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If you would like to know more about OPEC, its publications, or have
any questions, please contact:
Public Relations & Information Department
OPEC Secretariat
Obere Donaustrasse 93
A–1020 Vienna, Austria
Tel: +43 1 211 12-279
E-mail: [email protected]
Web site: www.opec.org
February 2005
What is OPEC?
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When was OPEC formed?
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Who are the OPEC Member Countries?
1
How does OPEC function?
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What is the OPEC Conference?
3
Who are the Heads of Delegation?
4
What is the Board of Governors?
4
What is the Economic Commission Board?
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What is the Ministerial Monitoring Sub-Committee?
6
What is the OPEC Secretariat?
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Why does OPEC set oil production quotas?
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What is OPEC’s current production ceiling?
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Can an OPEC Member Country change its rate of oil production?
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Does OPEC control the oil market?
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How does OPEC oil production affect oil prices?
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How does OPEC influence world trade?
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What is OPEC’s attitude towards fuel-efficient cars?
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Does OPEC support environmental policies?
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Can OPEC guarantee security of oil supplies?
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Is there any need for security of oil demand?
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What is OPEC?
OPEC is an international organization of 11 oil-exporting developing
nations that co-ordinates and unifies the petroleum policies of its
Member Countries. OPEC seeks to ensure the stabilization of oil
prices in international oil markets with a view to eliminating harmful
and unnecessary fluctuations, due regard being given at all times to
the interests of oil-producing nations and to the necessity of securing
a steady income for them; an efficient, economic and regular supply
of petroleum to consuming nations; and a fair return on their capital
to those investing in the petroleum industry.
When was OPEC formed?
OPEC was formed at a meeting held on September 14, 1960 in
Baghdad, Iraq, by five Founder Members: Iran, Iraq, Kuwait, Saudi
Arabia and Venezuela. OPEC was registered with the United Nations
Secretariat on November 6, 1962 (UN Resolution No. 6363).
Who are the OPEC Member Countries?
The OPEC Statute stipulates that: “any country with a substantial
net export of crude petroleum, which has fundamentally similar
interests to those of Member Countries, may become a Full Member
of the Organization, if accepted by a majority of three-fourths of Full
Members, including the concurring votes of all Founder Members”.
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The Statute further distinguishes between three categories of
membership: Founder Member, Full Member and Associate Member.
Founder Members of the Organization are those countries which
were represented at OPEC’s first Conference, held in Baghdad,
Iraq, in September 1960, and which signed the original agreement
establishing OPEC.
Full Members are the Founder Members, plus those countries whose
applications for membership have been accepted by the Conference.
An Associate Member is a country which does not qualify for full
membership, but which is nevertheless admitted under such special
conditions as may be prescribed by the Conference. There are
currently 11 OPEC Member Countries:
Country
Algeria
Indonesia
IR Iran
Iraq
Kuwait
SP Libyan AJ
Nigeria
Qatar
Saudi Arabia
United Arab Emirates
Venezuela
Joined OPEC
1969
1962
1960*
1960*
1960*
1962
1971
1961
1960*
1967
1960*
* Founder Members
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Location
Africa
Asia
Middle East
Middle East
Middle East
Africa
Africa
Middle East
Middle East
Middle East
South America
How does OPEC function?
Representatives of OPEC Member Countries (Heads of Delegation)
meet at the OPEC Conference to co-ordinate and unify their
petroleum policies, in order to promote stability and harmony in
the oil market. They are supported in this endeavour by the OPEC
Secretariat, directed by the Board of Governors and run by the
Secretary General, and by various bodies, including the Economic
Commission Board and the Ministerial Monitoring Sub-Committee.
The Member Countries consider the current oil market situation and
forecasts of market fundamentals, such as economic growth rates
and petroleum demand and supply scenarios. They then consider
what changes, if any, they might make in their petroleum policies.
For example, in previous Conferences the Member Countries have
decided on several occasions to raise or lower their collective oil
production, in order to maintain stable prices and steady supplies to
consumers in the short, medium and long term.
What is the OPEC Conference?
The Conference is the supreme authority of the Organization, and
consists of delegations normally headed by Their Excellencies the
Ministers of Oil, Mines and Energy of Member Countries.
The Conference generally meets twice a year — in March and
September — and in Extraordinary Meetings whenever required. It
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operates on the principle of unanimity — one Member, one vote.
