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OPEC’s Criticism of Oil Infra Inadequacies is Rather Hollow

Gaurav Sharma 18/10/2010 Vienna (IJ Online) - OPEC conference concluded on a familiar note last week, i.e. production quota was held at December 2008 levels, speculators were blamed for price fluctuations and “uncertainty” and “inadequacies” of oil and gas infrastructure and not supply constriction were bemoaned. Now let us just pause at the last point. OPEC member nations produce 33.3 per cent of the world‟s crude oil output with a considerable leverage over the market; though it is not what it used to be. Then there is the reasonably correct assertion that National Oil Corporations (NOCs) rule the oil world and that “Big Oil” is not what it used to be. There was quite a bit of sabre rattling in Vienna as the cartel celebrated the 50th anniversary of its foundation. In his opening remarks to the conference, Wilson Pástor-Morris, Minister of Non-Renewable Natural Resources of Ecuador and President of the Conference, noted, and I quote: “OPEC began as a group of five heavily exploited, oil-producing developing countries seeking to assert their sovereign rights in an oil market dominated by the established multinational oil companies. Today OPEC is a major player on the world energy stage. Our 12 Member Countries are masters of their own destiny in their domestic oil sectors and their influence reaches out into the energy world at large.” So this begs one poignant question – why the obsession with drilling alone and not ancillary infrastructure? If you are so powerful, why castigate the private sector and “Big Oil” – whom you do not deem so „big‟ any more – for infrastructural inadequacies? Getting simple straight forward answers from OPEC ministers is might tricky – more so because different parties are comfortable with a different crude oil price level that partially, if not wholly, influences which infrastructure projects take-off and which do not.

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OPEC announces decision to maintain production quotas at its 157th conference. Photo © Gaurav Sharma, Vienna, Oct 14, 2010 A source close to the Qatari delegation told me that infrastructural inadequacies are not evenly spread and that my question was unfair. “Some OPEC member countries are actively investing in ancillary oil and gas pipeline infrastructure. In our case, gas infrastructure is just as important and we spread investment targets accordingly. Qatar is comfortable with a US$75-85 crude oil price,” he said. In all fairness, the stated price range is largely what the whole cartel should be comfortable with. However, the Qataris note that investment is not evenly spread. In fact, there is no major surprise in noting industry statistics as well as IJ‟s own oil and gas project data (where private capital investment, project finance and partnerships exist) that investment is driven by the Middle Eastern OPEC members lead by Saudi Arabia. While the Saudis declined comment, their ARAMCO-owned or rather state-owned oil and gas infrastructure is largely adequate. However, that is not the case for all 12 OPEC members. For instance, in Venezuela after President Hugo Chavez, sacked the best available talent at PDVSA in 2002-03, and went on a spending spree for all things, save oil and gas infrastructure – the country has never recovered. Production levels appear to be falling and infrastructure needed to refine its high sulphur loaded crude is abysmal. Then there is the unique case of Iran – OPEC‟s second largest crude producer, yet a net importer of refined petroleum, which provides its citizenry with subsidised fuel at the pump. Analysts blame its poor infrastructure on international sanctions resulting from the Islamic republic‟s belligerence. I asked the Iranian petroleum minister Masoud Mir-Kazemi as he strolled into the conference if his country is ambitious enough to build nuclear power plants for peaceful means; then surely something as essential as refinery infrastructure should be a priority. However, instead of an answer I received an odd stare. Hours later, it was announced that Iran will take over the rotating presidency of OPEC next year for the first time in 36 years. Whether it is a sign of OPEC‟s hubris to stick it to the Americans or something else, who can

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tell? One thing is for sure – Mir-Kazemi will not be receiving a welcoming bouquet of flowers from the US government when he assumes office on Jan 1st, 2011. Despite a strong oil endowment, the fact that a country where neither upstream nor downstream infrastructure could be regarded as perfect, is assuming the cartel‟s presidency, tells where OPEC‟s priorities are. Market analysts have other reasons to attribute to the uncertain climate for oil and gas infrastructure investment versus (some) OPEC members‟ stance. At the conference OPEC also announced its new and comprehensive Long-Term Strategy (LTS) in Vienna as approved by its 12 members; a revision to the 2005 version. In it, the cartel notes that the ambiguity of a number of energy and environmental policies, often with “evidently over-ambitious targets”, particularly in developed regions, has led to uncertainty in regards to future oil demand requirements. Is a renewables drive, or let‟s say the talk of a renewables drive, spooking OPEC? The answer may be forthcoming when the cartel‟s LTS results and recommendations will be made public on December 11th. This brings us back to where we started, i.e. if for a multitude of reasons some OPEC members themselves are doing precious little to address infrastructural inadequacies – criticising “Big Oil” and the private sector is a shade hollow.

This feature was first published by Infrastructure Journal on October 18th, 2010. An online copy of the feature may be seen here.

All content © Copyright 2010 Emap Limited, all rights reserved.