Opening address to the 142nd (Ordinary) Meeting of the OPEC Conference

No 14/2006
Vienna, Austria
11 Sep 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 the 142nd Meeting of the OPEC Conference here at our Secretariat in Vienna.

Let me begin by congratulating His Excellency Sheikh Ali Al-Jarrah Al-Sabah on his recent appointment as Minister of Energy of Kuwait. Regrettably, however, he has not been able to be with us today, for pressing official reasons. We therefore look forward to his contribution at future meetings. I should, at the same time, like to thank his predecessor, His Excellency Sheikh Ahmad Fahad Al-Ahmad Al-Sabah, for his excellent contribution to the affairs of the Organization, especially during his period as President of the Conference in 2005, and to wish him well for the future.

Before we move onto market matters, let me recall the warm hospitality extended to the OPEC Conference by the Government and people of Lebanon in June 2004, as well as the excellent arrangements they made for our 131st Extraordinary Meeting. We can do no less than to express our deepest sadness over the devastation that has been sustained by them in the past two months, just when that nation was finally getting back on its feet after the protracted hostilities of the past. I know that I am speaking on behalf of the entire OPEC family when I say that our thoughts and prayers are with those in Lebanon and all others who have been innocent victims of these hostilities, as they grieve for their loved ones and begin once again to reconstruct their shattered lives.

Since the last OPEC Conference in Caracas on 1 June, oil prices have reached new record highs, exceeding US $70 a barrel for OPEC’s Reference Basket, although we are pleased to see that they have softened considerably again recently. This high price trend has persisted against an international oil market that remains well-supplied with crude and has commercial stocks at very high levels, in absolute volumes and days of forward cover.

The specific reasons for the recent price peaks were the outbreak of hostilities in Lebanon in the middle of July and fears of hurricanes in the US Gulf closely followed by the sudden shutting-down of the Prudhoe Bay field in Alaska in the first half of August. However, this must be set against the backdrop of volatility that has prevailed in the market for the past two and half years, due principally to concern over the lack of effective global oil refining capacity, anxiety about the ability of oil producers to meet anticipated future oil demand, geopolitical developments in some producing countries and speculation in the oil futures markets.

It is of particular interest to note that the relationship between crude prices and product prices appears to have diverged recently, with gasoline prices exhibiting greater volatility than crude. Between the end of 2004 and July this year, West Texas Intermediate prices rose by $26/b, or about 50 per cent, compared with the much higher $46/b, or 90 per cent, for US gasoline prices in the same period.

Crude oil volatility appears to have subsided over the past year, due to ample supply, rising OPEC spare capacity, plentiful strategic reserves and abundant commercial crude inventories, which are now at their highest levels since 1998. On the other hand, the increasing volatility of gasoline can be attributed, for example, to higher demand, increasingly stringent product specifications and, more recently, the issue of the adequacy of ethanol supplies. In particular, the relatively low level of gasoline inventories, in terms of days of forward cover, coupled with the lack of spare refinery capacity, has left an uncomfortably thin cushion of spare supply. Hence, the growing volatility reflects an increased sensitivity to developments in the product markets, such as unexpected outages or even planned refinery shutdowns.

This leads me onto the issue of speculation, which has been inflating prices far above market fundamental levels during the present unstable period. Not only is this high level of speculation, which has been spurred on by non-commercials, disruptive to the oil industry itself, but it is also having serious knock-on effects further afield in the global economy, with potentially serious repercussions for highly indebted developing countries. It is essential, therefore, that this issue is addressed effectively soon, once and for all, particularly where it involves parties far removed from the day-to-day affairs of the industry.

Indeed, OPEC is going to hold a joint workshop with the European Union on the impact of financial speculative markets on oil prices, at our Secretariat in December. Though part of the Energy Dialogue we established with the EU last year, the final agreement to proceed with it was taken at the third Ministerial-level meeting in Brussels on 7 June, one week after the last OPEC Conference in Caracas. There will also be a joint EU-OPEC roundtable on carbon dioxide capture and storage in Riyadh next week, immediately after the First International Conference on the Clean Development Mechanism in the same city and in which OPEC is also an active participant.

Clean and safe energy is a vital requirement for developing countries as they seek access to modern energy services in their struggle for socio-economic development, sometimes from a state of extreme poverty. We are constantly mindful of the fact that poverty eradication is the first UN Millennium Development Goal, and that a comprehensive and balanced approach to implementing the three pillars of sustainable development — economic development, social development and environmental protection — is required. To this end, we welcome the fact that His Excellency Abdullah bin Hamad Al Attiyah, the Second Deputy Prime Minister and Minister of Energy and Industry of Qatar, is the Chairman of the Bureau for the 15th session of the important United Nations Commission on Sustainable Development.

Effective processes of dialogue and cooperation provide the cornerstone of a stable, orderly international oil market, benefiting producers and consumers alike on all time-horizons. Therefore, we are pleased about the broader-based approach towards the issue of energy security that emerged from consuming countries at the G8 Summit in St Petersburg in July. We hope that this will bring to an end the narrow viewpoint on this important issue that has been prevalent for decades in policy circles, which stressed only security of oil supply. As the Chair put it at the end of the summit: “We agreed that dynamic and sustainable development of our civilization depends on reliable access to energy. It is best assured by strengthened partnership between energy-producing and -consuming countries, including enhanced dialogue on growing energy interdependence, security of supply and demand issues.” Security of demand must go hand-in-hand with security of supply as a means of achieving market stability, since, without the confidence that predictable, reliable demand for oil will emerge, the incentive to undertake the necessary investments can be in jeopardy. We are pleased to see that this message is finally getting through.

As on many previous occasions, we welcome to the OPEC Conference high-level representatives from some leading non-OPEC oil-producing countries — Angola, Egypt, Mexico, Russia and Syria. Their presence underlines the continuing commitment to dialogue and cooperation and is undoubtedly in the best interest of the market. We all benefit from an orderly oil market and so we all have the responsibility to contribute to it.

Of necessity in this process is the need for the constant monitoring of market developments and ongoing research and analysis into ways of helping the market perform more efficiently and effectively. To this end, OPEC will be holding its Third International Seminar at the Hofburg Palace here in Vienna over the next two days, when we shall be examining closely the theme “OPEC in a New Energy Era: Challenges and Opportunities”.

This year’s seminar is being held at a particularly important time for the industry, and we look forward to the fresh insights it will provide into the many and varied energy challenges facing our civilisations in the years ahead, as well as the means of successfully surmounting them.

Thank you for your attention.