OPEC

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Organization of the Petroleum Exporting Countries
Flag
Headquarters Vienna, Austria
Official language English
Type Cartel
Membership
Leaders
 • Secretary General Abdallah Salem el-Badri
Establishment Baghdad, Iraq
 • Statute 10–14 September 1960
 • in effect January 1961
Area
 • Total 13,759,546 km2
5,312,590 sq mi
Population
 • estimate 669,521,706
 • Density 48.7/km2
126.1/sq mi
Currency Indexed as USD-per-barrel
Website
www.OPEC.org

Organization of the Petroleum Exporting Countries (OPEC, /ˈpɛk/ oh-pek), is an international organization headquartered in Vienna, Austria. OPEC was established in Baghdad, Iraq on 10–14 September 1960.[1] The formation of OPEC represented a collective act of sovereignty by petroleum-exporting nations, and marked a turning point in state control over natural resources. OPEC was formed when the international oil market was largely dominated by a group of multinational companies known as the “Seven Sisters“. In the 1960s OPEC ensured that oil companies could not unilaterally cut prices.[2]:503–505

OPEC’s mission is “to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry.”[3] As of December 2015, OPEC has thirteen members:Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia (the de facto leader), the United Arab Emirates, and Venezuela.[4] As of 2014, approximately 80% of the world’s proven oil reserves were located in OPEC member countries, and two-thirds of OPEC’s reserves were located in the Middle East.[5]

According to the United States Energy Information Administration (EIA), OPEC crude oil production is an important factor affecting global oil prices. OPEC sets production targets for its member nations and generally, when OPEC production targets are reduced, oil prices increase. Projections of changes in Saudi production result in changes in the price of benchmark crude oils.[6]Within their sovereign territories, the national governments of OPEC members are able to impose production limits on both government-owned and private oil companies.[7] In December 2014, “OPEC and the oil men” ranked as number 3 on Lloyd’s list of “the top 100 most influential people in the shipping industry”.

Membership[edit]

Current members[edit]

As of December 2015, OPEC has 13 member countries: six in the Middle East (Western Asia), one in Southeast Asia, four in Africa, two in South America. Their combined rate of oil production represents approximately 40% of the world’s total:

Country Region Joined OPEC[9] Population
(July 2012)[10]
Area
(km²)[11]
Production
(bbl/day, 2014)[12]
 Algeria Africa 1969 37,367,226 2,381,740 1,721,000 (17th)
 Angola Africa 2007 18,056,072 1,246,700 1,756,000 (16th)
 Ecuador South America (1973) 2007[A 1] 15,223,680 283,560 557,000 (28th)
 Indonesia Southeast Asia (1962) 2015[A 2] 248,645,008 1,904,569 911,000 (22nd)
 Iran Middle East 1960[A 3] 78,868,711 1,648,000 3,375,000 (7th)
 Iraq Middle East 1960[A 3] 31,129,225 437,072 3,371,000 (8th)
 Kuwait Middle East 1960[A 3] 2,646,314 17,820 2,780,000 (11th)
 Libya Africa 1962 5,613,380 1,759,540 516,000 (29th)
 Nigeria Africa 1971 170,123,740 923,768 2,427,000 (13th)
 Qatar Middle East 1961 1,951,591 11,437 2,055,000 (14th)
 Saudi Arabia Middle East 1960[A 3] 26,534,504 2,149,690 11,624,000 (2nd)
 United Arab Emirates Middle East 1967 5,314,317 83,600 3,471,000 (6th)
 Venezuela South America 1960[A 3] 28,047,938 912,050 2,689,000 (12th)
Total 669,521,706 13,759,546 37,253,000
  1. Jump up^ Ecuador initially joined in 1973, left in 1992, and rejoined in 2007.
  2. Jump up^ Indonesia initially joined in 1962, left in 2009, and rejoined in 2015.
  3. ^ Jump up to:a b c d e One of five founder members that attended the first OPEC conference, in September 1960.

In October 2015, Sudan formally submitted an application to join OPEC.[13] Approval of a new member country requires agreement by three-fourths of the existing members, including all five of the founders.[14]

Former members[edit]

Country Region Joined OPEC Left OPEC
 Gabon Africa 1975 1994

Some commentators consider that the United States was a de facto member during its formal occupation of Iraq due to its leadership of the Coalition Provisional Authority.[15][16] But this is not borne out by the minutes of OPEC meetings, as no US representative attended in an official capacity.[17][18]

Leadership and decision-making[edit]

OPEC Conference at Swissotel,Quito, Ecuador, December 2010

The OPEC Conference is the supreme authority of the Organization, and consists of delegations normally headed by the oil ministers of member countries. The Conference usually meets at the Vienna headquarters, at least twice a year and in additional extraordinary sessions whenever required. It operates on the principle of unanimity, and one member, one vote.[14] However, since Saudi Arabia is by far the largest oil exporter in the world, it serves as “OPEC’s de facto leader”.[19] The chief executive of the Organization is the OPEC Secretary General.

Publications and research[edit]

Since 2007, OPEC publishes the World Oil Outlook (WOO) annually, in which it presents a comprehensive analysis of the global oil industry including medium- and long-term projections for supply and demand.[20]

Crude oil benchmarks[edit]

Main article: Benchmark (crude oil)

A “crude oil benchmark” is a standardized petroleum product that serves as a convenient reference price for buyers and sellers of crude oil. Benchmarks are used because oil prices differ based on variety, grade, delivery date and location.

The OPEC Reference Basket of Crudes is an important benchmark for crude oil prices. It is currently calculated as a weighted average of prices for petroleum blends from OPEC member countries: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE), and Merey (Venezuela).[21]

North Sea Brent Crude Oil is the leading benchmark for Atlantic basin crude oils, and is used to price approximately two-thirds of the world’s traded crude oil.[22] Other well-known benchmarks are West Texas Intermediate (WTI), Dubai Crude, Oman Crude, and Urals oil.

