This month’s cover ... shows a rig in Lake Maracaibo, Venezuela. The Latin American country is planning to double its gas production (see Newsline, p14). Photo: Reuters/Jorge Silva Vol XXXV, No 6 ISSN 0474-6279 July/August 2004 02 Editorial Information 03 Commentary The commanding heights 04 Conference Notes OPEC responding positively to market situation 08 Forum WEC Statement 2004: Reflections on the dynamics of OPEC President’s press conference (p4) oil and natural gas markets 14 Newsline Venezuela’s PDVSA announces plans to double gas production Oil and gas news from OPEC (p15) 24 Environment Notebook Agreement signed concluding bilateral negotiations for Russia’s accession to the WTO 26 Market Review Covering May/June Reuters/George Esiri Reuters/George 50 Member Country Focus Polio campaign in Nigeria (p50) Resumption of polio immunization campaign in Nigeria Development and economic news from OPEC 57 Secretariat Notes 58 OPEC Fund News Reuters/Adrees Latif Reuters/Adrees XV AIDS Conference (p58) 62 Noticeboard July/August 2004 1 COMMENTARY Publishers Editorial policy OPEC The OPEC Bulletin is published by the Public Organization of the Petroleum Exporting Relations & Information Department. The Countries, Obere Donaustrasse 93, contents do not necessarily reflect the official 1020 Vienna, Austria views of OPEC or its Member Countries. Names Telephone: +43 1 211 12/0 and boundaries on any maps should not be Telefax: +43 1 216 4320 regarded as authoritative. No responsibility is Public Relations & Information taken for claims or contents of advertisements. Department fax: +43 1 214 9827 Editorial material may be freely reproduced (un- E-mail: [email protected] Secretariat officials less copyrighted), crediting the OPEC Bulletin E-mail: OPEC News Agency: [email protected] as the source. A copy to the Editor would be Web site: www.opec.org Secretary General appreciated. Hard copy subscription: $70/year HE Dr Purnomo Yusgiantoro Editorial staff Membership and aims Indonesian Governor for OPEC Acting for the Secretary General Editor-in-Chief OPEC is a permanent, intergovernmental Or- Dr Maizar Rahman Dr Omar Farouk Ibrahim ganization, established in Baghdad, September Editor 10–14, 1960, by IR Iran, Iraq, Kuwait, Saudi Director, Research Division Graham Patterson Arabia and Venezuela. Its objective is to co-ordi- Dr Adnan Shihab-Eldin Deputy Editor nate and unify petroleum policies among Mem- Lizette Kilian ber Countries, in order to secure fair and stable Head, Data Services Department Philippa Webb-Muegge (maternity leave) prices for petroleum producers; an efficient, Dr Muhammad A Al Tayyeb Production economic and regular supply of petroleum to Diana Lavnick consuming nations; and a fair return on capital Head, Administration & Design to those investing in the industry. Human Resources Department Elfi Plakolm The Organization comprises the five Senussi J Senussi Founding Members and six other Full Mem- Web site: www.opec.org bers: Qatar (joined in 1961); Indonesia (1962); Head, Energy Studies Department SP Libyan AJ (1962); United Arab Emirates Mohamed Hamel Visit the OPEC Web site for the latest news (Abu Dhabi, 1967); Algeria (1969); and and information about the Organization and its Nigeria (1971). Ecuador joined the Organiza- Head, PR & Information Department Member Countries. Recent and back issues of tion in 1973 and left in 1992; Gabon joined Dr Omar Farouk Ibrahim the OPEC Bulletin are available free of charge in 1975 and left in 1995. on the site in PDF format. 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Otherwise, orders should be placed through the Advertising Representatives, whose contact details are at the end of the magazine. 2 OPEC Bulletin July/August 2004 3 COMMENTARY The commanding heights The real significance of record high oil prices is not short-term market influences, but long-term trends ny oil traders watching nervously from the safety of their spare capacity left, any potential disruption to supplies (such as summer holiday destinations as the market edges higher the Yukos affair) could have unforeseeable consequences for an A and higher must be rather glad that they are not in the already strained market. thick of things right now. In recent days, WTI and Brent prices OPEC is, of course, committed to maintaining market have hit record highs on the New York Mercantile Exchange and stability, and several of the Organization’s Member Countries London’s International Petroleum Exchange, and the situation have capacity expansion projects that are due to come on stream shows little sign of easing. All this is happening despite that shortly. Nevertheless, it remains possible that if the current high fact that non-OPEC nations are producing at capacity and the level of oil prices persists, world economic growth could be combined output of the eleven OPEC Member Countries is slowed down. On the other hand, higher prices also mean higher approaching 30 million barrels/day, a level not seen since the profits for the upstream oil sector, which should have the effect mid-1970s. What’s going on? of attracting greater investment into the industry, eventually Turn on your television or computer, and you will find no helping to ease the capacity problem. shortage of industry analysts and commentators eager to explain Sufficient investment, after all, is the crucial factor in ensur- why prices are so high — and where they might go from here ing that the global oil industry is able to meet future demand. (down to $30/b, up to $100/b, or just about anywhere in between, The International Energy Agency has estimated that around $6 according to whom you choose to believe). In explanation, the trillion will need to be invested in the oil and gas sector by 2030, pundits usually cook up a recipe whose ingredients may be any which corresponds to a rate of $200 billion every year. Clearly, or all of the following, in varying amounts: stronger-than-antici- this massive amount will only be forthcoming if — as OPEC pated demand from China and the US; the security situation in has often said — investors believe that they can get a fair return country X, Y or Z; tightness in the US gasoline market; crude on their money. Fair returns are one thing, of course, but market and product stock levels; market speculation by hedge funds, stability is equally important. While today’s high prices may at- and so on. Most recently, the icing on the cake, as it were, has tract inflows of capital into the industry, it must be remembered been the legal uncertainty surrounding Russian oil giant Yukos, that nobody wanted to invest in oil during the price slump of the outcome of which (and its impact on the company’s oil 1998 and early 1999. Such radical price swings make financial production) is still unclear. planning very difficult, discouraging investment. All these factors have, of course, played some role in in- It is clear that prices need to descend from their current levels fluencing the market in the short term, but to focus on them if world economic growth is not to be choked off. But it is also exclusively would be to miss the bigger picture. The fact of the clear that if prices come down too far, the industry may not be matter is that, over the past two decades or so, global spare ca- able to attract the investment it needs, and the spike/slump price pacity, which provides an essential cushion against any possible cycle may continue. Maintaining the balance will be a difficult interruptions in oil supplies, has been gradually shrinking as challenge, but it is one that all players in the industry must work growth in demand has outpaced capacity additions. The result is together to meet. If they succeed, the oil traders may be able to that we now have a situation where, although there is still some enjoy their holidays in peace. 2 OPEC Bulletin July/August 2004 3 CONFERENCE NOTES CONFERENCE NOTES OPEC responding positively to market situation, President of the Conference tells media Pictured here at the opening of the press conference are Conference President and Secretary General, HE Dr Purnomo Yusgiantoro (second right); Indonesian Governor for OPEC and Acting for the Secretary General, HE Dr Maizar Rahman (second left); the Director of OPEC’s Research Division, Dr Adnan Shihab-Eldin (right) and the Head of PR & Information Department, Dr Omar Farouk Ibrahim (left). OPEC’s robust production levels should two million barrels/day above the agreed after the OPEC Meeting originally sched- be seen as a positive response by the Organ- ceiling, this should be viewed in a posi- uled for the previous day was cancelled. ization’s Member Countries to the current tive light rather than as a violation of the The cancellation had been agreed market situation, according to