Opening address to the 141st (Extraordinary) Meeting of the OPEC Conference

No 10/2006
Caracas, Venezuela
01 Jun 2006

by HE Dr Edmund Maduabebe Daukoru, President of the Conference and Minister of State for Petroleum Resources of Nigeria

Excellencies, ladies and gentlemen,

Welcome to Caracas for the 141st (Extraordinary) Meeting of the OPEC Conference. We are assembled here at the kind invitation of the Government of the Bolivarian Republic of Venezuela. Let me, therefore, take this opportunity, on behalf of Your Excellencies, to thank His Excellency Rafael Ramirez, Venezuela’s Minister of Energy and Petroleum and Head of its Delegation — and, through him, the Government and good people of the Bolivarian Republic — for the generous invitation to host today’s meeting, for the excellent facilities that have been provided and for the warm hospitality that has been accorded to us since our arrival. I should also like to thank the organisers of this Conference for their hard work.

Today’s meeting is being held in the capital city of one of OPEC’s five Founder Members, Venezuela, a country which has always been proud to have an active, central involvement in the affairs of our Organization. In recent years, the dynamic leadership of President Hugo Chavez has reinvigorated the Venezuelan oil industry and encouraged a stronger sense of collective identity and purpose further afield within the Latin American energy sector. The Staff of the OPEC Secretariat retain fond memories of the two Secretaries General sent by President Chavez to Vienna in 2001–03 — Dr Alí Rodríguez Araque and Dr Alvaro Silva Calderón — and they have requested me to convey their personal greetings to these kind and respected gentlemen.

Venezuela’s involvement with OPEC actually began more than a decade before the Organization was established, when this country approached Iran, Iraq, Kuwait and Saudi Arabia in 1949, to suggest that they exchange views and explore avenues for regular and closer communication among them. Just six years ago, on the occasion of OPEC’s 40th anniversary, Venezuela hosted the Second Summit of Heads of State and Government of OPEC Member Countries, in which the concluding Solemn Declaration contained a reaffirmation of the principles and objectives of our Organization, relating directly to oil market order and stability, as well as a commitment to other causes that would help improve the welfare of mankind, such as sustainable development, the eradication of poverty and the protection of the environment.

Before we begin proceedings today, I have the sad task of inviting you to join me in conveying our deepest condolences to the Government and people of Indonesia for the terrible loss they have suffered as a consequence of the disastrous earthquake which struck the Country last week. Our heartfelt sympathy goes out to all those who have lost loved ones in this tragic natural disaster. We pray to Almighty God to give them fortitude to bear their loss. May the souls of the departed rest in perfect peace. Amen.

On a happier note, I would ask you to join me in congratulating the people of the Republic of Iraq on the recent inauguration of its new Government and in congratulating His Excellency Dr. Hussain Al-Shahristani on his appointment as Minister of Oil of the Republic of Iraq. Unfortunately, HE Dr. Al-Shahristani cannot personally be with us today, but we send him our greetings and look forward to welcoming him to our next Meeting. Our thoughts are with HE Dr. Al-Shahristani and his country — another OPEC Founder Member — as it seeks to redevelop its oil industry and re-emerge as a major player on the world stage. Permit me, also, to take a few moments of your time to extend a special welcome to an esteemed colleague who is attending the OPEC Conference for the first time as Head of his Country’s Delegation. His Excellency Dr Shokri M. Ghanem, Chairman of the People’s Committee of the National Oil Corporation of the Socialist People’s Libyan Arab Jamahiriya, is no stranger to OPEC, having served with distinction as Director of the Secretariat’s Research Division in Vienna for eight years up to 2001. We look forward to his wise counsel, benefiting from his deep knowledge about the work of our Organization.