Spare capacity[edit]

The U.S. Energy Information Administration, the statistical arm of the U.S. Department of Energy, defines spare capacity for crude oil market management, “as the volume of production that can be brought on within 30 days and sustained for at least 90 days.” OPEC spare capacity “provides an indicator of the world oil market’s ability to respond to potential crises that reduce oil supplies.”[6]

In November 2014, the International Energy Agency (IEA) estimated that OPEC’s effective spare capacity was 3.5 million barrels per day (560,000 m3/d) and that this number would increase to a peak in 2017 of 4.6 million barrels per day (730,000 m3/d).[23] By November 2015, the IEA changed its assessment “with OPEC’s spare production buffer stretched thin, as Saudi Arabia – which holds the lion’s share of excess capacity – and its Gulf neighbours pump at near-record rates.”[24]

History[edit]

The OPEC headquarters in Vienna

In 1949 Venezuela and Iran were the first countries to move towards the establishment of OPEC by approaching Iraq, Kuwait and Saudi Arabia, suggesting that they exchange views and explore avenues for regular and closer communication among petroleum-producing nations.[25]

In 1959, the International Oil Companies (IOCs) reduced the posted price for Venezuelan crude by 5¢ and then 25¢ per barrel, and that for Middle Eastern crude by 18¢ per barrel.[25]

The First Arab Petroleum Congress convened in Cairo, Egypt, where they established an ‘Oil Consultation Commission’ to which IOCs should present price change plans to authorities of producing countries.[25] In 1959 journalist Wanda Jablonski introduced Abdullah Tariki to Juan Pablo Perez Alfonzo at the Arab Oil Congress in Cairo. They were both infuriated by the cut in posted prices by IOCs or Multinational Oil Companies (MOCs). This meeting resulted in the Maadi Pact or Gentlemen’s Agreement.[2]:499

In 1960, journalist Wanda Jablonski reported a marked hostility toward the West and a growing outcry against absentee landlordism in the Middle East. In his influential book entitled The Prize: The Epic Quest for Oil, Money, and Power, Daniel Yergin described how the Standard Oil, who controlled 75% of the US oil business, in August 1960 with no direct warning to oil exporters, announced cut of up 7 per cent of the posted prices of Middle Eastern crude oils. Esso and other oil companies unilaterally reduced the posted price for Middle East crudes.[26] Middle Eastern countries already felt resentment towards the West over the absentee landlordism of MOCs who at the time controlled all oil operations within the host countries.[2]:503

Founding[edit]

In 10–14 September 1960, the Baghdad conference was held at the initiative of the Venezuelan Mines and Hydrocarbons minister Juan Pablo Pérez Alfonso and the Saudi Arabian Energy and Mines minister Abdullah al-Tariki. The governments of Iraq, Iran, Kuwait, Saudi Arabia and Venezuela met in Baghdad to discuss ways to increase the price of the crude oil produced by their respective countries and respond to unilateral actions by the MOCs who at the time controlled all oil operations within the host countries. “Together with Arab and non-Arab producers, Saudi Arabia formed the Organization of Petroleum Export Countries (OPEC) to secure the best price available from the major oil corporations.”[27]

Iraq, Kuwait, Iran, Saudi Arabia and Venezuela were the OPEC founding member nations in 1960. Later it was joined by nine more governments: Libya (1962), United Arab Emirates (1967), Qatar (1961), Indonesia (1962–2009, rejoined 2015), Algeria (1969), Nigeria (1971), Ecuador (1973–1992, rejoined 2007), Angola (2007), and Gabon(1975–1994). The Arab countries originally called for OPEC headquarters to be in Bagdad or Beirut, but Venezuela argued for a neutral location, and so Geneva, Switzerlandwas chosen. However, on 1 September 1965, OPEC moved to Vienna, Austria.[28]

Oil exports minus imports (2008)

OPEC was founded to unify and coordinate members’ petroleum policies. Between 1960 and 1975, the organization expanded to include Qatar , Indonesia, Libya, the United Arab Emirates, Algeria, and Nigeria. Ecuador and Gabon were early members of OPEC, but Ecuador withdrew on 31 December 1992[29] because it was unwilling or unable to pay a $2 million membership fee and felt that it needed to produce more oil than it was allowed to under the OPEC quota,[30] although it rejoined in October 2007. Similar concerns prompted Gabon to suspend membership in January 1995.[31] Angola joined on the first day of 2007. Norway and Russia have attended OPEC meetings as observers. Indicating that OPEC is not averse to further expansion, Mohammed Barkindo, OPEC’s Secretary General, asked Sudan to join.[32] Iraq remains a member of OPEC, but Iraqi production has not been a part of any OPEC quota agreements since March 1998.

In the 1970s, OPEC began to gain influence and steeply raised oil prices during the 1973 oil crisis in response to US aid to Israel during the Yom Kippur War.[33] It lasted until March 1974.[34] OPEC added to its goals the selling of oil for socio-economic growth of the poorer member nations, and membership grew to 13 by 1975.[28] A few member countries became centrally planned economies.[28]

In a 1979 U.S. District Court decision held that OPEC’s pricing decisions have sovereign immunity as “governmental” acts of state, as opposed to “commercial” acts, and are therefore beyond the legal reach of U.S. courts competition law and are protected by the Foreign Sovereign Immunities Act of 1976.[35][36]

In the 1980s, the price of oil was allowed to rise before the adverse effects of higher prices caused demand and price to fall. The OPEC nations, which depended on revenue from oil sales, experienced severe economic hardship from the lower demand for oil and consequently cut production in order to boost the price of oil. During this time, environmental issues began to emerge on the international energy agenda.[28] Lower demand for oil saw the price of oil fall back to 1986 levels by 1998–99.

In the 2000s, a combination of factors pushed up oil prices even as supply remained high. Prices rose to then record-high levels in mid-2008 before falling in response to the2007 financial crisis. OPEC’s summits in Caracas and Riyadh in 2000 and 2007 had guiding themes of stable energy markets, sustainable oil production, and environmental sustainability.[28]

In April 2001, OPEC, in collaboration with five other international organisations (APEC, Eurostat, IAE, OLADE and the UNSD) launched the Joint Oil Data Exercise, which became rapidely the Joint Organization Data Initiative (JODI).