It is responsible for the formulation of the general policy of the
Organization and the determination of the appropriate ways and
means of its implementation.
The Conference also decides upon applications for membership of
the Organization, and on reports and recommendations submitted by
the Board of Governors on the affairs of the Organization. It approves
the appointment of Governors from each Member Country and elects
the Chairman of the Board. Moreover, the Conference directs the
Board to submit reports, or make recommendations, on any matter
of interest to the Organization, and considers and decides upon the
Organization’s budget, as submitted to it by the Board.
Who are the Heads of Delegation?
The Heads of Delegation to OPEC are the official representatives of
each Member Country to the OPEC Conference. They are, therefore,
normally Their Excellencies the Ministers of Oil, Mines and Energy of
Member Countries.
What is the Board of Governors?
The Board of Governors, or BoG, can be compared to the board
of directors of a commercial organization. The BoG is composed of
Governors nominated by Member Countries and confirmed by the
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Conference for two years. The Board directs the management of the
Organization; implements Resolutions of the Conference; draws up
the Organization’s annual budget and submits it to the Conference
for approval. It also decides upon any reports submitted by the
Secretary General and submits reports and recommendations to the
Conference on the affairs of the Organization.
The role of the Board of Governors is stated in Article 20 of the OPEC
Statute as follows:
The Board of Governors shall:
1. Direct the management of the affairs of the Organization
and the implementation of the decisions of the
Conference;
2. Consider and decide upon any reports submitted by the
Secretary General;
3. Submit reports and make recommendations to the
Conference on the affairs of the Organization;
4. Draw up the Budget of the Organization for each calendar
year and submit it to the Conference for approval;
5. Nominate the Auditor of the Organization for a duration
of one year;
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6. Consider the Statement of Accounts and the Auditor’s
Report and submit them to the Conference for approval;
7. Approve the appointment of Directors of Divisions and
Heads of Departments, upon nomination by Member
Countries, due consideration being given to the
recommendations of the Secretary General;
8. Convene an Extraordinary Meeting of the Conference; and
9. Prepare the Agenda for the Conference.
What is the Economic Commission Board?
The Economic Commission Board (ECB) is a specialized body operating within the framework of the Secretariat, with a view to assisting
the Organization in promoting stability in the international oil market.
The ECB is composed of National Representatives from Member
Countries. It also consists of the Secretary General and a Commission
Co-ordinator (who is ex-officio the Director of the Research Division).
What is the Ministerial Monitoring Sub-Committee?
The Ministerial Monitoring Sub-Committee (MMSC) was
established in February 1993 by the 10th Meeting of the Ministerial
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Monitoring Committee, with the mandate to monitor oil production
and exports by Member Countries. The MMSC comprises three Heads
of Delegation and the Secretary General.
What is the OPEC Secretariat?
The OPEC Secretariat functions as the Headquarters of OPEC.
It is responsible for carrying out the executive functions of the
Organization, in accordance with the provisions of the Statute, under
the direction of the Board of Governors.
The Secretariat consists of the Office of the Secretary General, the
Research Division, the Petroleum Market Analysis, Energy Studies,
Data Services, PR & Information and Administration & Human
Resources Departments.
The Secretariat was originally established in Geneva, Switzerland
in 1961, but it was moved to Vienna, Austria, in 1965. The 8th
(Extraordinary) Meeting of the OPEC Conference approved the Host
Agreement with the Austrian Government in April 1965, prior to the
opening of the Secretariat on September 1, 1965.
Why does OPEC set oil production quotas?
The OPEC Statute requires OPEC to pursue stability and harmony
in the petroleum market for the benefit of both oil producers and
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consumers. To this end, OPEC Member Countries respond to market
fundamentals and forecast developments by co-ordinating their
petroleum policies.
Production limits are simply one possible response. If demand grows,
or some oil producers are producing less oil, OPEC can increase its
oil production, in order to prevent a sudden rise in prices.
OPEC might also reduce its oil production in response to market
conditions, as a means of countering falling prices.
What is OPEC’s current production ceiling?
OPEC’s crude oil production ceiling and individual Member Country
output limits are set out in the official OPEC quotas.
Does OPEC control the oil market?
No, OPEC does not control the oil market. OPEC Member Countries
produce about 40 per cent of the world’s crude oil and 15 per cent of
its natural gas.
