Are $2-per-gallon gas prices here to stay for the long run? Is the world running short of oil? Are the globe's leading petroleum producers committed to increasing supply? Are U.S. consumers paying too little for gas?
Dr. Adnan Shihab-Eldin, OPEC's Director of Research, was online on Friday, June 18 to answer questions about the Vienna-based organization, the global oil outlook and more.
A transcript of the discussion is below:
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
________________________________________________
washingtonpost.com:
This discussion was originally scheduled to begin at 11 a.m. ET today. It has been delayed 30 minutes.
_______________________
washingtonpost.com:
Hello Dr. Shihab-Elden. Thank you for joining us today. Before we get started with questions from our readers, please describe what your position as OPEC's research director entails.
Adnan Shihab-Eldin: As Director of Research at OPEC, Dr. Shihab-Eldin is responsible, among other things, for leading the formulation and overseeing the execution of the strategic and annual research programs of the organization aiming to address the changing global environment and emerging challenges in the world oil and energy market, especially those that are likely to impact OPEC and the interest of its Member Countries. The Research Program covers also provision for monitoring, forecasting, and analysing short-to-medium outlook and developments in the oil-, energy- and petrochemical industries, as well as analysis of economic and financial issues of significant interest or impact. The Director of Research is responsible for preparation of short- and long-term oil and energy outlooks and presenting results and implication to OPEC's Ministerial Conferences, Board meetings, Economic Commission Board, etc.
_______________________
Washington DC:
Given the recent decision to expand the OPEC quota and verbal guarantees to increase production, how much spare capacity is really left in OPEC? What happens if a physical disruption in supply should occur in Venezuela/Nigeria/Saudi Arabia?
Adnan Shihab-Eldin: Following the recent decision of OPEC MC in Beirut to raise the production ceiling to 26 MBD [millions of barrels per day] for OPEC 10, there is still around 3MBD additional capacity available. Saudi announcement of increasing production to 9.1 MBD in June still leave KSA alone with around 1.5 MBD and they are working to advance more capacity on line this year of about .5 mbs. UAE has about 400,000 bd and some other capacity in other Member Country is also available, they would add another 400,000 or so bd
_______________________
New York:
Is Libya a member of OPEC? And given the country's recent rehabilitation in the international community, are there opportunities for major gas/oil exploration in the N. African country?
Adnan Shihab-Eldin: Libya is a member Country of OPEC
_______________________
Germantown, MD:
How is OPEC prepared to react to the growing world demand for oil, as countries like China and India increase per capita oil consumption in the coming decades and world economic growth continues? Can we look forward to increasingly greater output of oil or just astronomical prices in the future?
Adnan Shihab-Eldin: OPEC Member Countries have invested in increasing production Capacity that will come on line this year as well as in the coming years. Once appreciable demand growth is ascertained, additional investment in additional upstream production, tapping the large OPEC reserves, is made. OPEC Countries keep spare production capacity of about 10 - 15 % on average to handle cycles of high and low demand and to allow time buffer for investment in additional capacity to come on line. At times spare (idle) capacity was around 5 mbd or more (just 2 years ago)
_______________________
Virginia:
Do OPEC country members regularly "cheat" by increasing their oil production above the accorded quota when oil prices are too tempting not to do so? If so, what are the penalties if caught?
Thank you.
Adnan Shihab-Eldin: OPEC objective is to ensure market stability. Ceiling and quotas are decided upon based on carefull assessment of supply and demand as well stock levels. Once a decision is made, it is expected that OPEC countries will produce according to quota. However markets are dynamic and often, if the market needs more oil to stay balanced, OPEC countries adjust. The key objective is to keep customers well supplied, market and prices stable. Quota and ceiling is only a tool. It is important tool and most of the time the quotas are well respected.
_______________________
New York:
Thank you for clarifying that Libya is an OPEC member. Could you answer the second part of my question: "And given the country's recent rehabilitation in the international community, are there opportunities for major gas/oil exploration in the N. African country."
Adnan Shihab-Eldin: Libya has made it clear that it wishes IOC to take part in the development of their oil and gas reserves.
_______________________
Washington, D.C.:
How often do OPEC member countries meet to discuss production quotas? Can OPEC increase or cut production without holding a ministerial-level meeting?