In 2003 the International Energy Agency (IEA) and OPEC held their first joint workshop on energy issues and they continued to meet since then to better “understand trends, analysis and viewpoints and advance market transparency and predictability.”[37]:7

By 2011 OPEC called for more efforts by governments and regulatory bodies to curb excessive speculation in oil futures markets. OPEC claimed this increased volatility in oil prices, disconnected price from market fundamentals. In 2011 Nymex oil future trades reached record highs. By mid-March the Nymex WTI “exceeded 1.5 million futures contracts, 18 times higher than the volume of daily traded physical crude.”[38]

While there have been some allegations that OPEC acted as a cartel when it adopted output rationing in order to maintain price in 1996, for example,[39] Jeff Colgan argued in 2013 that, since 1982, countries cheated on their quotas 96% of the time, largely neutralizing the ability of OPEC to collectively influence prices.[40]

In 2011 the U.S. Energy Information Administration estimated that OPEC would break above the US$1 trillion mark earnings for the first time at US$1.034 trillion. In 2008 OPEC earned US$965 billion.[41]

1973 oil embargo[edit]

Main article: 1973 oil crisis

In October 1973, OPEC declared an oil embargo in response to the United States’ and Western Europe’s support of Israel in the Yom Kippur War of 1973. The result was a rise in oil prices from $3 per barrel to $12 starting on 17 October 1973, and ending on 18 March 1974 and the commencement of gas rationing. Other factors in the rise in gasoline prices included a market and consumer panic reaction, the peak of oil production in the United States around 1970 and the devaluation of the U.S. dollar.[42] U.S. gas stations put a limit on the amount of gasoline that could be dispensed, closed on Sundays, and limited the days gasoline could be purchased based on license plates. Even after the embargo concluded, prices continued to rise.

The Oil Embargo of 1973 had a lasting effect on the United States. The Federal government got involved first with President Richard Nixon recommending citizens reduce their speed for the sake of conservation, and later Congress issuing a 55 mph limit at the end of 1973. Daylight saving time was extended year round to reduce electrical use in the American home. Smaller, more fuel efficient cars were manufactured.

On 4 December 1973, Nixon also formed the Federal Energy Office as a cabinet office with control over fuel allocation, rationing, and prices.[43] People were asked to decrease their thermostats to 65 degrees and factories changed their main energy supply to coal.

One of the most lasting effects of the 1973 oil embargo was a global economic recession. Unemployment rose to the highest percentage on record while inflation also spiked. Consumer interest in large gas guzzling vehicles fell and production dropped. Although the embargo only lasted a year, during that time oil prices had quadrupled and OPEC nations discovered that their oil could be used as both a political and economic weapon against other nations.[44][45]

OPEC aid[edit]

OPEC aid dates from well before the 1973–1974 oil price explosion. Kuwait has operated a program since 1961 (through the Kuwait Fund for Arab Economic Development).

The OPEC Special Fund “was conceived […] in Algiers, Algeria, in March 1975”, and formally founded early the following year. “A Solemn Declaration ‘reaffirmed the natural solidarity which unites OPEC countries with other developing countries in their struggle to overcome underdevelopment,’ and called for measures to strengthen cooperation between these countries”, operating under a reasoning that the Fund’s “resources are additional to those already made available by OPEC states through a number of bilateral and multilateral channels.” The Fund became a fully fledged permanent international development agency in May 1980 and was renamed the OPEC Fund for International Development (OFID), the designation it currently holds.[46][47]

1975 hostage incident[edit]

Main article: OPEC siege

On 21 December 1975, Ahmed Zaki Yamani and the other oil ministers of the members of OPEC were taken hostage in Vienna, Austria, where the ministers were attending a meeting at the OPEC headquarters. The hostage attack was orchestrated by a six-person team led by Venezuelan terrorist Carlos the Jackal (which included Gabriele Kröcher-Tiedemann and Hans-Joachim Klein). The self-named “Arm of the Arab Revolution” group called for the liberation of Palestine. Carlos planned to take over the conference by force and kidnap all eleven oil ministers in attendance and hold them for ransom, with the exception of Ahmed Zaki Yamani and Iran’s Jamshid Amuzegar, who were to be executed.

The terrorists searched for Ahmed Zaki Yamani and then divided the sixty-three hostages into groups. Delegates of friendly countries were moved toward the door, ‘neutrals’ were placed in the centre of the room and the ‘enemies’ were placed along the back wall, next to a stack of explosives. This last group included those from Saudi Arabia, Iran, Qatar and the UAE.

Carlos arranged bus and plane travel for the team and 42 hostages, with stops in Algiers and Tripoli, with the plan to eventually fly to Aden then Baghdad, where Yamani and Amuzegar would be killed. All 30 non-Arab hostages were released in Algiers, excluding Amuzegar. Additional hostages were released at another stop. With only 10 hostages remaining, Carlos held a phone conversation with Algerian President Houari Boumédienne who informed Carlos that the oil ministers’ deaths would result in an attack on the plane. Boumédienne must also have offered Carlos asylum at this time and possibly financial compensation for failing to complete his assignment. Carlos expressed his regret at not being able to murder Yamani and Amuzegar, then he and his comrades left the plane. Hostages and Carlos and his team walked away from the situation.

Some time after the attack it was revealed by Carlos’ accomplices that the operation was commanded by Wadi Haddad, a Palestinian terrorist and founder of the Popular Front for the Liberation of Palestine. It was also claimed that the idea and funding came from an Arab president, widely thought to be Muammar al-Gaddafi. In the years following the OPEC raid, Bassam Abu Sharif and Klein claimed that Carlos had received a large sum of money in exchange for the safe release of the Arab hostages and had kept it for his personal use. There is still some uncertainty regarding the amount that changed hands but it is believed to be between US$20 million and US$50 million. The source of the money is also uncertain, but, according to Klein, it was from “an Arab president.” Carlos later told his lawyers that the money was paid by the Saudis on behalf of the Iranians and was, “diverted en route and lost by the Revolution”.[48]

1980s oil glut[edit]

Main article: 1980s oil glut

OPEC net oil export revenues for 1972–2007[49]

In response to the high oil prices of the 1970s, industrial nations took steps to reduce dependence on oil. Utilities switched to usingcoal, natural gas, or nuclear power while national governments initiated multibillion-dollar research programs to develop alternatives to oil. Demand for oil dropped by five million barrels a day while oil production outside of OPEC rose by fourteen million barrels daily by 1986. During this time, the percentage of oil produced by OPEC fell from 50% to 29%. The result was a six-year price decline that culminated with a 46 percent price drop in 1986.