However, OPEC’s oil exports represent about 55 per cent of the oil
traded internationally. Therefore, OPEC can have a strong influence
on the oil market, especially if it decides to reduce or increase its
level of supply.
OPEC seeks stability in the oil market and endeavours to deliver
steady supplies of oil to consumers at fair and reasonable prices. The
Organization has achieved this in a number of ways: sometimes by
voluntarily producing less oil, sometimes by producing more when
there is a shortfall in supplies (such as during the Gulf Crisis in 1990,
and the war in Iraq in 2003, when several million barrels of oil a day
were suddenly removed from the market).
Can an OPEC Member Country change its rate of oil
production?
How does OPEC oil production affect oil prices?
OPEC aims to co-ordinate the production policies of its Member
Countries through consensus decision-making.
Each Member Country retains absolute sovereignty over its oil
production. Member Countries agree by unanimous vote on any such
production ceilings and output allocations to the respective Member
Countries.
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The Oil and Energy Ministers of OPEC Member Countries meet at
least twice a year to co-ordinate their production policies, in the
light of market fundamentals, i.e. the likely future balance between
demand and supply.
The Member Countries, represented by their respective Heads of
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Delegation, may or may not alter production levels during these
regular Meetings and any Extraordinary Meetings of the OPEC
Conference. Given that OPEC Countries produce about 40 per cent of
the world’s oil and 55 per cent of the oil traded internationally, any
decisions to increase or reduce production may lower or raise the
price of crude oil.
However, when OPEC makes its production agreements, it does so
with the expectation that non-OPEC producers will actively support
the Organization’s measures, since this will make OPEC’s decisions
more effective and to everyone’s benefit.
It should also be noted that the impact of OPEC output decisions on
crude oil prices must be considered separately from the issue of changes in the prices of oil products, such as gasoline or heating oil. There
are many factors that influence the prices paid by end consumers
for oil products. In some countries taxes comprise 70 per cent of the
final price paid by consumers, so even a major change in the price of
crude might only have a minor impact on consumer prices.
How does OPEC influence world trade?
get together, in order to solve the problems facing the poor countries
and to look for a way to establish a better economic system by
allowing more trade and more exchange of knowledge between
developing and OECD countries.
The OPEC Member Countries established the OPEC Fund for International Development in January 1976, in order to promote
co-operation between OPEC Member Countries and other developing
states, and to particularly help poorer, low-income countries in
pursuit of their social and economic advancement.
The OPEC Fund is active in many regions, including Asia, Africa,
Europe, Latin America, the Middle East and the Caribbean. It has
supported a wide range of projects, from providing clean water and
energy to remote communities, to building schools, hospitals and
roads and developing industry, farming and trade opportunities.
Since its establishment, the OPEC Fund has made commitments
totalling nearly $7.5 billion, two-thirds of which has already been
disbursed.
OPEC also plays an important role in promoting and sustaining world
economic growth by ensuring steady supplies of oil at reasonable prices.
OPEC has long been aware of the need for improvements in world
trade. Back in 1975, OPEC backed calls for the creation of a new
international economic order based on justice, mutual understanding
and a genuine concern for the well-being of all people in the world.
OPEC also called on the industrialised and developing countries to
OPEC is happy to see improvements in transportation technology to
make it cleaner, safer and more efficient. The Organization would like
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What is OPEC’s attitude towards fuel-efficient cars?
more people to enjoy the benefits of personal mobility and to do this
in an environmentally sustainable manner.
Does OPEC support environmental policies?
OPEC is concerned about the environment and wants to ensure
that it is clean and healthy for future generations. In fact, all OPEC
Member Countries have decided to ratify the Kyoto Protocol, in order
to participate in the first meeting of the Parties in November 2005.
OPEC considers that technology development is important for
limiting or reducing GHG emissions. In this regard, the Secretariat is
exploring options to participate in international collaborative efforts
in R&D programmes geared towards carbon dioxide (CO2) capture
and storage technology and, in particular, with enhanced oil recovery
(EOR).
OPEC also supports sustainable economic development, which
requires steady supplies of energy at reasonable prices. Many
countries have already introduced heavy taxes on oil products. In
some countries, the price that motorists pay for gasoline is three
or four times higher than the price of the original crude oil. Taxes
account for 70 per cent or more of the final price of oil products in
some countries.