Adnan Shihab-Eldin: Normally, OPEC Ministers meet a minimum of two times a year in ordinary meetings. In recent years, OPEC MInisters have met more frequently to respond to increasing market dynamics. This year, so far OPEC Ministers have met three times, and are expected to meet another three times by the end of the Year. OPEC Ministers can hold consultation over the phone or with the President to decide on new production ceiling and quotas if necessary.
_______________________
Louisville, Ky.:
Does OPEC set production quotes for natural gas?
Adnan Shihab-Eldin: NO.
_______________________
Philadelphia:
Some market analysts say that terrorism threats have added several dollars per barrel to the current price of oil. Do you agree?
Adnan Shihab-Eldin: Geopolitical concerns over tensions, conflicts, including terrorism, can add to the price of oil in future markets, like IPE and NYMEX. Recently, given the increased geopolitical concerns and tensions, it is estimated that as much as 8$ has been added to the price of oil that is based on fundamentals (supply, demand, stock level, etc). This is reflected in large daily volatility in price of oil in response to such events.
_______________________
Reston, Va.:
How much of the world's oil supply is controlled by OPEC member nations?
Adnan Shihab-Eldin: In terms of total oil supply, less than 40%. In terms of exports, around 60%.
_______________________
Harrisburg, Pa.:
How solid are the OPEC nations on cooperating on price agreements? Hasn't there been difficulties in the past of some nation undercutting the others? Is that difficulty for OPEC a problem of the past, or is your alliance a shaky one?
Adnan Shihab-Eldin: OPEC Member countries do not set price of oil. They agree on production limits to ensure markets are stable, avoiding large and harmful price changes. The aim to keep the price of OPEC basket of crude around 22 -28$ , which is around 26 -24 $ per barrel for WTI crude
_______________________
Willow, AK:
Does the OPEC organization play the oil futures market? That is, does the umbrella organization itself buy and sell options contracts on world markets?
Adnan Shihab-Eldin: No OPEC Member Countries do not participate in the future markets.
_______________________
Bethesda, Md.:
Where are the next big oil fields -- i.e. fields with big proven reserves that have yet to be tapped?
Adnan Shihab-Eldin: remaining giant oil fields may exist. they are likely to be in OPEC countries.
_______________________
Mt. Lebanon PA:
Does Russia or any of its former constituent provinces (e.g., Kazakhstan) export oil? If so, are these nation states eligible for OPEC membership? If not, why not?
These questions are an attempt to elicit information about OPEC's own expansion plans, if any.
Thanks much. HLB
Adnan Shihab-Eldin: Yes Russia and many former SU countries do produce and export oil. They are eligible to apply for membership of OPEC if they wish. Currently Russia, Kazakhstan, Mexico, Angola and OMAn. among others, participate in OPEC Ministerial meetings as observers.
_______________________
Washington, D.C.:
Several major oil companies, in particular Shell, have recently lowered their estimates of proven reserves. Does this mean there's less oil in the world than previously thought?
Adnan Shihab-Eldin: No not really. First the reserves owned by the majors are but a small fraction of total world proven reserves. Second, the revisions relate to better book keeping. Some IOC like Shell booked some of the found oil as proven reserves, while in fact, they admitted later, they should have kept this find under probable reserves. In the USA, the SEC has very strict definitions and some oil companies have not followed these definitions strictly. It is good that we are beginning to see this being corrected
_______________________
Washington, DC:
If memory serves, the United States considers the DeBeers diamond cartel to be in criminal violation of US antitrust laws, and DeBeers officials will not visit this country, for that reason. Do OPEC officials face any similar restrictions on visits to the United States?
Adnan Shihab-Eldin: OPEC is an organization of sovereign countries, exercising their legitimate right to exploit their natural resource endowment to optimize their development. OPEC is a responsible international organization that has and will will continue to have the interest of both producers and consumers in mind. OPEC policies have helped to stabilize energy markets at times when there has been major supply disruptions. Examples, 1990, 2003, and most recently in 2004. In 1990, OPEC member countries ensures continued smooth world supply of oil despite complete disruption of supplies from Kuwait and Iraq (more than 5 mbd combines)> in 2003, in the run up to the war, opec countries added supply to compensate for disruption of Iraq oil supply.
_______________________
Arlington, Va.:
What is the threat posed to the global energy production supply by India and China's rapidly growing economy? Can OPEC and other oil-producing countries keep up?