In order to combat falling revenues, Saudi Arabia pushed for production quotas to limit production and boost prices. When other OPEC nations failed to comply, Saudi Arabia slashed production from 10 million barrels daily in 1980 to just one-quarter of that level in 1985. When this proved ineffective, Saudi Arabia reversed course and flooded the market with cheap oil, causing prices to fall to under ten dollars a barrel. The result was that high price production zones in areas such as the North Sea became too expensive. Countries in OPEC that had previously failed to comply to quotas began to limit production in order to shore up prices.[50]

Responding to war and low prices[edit]

Leading up to the 1990–91 Gulf War, The President of Iraq Saddam Hussein recommended that OPEC should push world oil prices up, helping all OPEC members financially. But the division of OPEC countries occasioned by the Iraq-Iran War and the Iraqi invasion of Kuwait marked a low point in the cohesion of OPEC. Once supply disruption fears that accompanied these conflicts dissipated, oil prices began to slide dramatically.

After oil prices slumped at around $15 a barrel in the late 1990s, joint diplomacy achieved a slowing down of oil production beginning in 1998.

In 2000, Venezuela President Hugo Chávez hosted the first summit of OPEC in 25 years in Caracas. The next year, however, the September 11, 2001 attacks against the United States, and the following invasion of Afghanistan, and 2003 invasion of Iraq and subsequent occupation prompted a sharp rise in oil prices to levels far higher than those targeted by OPEC itself during the previous period. Price volatility peaked in 2008, as crude oil surged to a record US$147/b in July and then plunged to just US$32/b in December, during the worst global recession since World War II.[51]

In May 2008, Indonesia announced that it would leave OPEC when its membership expired at the end of that year, having become a net importer of oil and being unable to meet its production quota.[52] A statement released by OPEC on 10 September 2008 confirmed Indonesia’s withdrawal, noting that it “regretfully accepted the wish of Indonesia to suspend its full Membership in the Organization and recorded its hope that the Country would be in a position to rejoin the Organization in the not too distant future.”[53]Indonesia is still exporting light, sweet crude oil and importing heavier, more sour crude oil to take advantage of price differentials (import is greater than export).

Production disputes[edit]

The economic needs of the OPEC member states often affects the internal politics behind OPEC production quotas. Various members have pushed for reductions in production quotas to increase the price of oil and thus their own revenues.[54] These demands conflict with Saudi Arabia’s stated long-term strategy of being a partner with the world’s economic powers to ensure a steady flow of oil that would support economic expansion.[55] Part of the basis for this policy is the Saudi concern that expensive oil or supply uncertainty will drive developed nations to conserve and develop alternative fuels. To this point, former Saudi Oil Minister Sheikh Yamani famously said in 1973: “The stone age didn’t end because we ran out of stones.”[56][57]

On 10 September 2008, one such production dispute occurred when the Saudis reportedly walked out of OPEC negotiating session where the organization voted to reduce production. Although Saudi Arabian OPEC delegates officially endorsed the new quotas, they stated anonymously that they would not observe them. The New York Timesquoted one such anonymous OPEC delegate as saying “Saudi Arabia will meet the market’s demand. We will see what the market requires and we will not leave a customer without oil. The policy has not changed.”[58]

With regard to disputes related to international trade, OPEC has not been involved in any related to the rules of the World Trade Organization, even though the objectives, actions, and principles of the two organizations diverge considerably.[59]

Oil price decline 2014–2015[edit]

Countries by oil production (2013)

According to the New York Times the oil-drilling boom in the United States has increased oil production by over 70 percent since 2008 and has reduced the United States oil imports from OPEC by fifty per cent.[60] United States oil inventory has increased because of this new production and surplus oil.[61] The price of oil has been influenced by market participants shorting crude oil in the United States which cannot be exported.[62] The low price of oil has created record profits for oil refineries.[63]

Types of crude oil

Since 2011 the United States absorbed the rapidly increased domestic production of sweet, light, tight oil by reducing like-for-like or similar grade, imported crude oil[64] from Nigerian and other African suppliers.[60] From 2011 to 2013 fifty per cent of oil import reductions impacted light crude (API gravity35+).[65] Almost 96 per cent of the 1.8 million barrels per day (290,000 m3/d) of its growth comes from light, sweet crude from tight resource formations.[64] As domestic production continues to increase, the U.S. is facing future challenges of absorbing the light, sweet tight oil.[65]

In June 2014 crude oil prices abruptly dropped by about a third as U.S. shale oil production increased and China and Europe’s demand for oil decreased. Just before the United States rapidly backed out of the crude oil import market because of booming national production, the spot price of North Sea Brent crude oil peaked on 17 June 2014 at more than US$115 per barrel.[66]

Nigeria is the largest producer of sweet oil in OPEC. By July 2014, as the US stopped importing light sweet crude, more crude oil became available to refineries in China, India, Japan and South Korea. They collectively purchased 42% more Nigerian crude in 2014 compared with 2013. Starting in June 2014 Saudi Aramco—Saudi Arabia’s national oil and gas company and the world’s largest oil company in terms of production—discounted the price of its crude to Asian refineries[67] to compete with oil from Nigerian and other African suppliers.[60]

In their press release 27 November 2014 at the OPEC Conference in Vienna, it was announced that the ‘OECD-Americas’ was the main non-OPEC oil supply contributor to an anticipated supply growth of 1.4 million barrels per day (220,000 m3/d) to average 57.3 million barrels per day (9,110,000 m3/d) in 2015. From 2011 until mid-June 2014 the annual average price of oil was about US$110 per barrel. Since June 2014 however, the price of oil slid to US$80. OPEC argued that this drop in the price of oil was not exclusively “attributed to oil market fundamentals.” While oil market fundamentals, “ample supply, moderate demand, a stronger US dollar and uncertainties about global economic growth” contributed to the drop in price, “speculative activity in the oil market has also been an important factor.”[68]

