In The Name of God INDEX Articles on Oil & Gas in the English section, JUN. 2010 / No.126 in cooperation with IranOilGas.com Published by: IRANIAN ASSO - CIATION FOR ENERGY ECO-NOMICS (IRAEE) ISSN 15631133- OPEC’s 50th Birth Anniversary / 2 Director and Editor-in - Chief: Seyed Gholamhossein Hassantash Editorial Manager: Homayoun Mobaraki UAE Crude Pipeline to Downgrade Role of Editorial Board: Strait of Hormuz / 4 Majid Abbaspour, Reza Farmand, Ali Moshtaghian, Mohammad-reza Omidkhah, Ebrahim Bagherzadeh, Fereidoun Barkeshly, Hassan Khosravizadeh, Mohammad-ali Movahhed, Behroz Beik Alizadeh, Ali Emami Meibodi, Seyed Mohammad-ali Tabatabaei, Afshin Javan, Hamid Abrishami, Mohammad-bagher Heshmatzadeh, Mehdi Nematollahi, Mozafar Jarrahi, Ali Shams Ardakani, Mohammad Mazreati Russia-Ukraine Honeymoon, After Years of Detachment / 7 Advertisement Dept : Adamiyat Advertising Agency Tel: 021 - 88 96 12 15 - 16 9 Translators: Mahyar Emami, Hamid Barimani Subscription: Hamideh Noori Pakistan May Face Cash Problem With IP Gas Pipeline / 13 / 15 IRANIAN ASSOCIATION FOR ENERGY ECONOMICS Iran Woos Foreign Investors to TSE Unit 13, Fourth flour, No.177, Vahid Dastgerdi (Zafar) Ave., Tehran, Iran Tel: (9821) 222620613- Fax: (9821) 22262064 Web: www.IRAEE.org E-mail: [email protected] Jun . 2010 - 127 perhaps a factor strongly underlying its survival to this date. OPEC member states are still home to the world’s largest crude reserves while these same states remain highly dependent on petro dollars and are affected by the market conditions and global crude prices. Meantime, oil remains the world’s most strategic source of energy and crude prices act as indices for the boom or otherwise recession of economy and to a lesser extent, production or development of other sources of energy. Majority of the OPEC member states remain dependent on outside investment and technology for the development of their oilfields. Launch of OPEC was a historical turning point triggering disputes between the oil rich nations and international companies that are based in the consumer states. The dispute gradually reached its peak as supplier states came to realize the strategic significance attached to oil and energy. This was further escalated as the economies of oil producing nations became more dependent on oil incomes. The “Seven Sisters”, which possessed the overwhelming majority of oil drilling and production concessions, put aside their differences and rivalries and launched the world’s first oil cartel pursuant to the signing of the contract known as OPEC’s 50th Red Line. Establishment of this cartel further intensified the disputes between producers and consumers of crude oil. The Birth Anniversary oil producing states gradually realized that they would not be able to protect their legitimate rights against the Seven Sisters This year marks the 50th anniversary cartel unless they could reach some kind of alliance and of the foundation of the Organization of coordination. T Petroleum Exporting Countries (OPEC). Foundation of OPEC was in fact a reaction to the During these years, OPEC has gone through much thick and formation of that cartel and given that its members were thin, but there is no doubt that OPEC has served to be the entirely dependent on the technology and investment that most influential third world organization of its kind. were available with the cartel members, the new organization This is of course worth noting that OPEC maintains was founded on shaky ground. This has even been reflected a powerful status in the world despite the fact that only in the statute of OPEC. While the OPEC member states developing and third world nations constitute its member primarily sought fairer oil deals, they were at the same time states. reluctant to displease oil companies and consumer states. Since the establishment of OPEC fifty years ago, the world OPEC registered little achievements during the first has undergone major transformations of diversified natures; decade of its foundation and it was only in the second decade however, OPEC has hardly experienced any changes; and following the outbreak of two big global oil shocks that 2 Jun . 