Adnan Shihab-Eldin: in the coming years more than 2/3 of the growth in global demand will come from developing countries like China and India. OPEC Countries is expected to make up most of the increase in the global supply, especially after 2010. The reserves in OPEC countries are large (over 75% of global reserve), and are less expensive to develop and produce than in those in Non-OPEC. Over the short and medium term, Non-OPEC producers are expected to continue to increase production capacity, around 1 mdba year to contribute to meeting the increasing demand from developing countries.
_______________________
Washington DC:
Thanks for taking questions today. Could describe how demand forecasts are reviewed at OPEC meetings and how they impact the production quota? Demand numbers this year thus far have not reflected the growing demand we have seen.
Adnan Shihab-Eldin: The strength of the demand growth has not been fully anticipated by OPEC, IEA and others. This explains why we have not seen the full stock build implied by the supply demand analysis. However, we now know much more about the demand growth for 2004. Most of this unexpected strength in demand growth is attributed to strong economic growth in China and the USA. Looking forward, smaller growth in demand is still likely, as we know more about actual consumption in China. But these further revisions are expected to be smaller. As it stands now, the growth in demand for 2004 is around 2 mbd.
_______________________
Juneau, AK:
Alaska is a net exporter of oil to the States and to the far east (Cook Inlet oil). Would it be welcomed to observe at OPEC member meetings?
After all, many of us feel a stronger connection to the Pacific rim than we do to Washington, D.C.
Adnan Shihab-Eldin: Unfortunately, the Statute of OPEC allows only sovereign countries as members or observers.
_______________________
Reston, Va.:
What is the potential for Sudan to become a major oil exporter now that the government has entered into a peace agreement with groups in the south?
Adnan Shihab-Eldin: No doubt the peace accord will present a more attractive and stable environment to make the necessary long-term investments in additional upstream production capacity. Sudan production capacity may grow by a few hundred thousands barrels/day, but not by millions!
_______________________
Baltimore:
Is Iraq currently a member of OPEC?
Adnan Shihab-Eldin: Yes, Iraq, a founding member of OPEC, continues to be a full fledge member of OPEC. Due to special circumstances, Iraq has not been subject to the OPEC production agreements since 1990. It is expected it will do in the future as its oil industry fully recovers.
_______________________
Laurel, Md.:
The variability of the price of energy is probably the single greatest source of unpredictability in the US economy.
Why aren't petroleum prices negotiated with a more long-term, fixed-price outlook. Then the consumers would get predictable prices and producers would get a predictable income stream. (If demand falls below a certain amount, there could be payments for deliveries not taken.)
Why is the worldwide petroleum market so spot-like?
Adnan Shihab-Eldin: OPEC price band mechanism attempts to achieve the same objective. The range is set to meet both consumers' (like the USA) as well as producers' (and investors') interests. OPEC Band of 22-28 for its basket of seven crudes has been successful over the last four years. From 2000 through 2003 the average price of OPEC Reference Basket (ORB) was 25.8 US$/Barrel. That is remarkable. Inflation may dictate occasional adjustments.
_______________________
Washington, D.C.:
There's been much reporting in the U.S. media about the vulnerability of Saudi Arabian oil infrastructure. What is OPEC's view on this topic?
Adnan Shihab-Eldin: OPEC is of course concerned about supply security across the globe, in consuming as well as producing countries. Terrorism is a global threat that may afflict any country. Saudi Arabia being the world major exporter of oil takes such threat with diligence and seriousness and have taken steps and necessary measures to ensure the security of its oil production and export facilities. While one cannot discount a possible event here and there, we are confident that the measures in place in Saudi Arabia and other producing countries will ensure security of supplies is at maximum.
_______________________
Washington, DC:
How much of the price of oil would you estimate reflects OPEC's influence? In other words, if OPEC had not been formed and its members were competing independently in the market, how much would the price of a barrel of oil differ from its current level?
Adnan Shihab-Eldin: OPEC influence on oil prices is to ensure their stability and that prices are within a reasonable range acceptable to both consumers as well producers (and investors) To that extent, OPEC, with cooperation from other producers has been reasonably successful. The recent Consumers/Producers forum in Amsterdam applauded OPEC contribution to the stability of the international oil markets, including price stability.
_______________________
washingtonpost.com:
Thank you Dr. Shihab-Eldin for joining us today, and thanks to everyone who submitted questions.
_______________________