In spite of global oversupply, on 27 November 2014 in Vienna, Saudi Oil Minister Ali al-Naimi, blocked the appeals from the poorer OPEC member states, such as Venezuela, Iran and Algeria, for production cuts. Benchmark crude, Brent oil plunged to US$71.25, a four-year low. Al-Naimi argued that the market would be left to correct itself. OPEC had a “long-standing policy of defending prices.” According to some analysts, OPEC would let price of Brent oil drop to US$60 to slow down US shale oil production.[69] In spite of a troubled economy in member countries, al-Naimi repeated his statement on Saudi inaction.[70]

By November 2014 with production at 30.56 million barrels per day (4,859,000 m3/d) OPEC entered its sixth month of exceeding their collective target production.[66] By 11 December 2014 the price of OPEC Reference Basket of Crudes had dropped to US$60.50[71] and by 13 December the price of Brent ICE dropped to US$61.85.[66] On 12 January 2015 price of OPEC Reference Basket of Crudes had dropped to US$43.55[71] In February 2015, OPEC had entered its ninth consecutive month of exceeding its collective target production.[72]

In August 2015, Venezuela President Nicolas Maduro sought an emergency OPEC meeting and joint coordination with Russia to stem the tumble in oil prices.[73] Ecuador supported Venezuela’s position.[74] Previously in February 2015, Nigeria sought to call an emergency OPEC meeting if oil prices continued to decline.[75] In April 2015, Iran and Libya called on OPEC to reduce oil output.[76] Angola and Algeria also sought a production cut in cooperation with the African Petroleum Producers Association.[77] Algeria said Mexico supported the bid to cut oil output.[78] In September 2015, President Vladimir Putin met Venezuelan President Nicolas to discuss oil policies.[79] Saudi Arabia, though, pushed OPEC to increase production levels.[80]

In mid-2015, Bank of America said that OPEC is “effectively dissolved”,[81][82] and JPMorgan Chase estimated that OPEC’s decision to maintain production was costing Saudi Arabia about $90 billion/year and probably close to $200 billion/year for OPEC as a whole.[83]

In October 2015, OPEC held an unusual meeting with oil officials from nonmember states like Russia and Mexico, in a bid to forge a common response to fallen oil prices.[84] At OPEC’s Vienna meeting on 4 December 2015, after exceeding its production ceiling for 18 consecutive months, and with Indonesia rejoining and Iranian output poised to surge with the removal of international sanctions, OPEC decided to set aside its ineffective production ceiling until the next ministerial conference in June 2016.[85][86][87] On 9 December 2015, the OPEC Reference Basket was down to US$34.80 for the first time since December 2008

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National Iranian Oil Company

From Wikipedia, the free encyclopedia
National Iranian Oil Company
Type State-owned enterprise
Industry Oil and gas
Founded 1948
Headquarters Tehran, Iran
Area served Worldwide
Key people Bijan Namdar Zanganeh
(Chairman)
Roknoldin Javadi
(CEO)
Products Oil, natural gas andpetrochemicals
Revenue Increase US$ 110 billion (2012)[1]
Total assets Increase US$ 200 billion (2012)[2]
Owners Iranian government
Employees 41,000 (2011)
Subsidiaries 23
Website NIOC.ir

The National Iranian Oil Company (NIOC) (Persian: شرکت ملّی نفت ایرانSherkat-e Melli-ye Naft-e Īrān), a government-owned corporation under the direction of the Ministry of Petroleum of Iran, is an oil and natural gas producer and distributor headquartered in Tehran. It was established in 1948.[3] NIOC ranks as the world’s third largest oil company, after Saudi Arabia‘s state-owned Aramco.[4] and Gazprom.

The NIOC is exclusively responsible for the exploration, extraction, transportation and exportation of crude oil, as well as sales of natural gas and liquefied natural gas (LNG). Having provided the domestic refineries and manufacturing plants with crude oil required for the petroleum products, the NIOC exports its surplus production according to commercial considerations in the framework of the quotas determined by the Organization of Petroleum Exporting Countries (OPEC) and at the prices prevalent in the international markets. The NIOC also signs some long term contracts on “buy-back” basis with foreign companies in order to exploit national oil fields and export its products. The NIOC exports natural gas and liquefied natural gas via the “National Iranian Gas Export Company”.[3]

NIOC’s oil and gas reserves in early 2005 was as follows;[5]

  • Recoverable liquid hydrocarbon reserves in early 2005, 136.99 billion barrels (21.780 km3) 10% of world’s total.
  • Recoverable gas reserves in early 2005, 28.17×1012 m3 (15% of world’s total).

Current NIOC production capacities include over 4 million barrels (640×103 m3) of crude oil and in excess of 500 million cubic meters of natural gas per day.[3] In 2008, the average extraction cost of oil was less than $5 per barrel. This does not include processing (refining) and distribution costs.[6]

Iran’s cumulative oil production has reached to 61 billion barrels (9.7×109 m3) by the end of 2007,[7] most of these volume produced after 1951, under the supervision of NIOC. Iran’s overall export crude oil was valued at US$85 billion in 2010.[citation needed]

History

Further information: Petroleum industry in Iran

Background: 1901 – 1951

The Shah opens the facilities of International Naval Oil Company of Iran in 1970.

