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20 Jan

OIL AND GAS 1.7B OPEC (PROBLEMS)

PROBLEMS OF THE OPEC.

  1. Disagreement between member countries: as to policies and fixing of price. This problem is compounded by the requirement of unanimity. The members comprise countries with diverse locations, ideology, religion, interest and values. Arrangements must be made to quicken decision making process.
  2. Emergence of the UK’s North Sea Oil producers.
  3. Volatility of Oil prices: caused by over production (supply exceeds demand) inflation and decline in demand for oil. OPEC stipulates a production quota (production ceiling) for each member country. This is often flouted and the market is flooded with crude oil. To this effect, the OPEC Market Monitoring Committee was set up (made up ministers from Nigeria, Iran and Kuwait) to enforce compliance. Their effect has been minimal. Prices have plummeted in 1980s like the 1986 situation where the demand for oil was 5 million barrels a day while OPEC was producing 14 million barrels a day. However, the prices always recover.
  4. The Parallel Market: the non-OPEC producers. There exists the Organisation of Arab Petroleum Exporting Countries which has membership (including members of OPEC) of major oil producing countries like: Saudi Arabia, UAE, Qatar, and so on. They equally flood the market. OPEC has tried to reach out to the non-OPEC producing states (like Russia and Brazil) regarding flooding the market. It even gives membership invitation to such countries in a bid to widen membership and increase influence in the Oil market. In 2000, OPEC granted observer status to Russia which participated in their meetings.
  5. Decline in Demand for Oil: coupled with the discovery and research on alternative sources of energy. taking into consideration climate change, depletion of ozone layer caused by carbon emission.
  6. The value of dollar also affects the market in a good or bad way where its value increase or decrease respectively.
  7. Internal problems of OPEC Member States: which struggle with unstable political and economic environment. In Nigeria for example, there is constant fuel scarcity, shutdown of refineries and so on. it has withstood the war between Iraq and Kuwait.
  8. Multilateral Agreements on Investment between the multinationals and the government which seeks to curb the power of the host state.
  9. Lack of transparency in the global market in terms of accounts, transactions and obedience with the quota stipulation. Arrangements should be made for sanction of non-compliant member states.
  10. The discovery of American White Shale.

 

Isochukwu

Quite eccentric really

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