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OPEC Secretary-General : 'International oil companies are the real dinosaurs'


OPEC Secretary-General Abdalla Salem el-Badri at his office in Vienna:
"The world is a better place because of OPEC."

VIENNA
Petroleumworld.com Jan 21, 2008

In an exclusive SPIEGEL interview, OPEC Secretary-General Abdalla Salem el-Badri discusses the dangers of a further dramatic rise in the oil price, the failures of multinational oil companies and considerations within the cartel of oil-exporting nations to trade in euros rather than dollars.

An oil field complex in Shaybah in eastern Saudi Arabia: "We at OPEC don't want extremes, prices that are too high or too low. What we do want is a stable price."

SPIEGEL: Mr. Secretary-General, the price of a barrel of crude oil hit the $100 mark for the first time in early January. While consumers are burdened with high prices, the producers are busy filling their pockets. Did you celebrate at OPEC on that day?

El-Badri: No, why should we? We are interested in reasonable prices. We want stability. Besides, the average price per barrel was $69 last year. Only a very small amount of oil was traded at above $100, and only for a very short time. It is a gamble. It was a single dealer who miscalculated and lost money as a result.


ABOUT ABDALLA SALEM EL-BADRI

Abdalla Salem el- Badri is secretary- general of the Organization of Oil- Exporting States (OPEC). Established in Baghdad in 1960, the organization has 13 members today -- including the world's biggest oil producer, Saudi Arabia, the political heavyweight Iran, Iraq and Venezuela as well as smaller members like Ecuador and Qatar. Badri, 67, was born in Ghamminis, Libya, and is considered one of the world's leading experts on the international energy market. He studied in the United States, worked for the oil concern Esso, led a domestic oil company and served as Libya's energy minister and deputy prime minister. In 1994, he temporarily served as OPEC's leader. Badri lives with his wife and five children in Vienna, where OPEC's headquarters are located.

SPIEGEL: Now you are downplaying a dramatic development that has the whole world deeply concerned. The price of oil has quadrupled in four years, and last year it rose by an alarming 57 percent. Experts at the German Institute for Economic Research believe that a price increase to $200 within 10 years is likely. Do you disagree?

El-Badri : The oil price should be based primarily on supply and demand. If that's the case, an increase to $200 is highly unlikely. But when other factors play a key role, like speculators or geopolitical factors ...

SPIEGEL: ... in other words wars in the producing countries, or the sort of unrest that's currently happening in Nigeria ...

El-Badri : ... that is your interpretation. We also have the drop in the dollar value against the euro as well as the final bottlenecks in US oil refining. Then you may see any price.

SPIEGEL: Many experts already believe that the current level is dangerous and fear a worldwide recession. During his visit to Riyadh, US President George W. Bush reprimanded OPEC and called upon the organization to do something about the current record high prices. Expensive gasoline, he said, is hitting "American families where it hurts."

El-Badri : If there is a recession, it won't be because of the oil price. It will be caused by the subprime mortgage crisis in the United States and other financial market problems.

SPIEGEL: It's certainly an important factor, next to oil. Nevertheless, OPEC has been accused of driving up prices. You don't think that $100 for a barrel of oil hurts OPEC's reputation?

El-Badri : Why should it hurt our reputation? I have a proposal: We at OPEC give you our member states' oil revenues from our exports and you give us, in return, the money from the taxes you assess on oil products. That would be a fair deal, right?

SPIEGEL: We can't do that. But we're also not entirely sure that the finance ministers of the major consumer nations would even be interested in that sort of a deal.

El-Badri : You see? For many of our member nations, petroleum is the only source of revenue, and that's why we need a fair price.

SPIEGEL: What does that mean? Two and a half years ago, we spoke with Adnan Shihab-Eldin, your predecessor as head of OPEC. He mentioned a price range of $50 to $60. You yourself said in November that there was no evidence to suggest that the important psychological threshold of $100 would be reached.

El-Badri : I have no concrete sense of target prices, not even of a specific range. We at OPEC don't want extremes, prices that are too high or too low. What we do want is a stable price. This would benefit the producers and the consumers. But, as I said, the market determines that.