In May 1901, William Knox D’Arcy was granted a concession by the Shah of Iran to search for oil, which he discovered in May 1908.[8] This was the first commercially significant find in the Middle East. In 1923, Burmah employed future Prime Minister, Winston Churchill as a paid consultant; to lobby the British government to allow APOC have exclusive rights toPersian oil resources, which were successfully granted.[9]

In 1935, Rezā Shāh requested the international community to refer to Persia as ‘Iran’, which reflected in the name change of APOC to the Anglo-Persian Oil Company (APOC).[8] Following World War II, Iranian nationalism was on the rise, especially surrounding the Iranian natural resources being exploited by the foreign companies without adequately compensating Iranian taxpayers. APOC and the pro western Iranian government led by Prime Minister Ali Razmara, initially resisted nationalist pressure to revise AIOC’s concession terms still further in Iran’s favour. In March 1951, Ali Razmara was assassinated; and Mohammed Mossadeq, a nationalist, was elected as the new prime minister by the Majlis of Iran.[10][11]

NIOC: 1951 – 1979

Emblem of NIOC during the 1950s-1970s

In April 1951, the Majlis nationalised the Iranian oil industry by unanimous vote, and the National Iranian Oil Company (NIOC) was formed, displacing the APOC.[12] The APOC withdrew its management from Iran, and organised an effective worldwide embargo of Iranian oil. The British government, which owned the APOC, contested the nationalisation at the International Court of Justice at The Hague, but its complaint was dismissed.[13]

By spring of 1953, incoming US President Dwight D. Eisenhower authorised the Central Intelligence Agency (CIA), to organise a coup against the Mossadeq government, known as the 1953 Iranian coup d’état.[14] In August 1953, the coup brought pro-Western generalFazlollah Zahedi as the new PM, along with the return of the Shah Mohammad Reza Pahlavi from his brief exile in Italy to Iran.[15] The anti-Mossadeq plan was orchestrated under the code-name ‘Operation Ajax‘ by CIA, and ‘Operation Boot’ by SIS (MI6).[14][16][17]

In 1954, the APOC became the British Petroleum Company. The return of the shah did not mean that British Petroleum would be able to monopolise Iranian oil as before. Under the pressure from United States, British Petroleum reluctantly accepted membership in a consortium of companies, founded in October 1954, to bring back Iranian oil to the international market. It was incorporated in London as a holding company called ‘Iranian Oil Participants Ltd‘ (IOP).[18][19] The founding members of IOP included British Petroleum (40%), Gulf (later Chevron, 8%), Royal Dutch Shell (14%), and Compagnie Française des Pétroles (later Total S.A., 6%). The four Aramco partners – Standard Oil of California (SoCal, later Chevron) – Standard Oil of New Jersey (later Exxon, then ExxonMobil) – Standard Oil Co. of New York (later Mobil, then ExxonMobil) – Texaco (later Chevron) – each held an 8% stake in the holding company.[10][18]

All IOP members acknowledged that NIOC owned the oil and facilities in Iran, and IOP’s role was to operate and manage on behalf of NIOC. To facilitate that, IOP established two operating entities incorporated in Netherlands, and both were delegated to NIOC.[18][19] Similar to the Saudi-Aramco “50/50” agreement of 1950,[20]the consortium agreed to share profits on a 50–50 basis with Iran, “but not to open its books to Iranian auditors or to allow Iranians onto its board of directors”.[21]The negotiations leading to the creation of the consortium, during 1954-55, was considered as a feat of skillful diplomacy.[10]

In Iran, IOP continued to operate until the Islamic Revolution in 1979. The new regime of Ayatollah Khomeini confiscated all of the company’s assets in Iran. According to the company’s Web site: The victory of the Islamic revolution annulled the Consortium Agreement of 1954 and all regulations pertaining to it. The taking of power by the Islamic Republic led to the withdrawal of foreign employees from Iran’s oil industry; domestic employees took full control of its affairs.[22]

NIOC’s Oil Reserves

Main article: NIOC’s Oil Reserves

Iranian oil and gas fields, infrastructure

Iran oil production, domestic consumption and exports

Iran – Oil infrastructure

According to OPEC, NIOC recoverable liquid hydrocarbon reserves at the end of 2006 was 1,384 billion barrels (2.200×1011 m3).[7]

NIOC oil reserves at the beginning of 2001 was reported to be about 99 billion barrels (1.57×1010 m3),[7]however in 2002 the result of NIOC’s study showed huge reserves upgrade adding about 317 billion barrels (5.04×1010 m3) of recoverable reserves to the Iranian oil reserves.

After 2003 Iran has made some significant discoveries which lead to addition of another 7.7 billion barrels (1.22×109 m3) of oil to the recoverable reserves of Iran.[23]

The vast majority of Iran’s crude oil reserves are located in giant onshore fields in the south-western Khuzestanregion near the Iraqi border. Overall, Iran has 40 producing fields – 27 onshore and 13 offshore. Iran’s crude oil is generally medium in sulfur and in the 28°-35 °API range.

As at 2012, 98 rigs are in operation in onshore fields, 24 in offshore fields and a single rig is in operation in theCaspian Sea. Iran plans to increase the number of its drilling rigs operating in its onshore and offshore oilfields by 36 units to reach 134 units by March 2014.[24]

Table 1- The five biggest NIOC oil fields;[25]

Rank Field Name Formation Initial Oil in Place
(Billion Barrels)
Initial Recoverable Reserves
(Billion Barrels)
Production
Thousand barrels per day
1 Ahwaz Asmari & Bangestan 65.5 25.5 945
2 Marun Asmari 46.7 21.9 520
3 Aghajari Asmari & Bangestan 30.2 17.4 200
4 Gachsaran Asmari & Bangestan 52.9 16.2 560
5 Karanj Asmari & Bangestan 11.2 5,7 200
Largest Iranian Oil Fields
Field’s Name Thousand
barrels per day
Thousand
cubic meters per day
(onshore)
Ahwaz (Asmari Formation) 700 110
Gachsaran 560 89
Marun 520 83
Bangestan 245 39.0
AghaJari 200 32
Karanj-Parsi 200 32
Rag-e-Safid 180 29
BibiHakimeh 130 21
Darquin 100 16
Pazanan 70 11
(offshore)
Dorood 130 21
Salman 130 21
Abuzar 125 19.9
Sirri A&E 95 15.1
Soroush/Nowruz 60 9.5

Strategic petroleum reserves

Iran began in 2006 with plans to create a global strategic petroleum reserve with the construction of 15 crude oil storage tanks with a planned capacity of 10 million barrels (1,600,000 m3).[26] The storage capacity of oil products in the country is around 11.5 billion liters (2011), but it will reach 16.7 billion liters by the end of theFifth Five Year Development Plan (2010-2015).[27] As of 2012, Iran is capable of storing crude oil in the Persian Gulf for a period of 10–12 days. The figure should hit 30–40 days after the construction of new storage facilities are completed.[28]

