, the impact of electric storage may grow even bigger for the
region.
QUESTIONS TO CONSIDER
 Is the current development of alternative sources of energy affecting
economies of OPEC countries?

What can the OPEC do to maintain a steady oil market to sustain their
economies?

Will the demand for oil increase or decrease in the future?

If demand decreases due to various factors, what can be the possible
solutions to the scenario?

Are current prices of oil affecting demand? Will they affect demand in
the future?

Should OPEC countries solely rely on oil to sustain their economies?
Should they diversify to new and alternative sources of energy?
IMPORTANT RESEARCH LINKS
1. http://www.opec.org/opec_web/static_files_project/media/downloads/pub
lications/OPECLTS.pdf
2. http://www.postcarbon.org/Reader/PCReader-Fridley-Alternatives.pdf
3. http://www.opec.org/opec_web/static_files_project/media/downloads/pub
lications/AR_2011.pdf
4. http://www.opec.org/opec_web/static_files_project/media/downloads/pub
lications/WOO_2011.pdf
5. http://www.opec.org/opec_web/static_files_project/media/downloads/pub
lications/Solemn_Declaration_I-III.pdf
6. http://www.opec.org/opec_web/static_files_project/media/downloads/pub
lications/MOMR_June_2012.pdf
7. http://europeecologie.eu/IMG/pdf/shale-gas-pe-464-425-final.pdf