SPIEGEL: A market over which you don't have decisive influence? Has OPEC lost so much power, OPEC, the feared organization that dictated prices in the 1970s and 1980s and has even used oil as a political weapon -- during the Yom Kippur War, for example?

SPIEGEL: But OPEC can exert important influence by cutting back or expanding production volume.

El-Badri : That's true, and we do this as we see fit. Beginning in 2004, we increased production by close to 5 million barrels per day by the end of 2006. Then we reduced production by 1.7 million barrels when we felt that the price was too low. It was a very good decision as far as OPEC is concerned.

SPIEGEL: Some experts doubt that OPEC can even expand production volume to a significant degree anymore. These specialists say that Saudi Arabia, for example -- the world's only oil superpower -- is already putting too much pressure on its oil fields today, and that the reserves are generally smaller than was previously assumed.

El-Badri : Don't worry, we still have capacity. We are currently able to increase production by 3.5 million barrels. And we have also invested up to 2012 in new projects at a total cost of $150 billion, which will give us additional capacity of 6 million barrels in four years. However, we have to know how high the demand for oil will be in the future, so that we can plan our investments accordingly.

DER SPIEGEL/Graphic: Oil Price

SPIEGEL: You cannot deny that the reserves are finite. Have we already seen "peak oil" -- the maximum level of petroleum production that can be reached before reserves will inevitably begin to shrink?

El-Badri : No, I don't think so. I also don't believe that we will reach this point in the near future.

SPIEGEL: Experts outside of OPEC have a less optimistic view of our energy future.

El-Badri : Perhaps. But I believe that even your grandchildren will still have enough fossil fuel. There will be an end to the oil, for sure. But I'm convinced it will not be in the next 100 years.

SPIEGEL: Even a study published on behalf of OPEC concludes that, by as early as 2024, your cartel may no longer be able to fully meet customers' demands and deliver as much oil as they need.

El-Badri : This is not our own study, it does not reflect the official OPEC view. I am convinced that its conclusions are wrong. There is enough oil. And there are enough discovered reserves. Our real problem lies in the correct assessment of demand. We would like to know how fast it is growing.

SPIEGEL: That depends on many factors, including energy conservation in the industrialized nations and the thirst for energy in major emerging economies like China and India. Do you have a clear idea of what's going on there?

El-Badri : I have visited China and spoken with the political leadership there. We are in talks with the EU and I am going to visit Japan. The most important thing for us is dialogue. The individual countries do not provide us with exact demand figures for the future, but at least they give us some indication of how much oil will be needed.

Should OPEC Adopt the Euro?

SPIEGEL: You paint a rather rosy picture. But isn't OPEC also affected by the diverging interests of its members? Wasn't there a substantial dispute at your last major meeting -- one that pitted Iran and Venezuela, with their ideas about high prices and their anti-Western agenda, against the "moderates"?

El-Badri : We leave politics up to the individual member nations. OPEC is an economic organization. Besides, it wasn't a real dispute. We speak with one voice. However, we did have a lively discussion in November over whether and how we should generally shift from the reserve currency, the dollar, to the euro for purposes of trading. Some of our member nations have enormous dollar reserves, while others sell in dollars and buy in euros.

SPIEGEL: And are you in favor of abandoning the practice of trading in dollars as Venezuela and Iran have demanded?

El-Badri : The euro is currently the world's strongest currency. A change can be made, but it will take some time. It took many years for the dollar to become a dominant currency in the oil business. But in the future it will not be that difficult to change.

SPIEGEL: Angola and Ecuador were accepted as members of OPEC last year. Should Russia join?

El-Badri : We don't knock on anybody's door.

SPIEGEL: But wouldn't you like to see Moscow knocking on your door? With the Russians on board, with their enormous production capacities and even bigger reserves, OPEC could truly set prices.

El-Badri : Once again, we don't want to dictate anything.

SPIEGEL: (Russian) President Vladimir Putin certainly has other ideas. Last year he called the idea of a cartel for natural gas -- the world's second-most important natural resource, which is tied to the oil price -- a "very interesting idea." He has already begun promoting the concept in Iran, Qatar and Algeria. Are you concerned about this sort of a "counter-OPEC," and do you think it has potential?

El-Badri : This sort of organization may be an option in the longterm, but the gas producers are tied to supply agreements, some for 30 years -- it's not like crude. But we at OPEC do not see this as a threat.