NIOC’s gas reserves

NIOC holds about 1,000×1012 cu ft (28,000 km3) of proven Natural gas reserves of which 36% are as associated gas and 64% is in non associated gas fields. It stands for world’s second largest reserves after Russia.[29]

NIOC’s ten biggest Non-Associated Gas Fields;

NIOC’s ten biggest Non-Associated Gas Fields.[30]
Field’s Name Gas In Place Tcf Recoverable Reserve Tcf
South Pars 500 322
North Pars[31] 60 47
Kish[5] 60 45
Golshan[32] 55 25 – 45
Tabnak NA 21,2
Kangan NA 20,1
Khangiran NA 16,8
Nar NA 13
Aghar NA 11,6
Farsi (B-Structure) NA 11 – 22

Recent discoveries

Since 1995, National Iranian Oil Company (NIOC) has made significant oil and gas discoveries, standing for some 84-billion-barrels (1.34×1010 m3) of oil in place and at least 175×1012 cu ft (5,000 km3) of gas in place, which are listed below.[33]

NIOC Oil Discoveries Since 1995.[34]
Field’s name Oil in pPlace Recoverable oil Discovery year
Billion Barrel Billion Barrel
Azadegan 33.2 5.2
Yadavaran (Kushk+Hosseinieh) 17 3
Ramin[35] 7.398 1.11 2007
South Pars Oil Layer 6 NA
Band-E-Karkeh[36][37] 4.5 NA 2007
Mansour Abad 4.45 NA 2007
Changoleh[38] 2.7 NA
Azar[38][39] 2.07 NA 2007
Paranj 1.6 NA 2007
Andimeshk (Balaroud)[40] 1.1 0.233 2007
Binalood[41] 0.776 0.099 2008
Mansouri-Khami layer[39] 0.760 NA
Jofeyr-Fahliyan layer[42][43] 0.750 NA 2008
Asaluyeh[44] 0.525 NA 2008
Arvand[45] 0.500 NA 2008
Tusan 0.470 NA 2006
Arash 0.168 NA
Total 83.967 NA
NIOC Natural Gas Discoveries Since 1995.[46]
Field’s name Gas in place Recoverable gas reserve
Trillion cubic feet Billion cubic meters Trillion cubic feet Billion cubic meters
Kish[5] 59 1,700 47 1,300
Tabnak 30 850 NA
Farsi (B-Structure)[47] NA 11-23 310-650
Ghir (Sefid Zakhur) 11.4 320 8.5 240
Yadavaran-Gas Layer 9.75 276 NA
Lavan 9.1 260 NA
Balal-Dahroum Formation 8.8 250 NA
Homa 7.6 220 NA
Marun Gas Layer 6.2 180 NA
Gardan 5.7 160 NA
Day 4.4 120 NA
Binak Gas Layer 3.5 99 NA
Karanj Gas Layer 2.9 82 NA
BiBi hakime Gas Layer 2.4 68 NA
Zireh 1 28 NA
Kuh-e-Asmari (Masjed Soleiman)[48] 1 28 0.739 20.9
Arash 0.79 22 NA
Kheyr Abad 0.17 4.8 NA
Total 170 4,800 NA

Organizational structure

The company is completely owned by Iranian government. NIOC’s General Assembly consists of:

It is its highest decision marking body, determining the company’s general policy guide lines, and approving the annual budgets, operations and financial statements and balance sheets. The company’s Board of Directors has the authority and major responsibilities to approve the operational schemes within the general framework ratified by the General Assembly, approve transactions and contracts, and prepare budgets and Board reports and annual balance sheets for presentation to the General Assembly.

The Board supervises the implementation of general policy guidelines defined by the General Assembly, and pursues executive operations via the company’sManaging Director.

Subsidiary companies

With appropriate division of tasks and delegation of responsibilities to subsidiaries- affiliates, NIOC has been able to establish acceptable degrees of coordination within its organizational set up. In fact, NIOC’s Directors act primarily in policy making and supervision while subsidiaries act as their executive arm in coordinating an array of operations such as exploration, drilling, production and delivery of crude oil and natural gas, for export and domestic consumption.

The NIOC’s subsidiaries are as follows:

NIOC subsidiaries
Company Name Activities[49]
Iranian Offshore Oil Company(IOOC) in charge of offshore oil fields in the Persian Gulf offshore oil and gas fields with the exception of South Pars. It focuses mainly on production platforms, ancillary facilities, and installations.
Central Iranian Oil Fields Company supervises all upstream activities in the central oil and gas regions of the country, i.e. everything, excluding the oil-rich southern Khuzestan province, Caspian and offshore.
National Iranian Gas Export Co. (NIGEC) in charge of gas exports for the National Iranian Gas Company. Until May 2010, NIGEC was under the control of the NIOC, but the Petroleum Ministry transferred NIGEC, incorporating it under NIGC in an attempt to broaden responsibility for new natural gas projects.[50] See also: Persian pipeline and Peace pipeline.
National Iranian South Oil Company(NISOC) in charge of onshore oilfields in southern Iran. Focuses on onshore upstream activity in the province of Khuzestan. As Khuzestan is the main oil and gas-producing province, this entity is among the most significant in the NIOC family. It produces approximately 80 percent of all crude oil produced in Iran.[50]
National Iranian Central Oil Company supervises all upstream activities in the central oil and gas regions of the country, i.e. everything, excluding the oil-rich southern Khuzestan province, Caspian and offshore.
Khazar Oil Exploration and Production Company in charge of Iran’s Caspian Sea sector (onshore and offshore)
Karoon Oil and Gas Production Company (KOGPC) Operating in Khouzestan, the company operates 538 wells and delivers natural gas to NIGC.[50]
Petroleum Engineering and Development Company (PEDEC) is the most important NIOC offshoot company. The responsibility for all buy-back projects under operation, study or negotiation has been given to PEDEC. This company enjoys full authority to manage the projects. Further information: Foreign Direct Investment in Iran
Pars Oil and Gas Company (POGC) National Iranian Gas Company does not play a role in awarding upstream gas projects; that task remains in the hands of the National Iranian Oil Company.[51] Pars Oil and Gas Co. is in charge of the offshore North and South Pars gas fields and responsible for awarding the contracts for the different phases. Since 2010, it has been raising capital on the domestic and international markets in order to finance its projects.
Pars Special Economic Energy Zone Co. handles and organizes all activities in the Pars Special Economic-Energy Zone, located near the South Pars gas field (a subsidiary of Pars Oil & Gas Co.)
National Iranian Oil Terminals Company has four transport hubs including facilities on the three islands of Kharg, Lavan and Sirri consisting of 17 jetties capable of berthing tankers of all sizes to lift and export its crude oil that load more than 2,000 oil tankers per year.[52] 2,000 of them dock in Bandar Abbas Port, 1,000 in Khark Island. Iran earned nearly $2 billion in 2009 from bunkering ships in the Persian Gulf (25% market share).[53] Projected bunkering sites by 2015: Bandar Abbas (two sites), Kish, Qeshm, Bushehr, Mahshahr, Assalouyeh, Khark and Chabahar.[54] Fujairah bunkering hub, UAE is Iran’s main competitor in the Persian Gulf. The country’s terminal storage capacity should soar to 100 million barrels by 2015 from the current 24 million barrels.[55]
National Iranian Drilling Company(NIDC) in charge of all offshore and onshore drilling activities. NIDC provides more than 90 percent of drilling services needed by the oil companies inside the country. In 2011, NIDC, drilled or completed 192 oil and gas wells, drilled 454 thousand meters of wells and provided more than 8 thousand expert or technical services to customers.[56] As at 2012, 123 drilling rigs are in operation in Iran’s offshore and onshore.[24]
Ahwaz Pipe Mills Company manufacturing oil and gas pipes and has a capacity of up to 420,000 tons per year. It operates three plants.
Iranian Fuel Conservation Organization regimenting the fuel consumption in different sectors through review and survey of the current trend of consumption and executing conservation measures nationwide. See also: 2007 Gasoline Rationing Plan in Iran
National Iranian Tanker Company controls the second largest fleet of tankers in OPEC.
Exploration Service Company (ESC) responsible for providing operational services in all facets of exploration and production activities within NIOC onshore regions.
Kala Naft (London) Ltd. in charge of carrying out the procurement needs of the NIOC that cannot be met domestically. However, NIOC organizations can in theory also purchase directly from suppliers.
Kala Naft (Canada) Ltd. in charge of carrying out the procurement needs of the NIOC that cannot be met domestically
Naftiran Intertrade Co. (NICO) (Switzerland) handles trading & swaps operations on behalf of NIOC. Iran has swap arrangements with Azerbaijan, Turkmenistan, and Kazakhstan, under which it ships crude from the Central Asian producers to its Caspian ports. In exchange Iran delivers the equivalent barrels of crude on behalf of the three Central Asian producers to their costumers in the Persian Gulf.[57] In October 2010, Iran asked for the terms of the contract to be re-negotiated because it claims it has lost money because of it.[58] On 2 July 2011, NIOC resumed oil swaps with Caspian states.[59] NaftIran also buys the vast majority of Iran’s gasoline imports.[60] Naftiran is a key player in Iran’s energy sector.
Petropars General contractor for the oil & gas industry (a subsidiary of Naftiran Intertrade Co.)
Petroiran Development Company(akaPetroIran or PEDCO) General offshore contractor (a subsidiary of Naftiran Intertrade Co.). PetroIran was initially formed to be the Iranian partner of foreign contractors with a 10% share in each buy-back contract.
Iranian Oil Company(UK) in charge of Rhum gasfield (a subsidiary of Naftiran Intertrade Co.)
Iranian Offshore Engineering and Construction Company(IOEC) First Iranian general contractor to the oil and gas industries. Joint venture with IDRO
Arvandan Oil & Gas Company (AOGC) responsible for the development of the Arvandan oil & gas fields. AOGC was established in 2004 working as the main operator in oil and gas production from Azadegan, Yadavaran, Darquain, Jufeyr, Moshtagh, Khorramshahr, Arvand, Susangerd, Band-e-Karkheh, Omid and other fields which are located in west of Karun River.[61]
Research Institute of Petroleum Industry (RIPI) NIOC will implement 69 research projects between 2010 and 2015 which include topics as enhancing recovery rate, modeling, control and management of reservoirs, production and exploitation, exploration, promotion and technology in drilling operations, establishment of an integrated data bank, industrial protection and environment, optimizing energy consumption, materials and equipments manufacturing, strategic and infrastructure studies, productivity and specialized maintenance.[56] Iran is expected to launch its first gas to liquids (GTL) plant by 2018.[62] See also:Science and technology in Iran.

Production costs and investments

The cost of producing each barrel will rise to $30 or more from $7 in 2012.[63]

Iran currently allocates $20 billion a year to develop fields and $10 billion on maintaining output. In the next decade, maintaining production will cost $50 billion, with a similar sum required for development.[63]

NIOC’s major domestic contractors

Although usually neglected and overlooked, Iran also has a number of very active private companies in the oil sector. The growing private sector activity is mainly active in projects involving the construction of oil field units, refinery equipment, tanks and pipelines,[64] as well as engineering. Iranian manufacturers will supply oil industry with $10 billion worth of domestically-made goods and equipment in 2012.[65]

Iranian companies are already outperforming foreign firms in South Pars.[66] NIOC produces 60-70% of its industrial equipment domestically including refineries, oil tankers, oil rigs, offshore platforms and exploration instruments.[67][68][69][70] Iran is also cooperating with foreign companies to transfer technology to Iranian oil industry.[71] The objective is to become self-sufficient by 85% before 2015.[72] The strategic goods include onshore and offshore drilling rigs, pumps, turbines andprecision tools. Domestic production of 52 petrochemical catalysts will be started in 2013.[73]

Participations in foreign gas fields

  • Iran has another 10% joint-venture participation with BP and other foreign oil companies in Azerbaijani Shah Deniz gas field, producing 8 billion cubic meters of gas per year, worth up to a reported $2.4 billion per year. The Iranian entity with which BP has partnered in these ventures is the Swiss-based Naftiran Intertrade, a subsidiary of NIOC.[60] Shah Deniz is not subject to US sanctions.[74]