2010 - 127 made OPEC a household name. to get out of the current condition. Evidently, planning and In the wake of the first oil shock, the member states of the implementing a long term strategy for OPEC, under the Organization of Economic Cooperation and Development prevailing world’s complicated economic conditions, is a (OECD) set up the International Energy Agency (IEA), task that requires organized contribution of OPEC and which was to gradually formulate and enforce the member non-OPEC experts to the formulation of such a long term states’ energy strategies. strategy. At the time of its foundation, twenty odd members of IEA Needless to reiterate that OPEC is required to show how consumed more than 62% of the world’s total energy. The it is planning to address the global issues, impediments and same states are currently consuming 53% of the world’s total phenomena. OPEC is urged to move along a course that energy. would lead to the Organization’s integrity, which would IEA gradually managed to bring to order and regulate resolve many of OPEC’s problems and assist with the consumption of energy by the member states and design removing of others as well. strategic patterns for them as well as for the entire world. The most critical challenge for OPEC is how to regulate When IEA policies and strategies were enforced, OPEC production capacity-building among its member states. was once again put on a reactive track. The OPEC members have so far confined themselves to IEA deals with all forms of energy carriers and makes temporary production quotas proportionate with the already relevant planning within a macro framework. OPEC, specified production ceilings. In a longer term plan, however, however, has confined itself to dealing with oil only. More they are required to share production capacity-buildings. To importantly, IEA maintains long term strategies but OPEC date, the OPEC member states have, by tradition, engaged has been content to making short term and temporary in making production capacity-building separately, hence, decisions, in which it has been largely successful. This is disturbing the market order. perhaps the most important factor underlying OPEC’s Should the OPEC member states manage to tackle the adherence to a reactive status, which can only be overcome said challenge, the next step for the Organization would be to by planning a long term strategy. And perhaps the most address the following vital issues: serious impediment in the way of OPEC’s reform is the - OPEC should clarify its stance in relation to mechanism of consensus in its statute which deprives it of international environmental conventions and take a unified self revising potential. position in this respect, for environmental regulations will Each one of the twelve member states of OPEC has its constitute the most important factors impacting future own interests. There are many factors that segregate these demand for various energy carriers, oil and oil products in states while they appear to be convergent only over issues particular. that either deal with oil or oil-related interests. Hence, they - OPEC should clarify its stance in relation to other are not likely to reach any consensus on a fundamental and organizations such as World Trade Organization (WTO), long term issue. globalization of economy, Energy Charter Treaty (ECT) and As was mentioned earlier, with the present structure in global economic recessions and booms. place, OPEC will be unable to break out of its deficient If OPEC fails to make use of a its fifty years of experience to routine course or passive status, nor will it be able to devise refurbish its current structure, and if it falls short of long term and enforce long term strategies unless a more ideal and plans and strategies, the Organization should expect to gain successful model of OPEC is taken into consideration. nothing beyond short term regulation of oil market, a trend it Following is a list of OPEC’s strategic priorities that need has been engaged in for more than three decades now. to be taken into account should OPEC member states intend Director 3 Jun . 2010 - 127 UAE Crude Pipeline to Downgrade Role of Strait of Hormuz Ali Khajavi Construction Company at $3.29bn cost, will not only Strategic Planning Dept., Iran’s Ministry of Petroleum safeguard most of crude exports of the UAE when Hormuz is threatened, but will also be a part of a much larger plan. Fujairah is to be transformed into an ‘Energy Special Zone’ ccording to energy experts, the pipeline with extensive crude oil refining facilities, crude storage tank for carrying crude oil of the United Arab Image 1: Displays route of Habshan-Fujairah pipeline A Emirate (UAE) to its Fujairah port, which is beyond the Strait of Hormuz and in the Gulf of Oman, will be inaugurated by early 2011. This line is being built to ensure security of crude export of the UAE in case hostilities between Iran and the US lead to the closure of Hormuz or make it unsafe for tankers to sail through. The pipeline starts at ‘Habshan’ onshore oilfield of Abu Dhabi and will have an initial capacity of carrying 1.5 mn b/d of crude, which will be raised to the final capacity of 1.8 mn b/d by the middle of 2011. The 360 km long 48” Habshan-Fujairah pipeline, being constructed by China Petroleum Engineering & Source: International Petroleum Investment Company / Poten & Partners 4 Jun . 2010 - 127 farms and petrochemical plants. The Habshan-Fujairah Figure 1: Displays UAE’s Crude Production pipeline will be feeding a 300,000 b/d oil refinery as well as Consumption in 2005-2008 the Zone’s crude oil export terminal.