Since the Conference last met in Vienna in March, oil prices have, once again, reached record highs, with OPEC’s Reference Basket rising above US $65 a barrel, which means it has doubled in just two years. We are not comfortable with prices at such levels, because they are not supported by fundamentals and contain within them the seeds of further volatility, which, ultimately, will be to the detriment of all the players in the market. However, we must view the present situation in a broader perspective and note that, in real terms, prices are still well below levels seen in the early 1980s, when the Basket would have reached $85/b, at today’s prices. We should also not forget that, over the last two years, there has been a strong increase in non-energy commodity prices, sometimes at rates greater than that of oil. For example, the price of copper rose by 75 per cent between the beginning of this year and the middle of May. Such trends as these are often overlooked, but they are highly relevant when considering the global picture.

As we have noted on many occasions now, the present market volatility is due to a combination of factors.

Oil demand growth has been exceptional over the past couple of years, with 2004 witnessing growth rates not seen since the early 1970s. North America and the developing countries, in particular China, have been at the centre of this remarkable spurt, which moderated somewhat during 2005. There has also been a slow-down in the rate of expansion of non-OPEC supply, after a long period of solid growth from this sector of the industry, sometimes at faster-than-expected rates.

Next, there has been tightness in the downstream sector. In three key regions of the world — Asia, Europe and the United States — refineries have been operating at 90 per cent of capacity and above for much of the time. There has also been a lack of capacity to process heavier sour crudes, causing the prices of light sweet crudes to climb even higher and the differentials between crude grades to increase.

And finally, there has been increased activity in the futures market, with a new inflow of capital movements by hedge and pension funds. Indeed, open interest contracts in the NYMEX passed the one million mark for the first time in April. Total assets under management by hedge funds are estimated to be in the region of $1.5 trillion. Add to this mix natural disasters and uncertainties stemming from geopolitical developments and other disruptive events across the globe, and it is understandable why there is so much volatility at the present time.

OPEC has been responding as necessary to the need for additional oil, underlining, once again, our Organization’s longstanding commitment to market stability. Our Member Countries have increased production by around four million barrels a day since 2002, even though there have been no actual supply shortages; indeed stocks have recently increased to levels above their five-year average. And, where possible, our Member Countries have accelerated their plans to bring on-stream new production capacity to meet continued demand growth and re-establish a comfortable cushion of spare capacity. I need hardly remind you that, in September last year, our 137th Conference agreed to make available to the market spare capacity of around two million barrels a day in our Member Countries, should this be called for. To date, we have received no specific calls for this.

With OPEC’s upstream capacity on course to rise to around 33 mb/d by the end of the year, against an expected average output of 28.6 mb/d for the year, our spare capacity should exceed ten per cent, a level which past experience has shown to be very comfortable for the market. Moreover, with more than 100 projects in the execution or planning stage in Member Countries, totalling over 11 mb/d of gross oil and other liquids, OPEC’s production policy has ensured that this trend of ample production and sufficient spare capacity will continue for many years, to the benefit of consumers the world over.

All of this demonstrates once again how committed OPEC is to ensuring that consumers receive their oil in an orderly, timely and efficient manner, as and when they need it both now and in the future, and at fair and reasonable prices. However, we cannot act alone in this endeavour, and we welcome the advances that have been made in recent years in the field of dialogue and cooperation among the major players in the market — particularly through such an institution as the International Energy Forum, whose latest ministerial-level meeting in Doha at the end of April provided the opportunity for both formal and informal discussions on market matters.

Moreover, the fact that high-level representatives from some leading non-OPEC oil-producing nations — Angola, Egypt and Syria — are attending this Conference as observers is consistent with the need for a comprehensive understanding by all parties of the far-reaching challenges facing the market and for a collective will to meet them. The stakes are very high for rich and poor nations alike, and we must avail ourselves of every opportunity to ensure that the oil market evolves in a way that is consistent with steady world economic growth, sustainable development and the eradication of poverty.

Excellencies, ladies and gentlemen,

This has been our message for a long time and it remains as valid as ever today.

Thank you for your attention.