Delegates gathered in London for a Centre for Global Energy Studies (CGES) conference heard the Organization of Petroleum Exporting Countries praised for production restraint during the last 6 months.
Dr. Richard Schenz, chairman of Austrian state company OMV AG, said if OPEC members were attempting to maximize production in the same way as non-OPEC producers, crude oil prices could be $10/bbl below recent levels.
"They would simply fall to the very low level of the cost of producing the marginal barrel," Schenz told the conference that focused on the theme, "OPEC in crisis."
Meantime, CGES Chairman Ahmed Zaki Yamani predicted Iraq will be allowed to resume oil exports in mid-1995.
Then OPEC members must decide whether to pursue higher oil prices through production cuts or accept lower oil prices while maximizing production. Yamani is former oil minister of Saudi Arabia.
The conference coincided with publication of the latest estimate by Middle East Economic Survey (MEES), which showed OPEC oil flow rose 230,000 b/d in March to 24.99 million b/d, almost 300,000 b/d more than the group's 24.32 million b/d quota.
DEMAND FOR OPEC OIL
This year, OPEC can expect no growth in demand for its crude oil for the first time since 1987, Schenz said. He estimated growth in demand for OPEC oil rose an average 1.2 million b/d/year during 1987-93.
Schenz said, "Stagnation this year in demand for OPEC crude arises from an unusually large increase in non-OPEC crude supplies of 1 million b/d, compared with an average of just 400,000 b/d/year over the past 6 years. "
Schenz attributed about 800,000 b/d of the increased non-OPEC production to North Sea operations. North Sea oil flow was said to be 5.2 million b/d in first quarter 1994, close to the peak level expected for later this year.
"Better news for OPEC is that non-OPEC supplies, excluding the former Soviet Union, are expected to increase by just 1 million b/d between 1994 and 2000," Schenz said.
"This should leave scope for OPEC to raise output by around 5 million b/d over the same period. Moreover, a similar rate of growth is expected over the first decade of the 21st century."
Schenz expects OPEC's market share to approach 50% by 2000, having fallen from two thirds at the height of its market powers in the 1970s to just one third in 1985.
This half share of the market at production volumes approaching 1970s levels may enable OPEC to bring back continuity to the market at reasonable oil prices, Schenz said.
OPEC'S FAULT LINE
Yamani told the conference there is a fault line that runs through OPEC based on a dichotomy between price seekers and volume chasers.
He said, "On one side of the line we have Libya, Algeria, Qatar, Nigeria, Indonesia, and Gabon, each of them with very little spare production capacity. Near them are a group comprising Iran, the Emirates, and Venezuela having some spare capacity--say around 10% each.
"On the other side of the line we have Saudi Arabia with an actual spare capacity of 20% and Kuwait with the potential to produce 20% more. Also, Iraq's productive potential is such as to place it alongside producers like Saudi Arabia and Kuwait."
Yamani said OPEC should have decided on a long term price or volume policies in 1986 but had never been able to agree on a strategy because members did not fit the same mold.
"The coming rehabilitation of Iraq will provide the real test of OPEC's longer term viability," Yamani said.
"OPEC will have to decide whether it believes in stable prices, requiring it collectively to accommodate Iraq. Should OPEC not feel it is worthwhile operating in concert, it will reap the whirlwind.
"The oil price, according to this scenario, will crash to $10/bbl or lower still. And beyond that there is a danger that the price of crude will not rebound if governments of oil consuming countries tax away the difference.
"Worse still, the crude price may rebound because those state oil companies lacking the funds to expand capacity due to low oil prices are unable to keep up with rising demand for oil.
"Then the world would experience a shortage of oil amid plenty-that is, a lack of productive capacity despite plentiful oil reserves."
FIRST HURDLE
Before OPEC can jump or fall at the Iraqi hurdle, however, low oil prices and consequent low revenues are causing problems to members with high levels of foreign debt.
Yamani said the current oil price is slightly more than the 1973 average price in real terms. OPEC crude oil revenues dropped 11% in 1993 and are expected to drop a further 15% this year on current price and volume projections.
Yamani said, "These declines in oil revenues are bad enough on their own, but what makes them worse is the dangerously high level of foreign indebtedness of a number of OPEC countries."
At the end of 1993, Indonesia owed $85 billion abroad, Nigeria $31 billion, Venezuela $40 billion, and Iran $20 billion. Many of these debts are said to be due this year.
Indonesia has to pay back $11 billion this year, which Yamani said is five times its expected earnings from crude oil exports. Iran has to repay $13 billion, or almost all it expects to earn from oil exports this year.
"One OPEC country above all exemplifies this problem," Yamani said. "Algeria is in the fierce grip of a sociopolitical upheaval at a time when $9 billion of its $26 billion foreign debt is due and its entire earnings from hydrocarbons are needed to service its debt. "
YAMANI'S OUTLOOK
CGES expects oil price declines to continue. Yamani said the 1994 oil price will be at least 15% lower than last year's $14/bbl for OPEC basket crudes.
However, if OPEC has to accommodate Iraqi production next year, Yamani said, the prospect of $10/bbl oil would force members to overlook their differences.
"I find it hard to predict OPEC will disintegrate, for one simple reason. The alternative is far, far worse. While OPEC members may fall into rival camps, they still have an overriding common interest in ensuring that the oil market does not slide into a catastrophic free-for-all in which all member states will suffer."
If OPEC can get beyond the Iraqi exports barrier, Yamani sees promise of a relatively golden age with OPEC's share of world oil consumption rising by the end of the century.
He said, "If prices remain at about $14/bbl during the next few years and then rise to about $17/bbl, there will be a need for about 9 million b/d of additional oil from OPEC by 2000."
OPEC MARCH FIGURES
Latest figures compiled by MEES show OPEC members producing 470,000 b/d in excess of the group's quota. However, discounting the 100,000 b/d excess production of Iraq trimmed the excess figure to 370,000 b/d.
Most of March overproduction was attributed to Iran, which produced 115,000 b/d beyond its 3.6 million b/d quota. This increase took place despite persistent reports of pressure and water-cut problems in Iran's main oil fields.
Iranian production for the first quarter averaged 3.573 million b/d, "...comfortably within the quota limit."
Exxon Corp. was said by MEES to have lifted an exceptionally large volume of Iranian crude oil during March.
About 383,000 b/d were said to have been loaded that month, compared with a normal 200,000 b/d. All Exxon's Iranian liftings were said to have been heavy crude, taken because of a decreasing supply of heavy crudes from Saudi Arabia.
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