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20 Jan

OIL AND GAS 1.7A OPEC (INTRODUCTION)

OPEC.

From the discovery of oil, the development of internal combustion engines and the need to fuel war vehicles, the demand for oil increased. The Seven Sisters (Exxon, Mobil, Texaco, Shell, Gulf, British Petroleum, Standard oil of Carlifornia) dominated the oil industry and exercised virtually sovereign rights over the oil in host countries.

The Organisation of Petroleum Exporting Countries (OPEC) was established at the baghdad conference of Iran, Iraq, Kuwait, Saudi Arabia, Ecuador and Venezuela in 1960 as a revolt to the power of the multinational companies (it cut the posted prices for Venezuelan crude). Other countries have joined. They include: Nigeria (in 1971), Angola, Libya, Qatar, UAE and Algeria.

Article 1 of the OPEC statute (2012) establishes it as an intergovernmental organisation.

Note that the gas sector is largely regulated by the Gas Exporting Countries Forum (GECF).

In 1966, the conference of sovereign heads of states adopted the solemn declaration of a new international economic order based on justice, mutual understanding and concern for humanity. The declaration emphasised the need to conserve petroleum and recognise alternative sources of energy.

From the 1970s, OPEC’s influence began to manifest and member countries began to take control of their petroleum.

The OPEC fund for international development was established in 1976 in the interest of poor and developing nations (with the exception of OPEC member countries). Voluntary contributions of more than 240 million dollars have been made to this fund by member countries

Following the fall in oil prices in the 1980s OPEC introduced production quota/ceiling to control availability of oil and stabilize the price. Non-member countries were also petitioned to this effect.

AIMS AND OBJECTIVES OF OPEC.

By Article 2,

  • Coordinate and unify petroleum policies of member countries and safeguard their interest.
  • Ensure stabilization of oil prices and eliminate fluctuations.
  • Safeguard interest of producing nations by securing steady income and efficient supply to the consuming nations..

MEMBERSHIP

Article 7 provides that any country which is a substantial net exporter of crude oil with similar interest of member countries (protecting themselves from the powerful international companies (Perez Alfonso noted)) may become a full member upon acceptance by ¾ of members including founding members.

By Article 8, Withdrawal requires prior notice to be given to the conference and takes effect at the beginning of the next calendar year from the receipt of such notice. Provided the member has discharged financial obligations. The country can be re-admitted. Ecuador pulled out in

ORGANS OF OPEC.

The conference: Article 10 provides that the conference is the supreme authority which consists of heads of delegation (usually petroleum ministers of member states). By Article 11-14, It meets twice a year and resolves substantive decisions by unanimous agreements. At least 75% Quorum is required for decision making. Compliance is voluntary. Article 15:

  • They formulate general policy of the organisation and approve amendment to the statute.
  • Consider application for membership.
  • Appoint members of the board of governors, secretary general, deputy secretary general and auditor of the organisation.
  • Entertain and deliberate upon reports, recommendation, budgets presented by the Board of Governors.

The Board of Governors: composed of governors nominated by member countries for terms of two years. Meets twice a year. Article 20:

  • They implement the decision of the conference.
  • Submit reports, budgets and make recommendation to the Conference.
  • Deliberate upon reports submitted by the Secretariat.
  • Nominate auditor of the organisation.
  • Can convene an extraordinary meeting of the conference and prepare agenda for the conference.

The Secretariat: Artice 25 carry out the executive functions. Prepare and submit report to the board of governors. The Secretary General is the chief officer of the Secretariat and the legally authorised representative of OPEC who is a national of a member country. He is appointed for a term of 3 years renewable once by unanimous decision of the conference. Where no unanimous decision can be reached, appointed on a rotational basis for 3 years.

He must:

  • Be a national of a member country and attained the age of 35 years with at least 15 experience in the oil industry.
  • Have a degree from a recognised university in law, economics science, engineering or business administration.

The OPEC is also made of departments like the division of research, personnel and administration department, public information department, legal office and so on.

Isochukwu

Quite eccentric really

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