SPIEGEL: There has been a worldwide trend toward re-nationalization of energy reserves in recent years. While multinational companies like Exxon, Shell and BP controlled the market two decades ago, nowadays 77 percent of all oil reserves are in the hands of national and, in many cases, relatively inefficient oil companies in the production countries. Wouldn't it be better if more private, and thus more transparent, companies dominated the market instead of these national dinosaurs?

El-Badri : The international oil companies are the real dinosaurs, not we at OPEC. The multinationals have changed their philosophy in recent years, but they still have a long way to go. They need to hire and train more local people. And they should invest more in the exploration of fields and in new technologies. They also have to be very gentle with the production profile of every country.

SPIEGEL: You recently spoke out against biofuels. Why?

El-Badri : I have nothing against biofuels, or against any other forms of alternative energy. All I wanted to say was that one shouldn't invest in something that ultimately cannot be brought to fruition, at least not on a large scale. Biofuels are not a savior at all. The production of biofuel comes at the expense of food reserves and water. It requires precious agricultural land that could be planted with other crops. At the end of the day the consumer will pay the price.

SPIEGEL: How do you feel about the international resurgence of nuclear energy? Does nuclear power belong in the energy mix of industrialized countries?

El-Badri : As long as safety can be guaranteed -- why not?

SPIEGEL: You're not convinced that modern nuclear power plants are safe?

El-Badri : It's an extremely dangerous technology. As we have seen in Chernobyl, even a single accident can have devastating consequences.


SPIEGEL: And yet countries rich in natural resources, like Iran and your native Libya, are investing heavily in nuclear technology. Tripoli has just placed an order with the French for a nuclear power plant.

El-Badri : Before this technology can benefit Libya, it will have to train many specialists and it will require a great deal of technology transfer.

SPIEGEL: You recently said that OPEC is deeply concerned about climate change and does a lot to protect the environment. Really? Did we miss something?

El-Badri : We are significantly reducing flaring, tremendously. Besides, the leaders of the OPEC countries believe that they should also invest in other environmentally friendly technologies. Saudi Arabia, Kuwait, Qatar and the United Arab Emirates have agreed to pay $750 million into a fund to research environmental problems. I am convinced that other members will follow their example.

SPIEGEL: In other words, the environmental initiative is not binding for all OPEC countries.

El-Badri : No, it's not. Saudi Arabia invited other members to contribute, but its up to the countries themselves.

SPIEGEL: You have been familiar with OPEC for a long time. You have observed the organization from very different perspectives, including as a manager of both private and state-owned oil companies and as an energy minister. How has the cartel changed?

El-Badri : OPEC is the oldest surviving organization that consists exclusively of Third World countries. It's now almost 48 years old, and it has members from Africa, Asia and South America. It is a success story. It is getting stronger and stronger, year in and year out. We are able to control our reserves. OPEC promotes energy security for the entire world and doesn't limit itself to the individual interests of its members.

SPIEGEL: What would the world look like without OPEC?

El-Badri : I think the world is a better place because of OPEC. The world would not be as safe a place without this organization, because we guarantee a stable petroleum market. In doing so, we also contribute to overall world stability on the energy side.

SPIEGEL: Last Wednesday, President Bush practically issued an ultimatum to OPEC to increase production volume, which would bring down prices. Will you comply with his request at your next OPEC meeting on Feb. 1.?

El-Badri : The problems we are currently seeing in the United States have nothing to do with OPEC. I already mentioned the homegrown financial crisis. The Americans have also let things go when it comes to oil refining. They've invested far too little in their refinery capacities in the last 30 years. They consume 21 million barrels a day but can only refine 17 million. Even if you were to add more oil to the US market, they don't have the capacity to refine it -- and it won't solve the bottleneck problem.

SPIEGEL: Are you saying that no decisions will be made in Vienna next week?

El-Badri : I didn't say that. We are carefully analyzing the market, day in and day out. If we conclude that the fundamentals require that, our ministers will not hesitate to increase production. But at the moment we do not see any need for that.

SPIEGEL: Mr. Secretary General, we thank you for this interview.

Interview conducted by Erich Follath and Marion Kraske from Spiegel
Spiegel 20 01 08

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