OPEC: A clearer view needed, not generalizations

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Mazhar Al-Shereidah

Between 1960 and 1970 OPEC produced over 162 million barrels”. This is the normal way in which we study history. However, there is something wrong with this approach.

To explain… OPEC as an organisation has no way to produce petroleum: this is produced by the individual member countries. And during the period in question, OPEC did not have any individual or collective production target for these member countries.

More dramatically, these member countries could not determine the volume of production of oil to be extracted from their soil, because this was decided by the concessionary companies. The role of the state was limited to that of a tax collector and it was usually pressed to motivate a greater exploitation of the oil fields in question by these companies… with the intention of leading to a larger fiscal income.

Concessionary companies often had production opportunities in several producing countries and they designed a production strategy in line with geological conditions, cost and integration realities.

Of course, production growth rates were higher in low cost countries, but this did not only create unhealthy relationships between producing countries but also competition among the oil companies themselves. Only some few fortunate ones could reap higher profits.

Almost absent were National Petroleum Companies: In 1969 from a total production of over 20 million b/d, the contribution of the national oil companies was just 481 thousand b/d. The lion’s share in 1970 went to Esso (Exxon) with 3.9 million b/d, followed by BP with 3.5 million b/d. Then came Shell with 2.4 million, Gulf 2.0 million, Texaco 1.9 million, Stancal 1.9, and other companies with 3.2 million.

Total annual daily production growth rates varied in that decade from over 1.300% in Libya, 30% in Iraq, and 36% in Venezuela.

This again cannot be explained by political arguments only, but also by whether jack pumps are required, as in the case of Venezuela, or if the oil flows naturally – which is the norm in the Middle East.

Just to have an idea of the diversity of geology, in 1970, in order to produce 3.7 million b/d in Venezuela 12,400 wells were required. Saudi Arabia produced 3.8 million b/d from 534 wells all of which with natural flow.

It was the case of Libya in the nineteen-sixties that distorted the structure of prices on an almost global level. In 1961 the country produced merely 18,000 b/d, but in 1970 the companies operating in Libya reached a record production of 3.3 million b/d. The price weakened. The Kaddafi government ordered an important production cut. The fact converted into a precedent.

With regard to Venezuela, production in 1970 stood at 3.70 million b/d. Previous to this after the important democratic event of the 23rd January 1958, Pérez Alfonzo’s “Petroleum Pentagon” would come to serve as Venezuela’s strategic platform – its Petroleum Bible, and which included conservation on one of its sides, to which lip-service has been made with conservationist production announcements. The petroleum industry in Venezuela was nationalised in 1975.

Sources: Annual Statistical Bulletin, several years; “Enfoque Petrolero en Venezuela”. Mazhar Al-Shereidah, Caracas 2010.

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