As a result of these oil taxes, some of the oil-consuming countries
(especially those in Europe where taxation levels are highest) receive
much more income from oil than OPEC does. OPEC is concerned that
many of the so-called ‘green’ taxes that are currently levied on oil do
not specifically help the environment. Instead, they simply go into
government budgets to be spent on other items.
OPEC is also spending heavily to improve its environmental impact,
by locating sources of higher quality oil and gas, by developing
cleaner fuels for consumers, and by reducing the impact of its
activities through safer, cleaner drilling, transportation and refining
processes.
For instance, several industrialised countries are developing
policies to limit the use of fossil fuels, in order to reduce their
emissions of CO2. Many are already levying heavy taxes, particularly
on oil products. Yet, studies have shown that OECD members
could cut their CO2 emissions by 12 per cent by 2010 and still
maintain their tax revenues, if they adopted a pro rata tax system
that levies tax on all forms of energy according to their carbon
content.
OPEC also participates in many international meetings, in order to
remind governments and others who are debating environmental
policies that they must consider the needs of developing countries,
especially those that rely on their income from oil.
OPEC is concerned that some countries may impose environmental
and taxation policies that are harmful to those who rely on fossil
fuels for a substantial part of their income. Some countries with
high oil taxes actually subsidise domestic coal production, yet coal
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produces more CO2 than oil. CO2 is one of the greenhouse gases
believed to contribute to global warming.
Can OPEC guarantee security of oil supply?
OPEC will increasingly be called upon to supply the incremental
barrel. OPEC has both the capability and the will to do this.
Around four-fifths of the world’s proven crude oil reserves are
located in OPEC’s Member Countries. Moreover, these reserves
are more accessible and cheaper to exploit than those in nonOPEC areas. In 2025, the OPEC Secretariat reference case sees
the Organization meeting almost half the world’s oil demand with
supplies of 55 mb/d.
Only OPEC nations have any significant spare oil production capacity
and this enables them to increase output at relatively short notice.
However, because OPEC is not the only source of oil in the market,
it cannot guarantee the movement of oil prices, or the availability of
supplies to all consumers at all times.
Moreover, expanding capacity requires substantial investment and
a long lead time. For this reason, oil producers and investors are
concerned about security of demand and in the same way, consumers
worry about security of supply. OPEC recognises the need for massive
investment in exploration, drilling, pipelines and other oil related
infrastructure and its Member Countries are investing to ensure
continuous supply to fuel the engine of world economic growth.
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Therefore, consistency, transparency and certainty within the
international oil community — as well as a broad-based, equitable
approach — are needed when it comes to planning for the future
and doing so in a manner that is in harmony with the requirements
of the global economy. The industry is much better off if there is an
underlying consensus on the means of handling the major issues
of mutual concern — such as price stability, security of demand
and supply, investment, environmental issues and sustainable
development. This is why OPEC welcomes and encourages the big
advances in producer/consumer dialogue and co-operation that have
occurred across the industry in recent years.
Is there any need for security of oil demand?
Yes, oil consumers need steady supplies of oil, and oil producers
rely on steady demand. If demand changes suddenly it can have a
major impact on the profitability of oil producers and the economies
of many countries around the world.
Oil production is a long-term affair: the oil industry works 24 hours a
day, 365 days a year, excluding maintenance or bad weather and
other disruptions. Oil facilities require millions of dollars of investment, and investors try to earn a reasonable return on their capital.
A downturn in oil demand could force oil production to slow down or
stop. This could physically damage oilfields, reducing the amount of
oil that can be recovered in the future.
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Oil installations could also be damaged. Some facilities, such as
those operating in the oceans, are very difficult and expensive to
shut down.
When production declines, oil producers might be forced to lay off
staff. Downstream operators, such as gasoline retailers, refiners and
transport companies, could also be forced to shed staff.
If oil producers receive lower incomes they spend less money and
import fewer goods from oil consumers. If investors are unsure
about the risks and the likely returns from petroleum investments
they may not make those investments. If the producers do not invest
enough money, or do it far enough in advance, then the world could
face a shortage of oil supplies and a downward spiral in the global
economy.
However, if oil producers continue to see reasonable prices and
stable demand, they will maintain their production and invest far
enough in advance to meet the growth of demand. Thus security of
oil supply relies upon security of oil demand. Oil producers — and oil
consumers — need to work together to ensure that both security of oil
supply and demand are preserved.
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