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OPEC
LO N G – T E R M S T R AT E G Y
OPEC L O N G – T E R M S T R A T E G Y
Foreword
The Organization of the Petroleum Exporting Countries (OPEC) was
established in Baghdad, Iraq, in September 1960. Its Members are
Algeria, Indonesia, the Islamic Republic of Iran, Iraq, Kuwait, Nigeria,
Qatar, Saudi Arabia, Socialist People’s Libyan Jamahiriya, the United
Arab Emirates and Venezuela. The main guiding texts for the Organi-
zation are the OPEC Statute, approved in January 1961, the Solemn
Declaration, stemming from the first Summit of OPEC Heads of State,
held in Algiers in 1975, and the Caracas Declaration from the Second
Summit of OPEC Heads of State, held in Venezuela in 2000.
This strategy, which was prepared over a period of two and a half
years, provides a coherent and consistent vision and framework for
the Organization’s future. It recognises the important role of oil in the
world economy at large and for the socio-economic development of
OPEC Member Countries. The Strategy defines specific objectives and
identifies the key challenges the Organization faces now and in the
future. Benefiting from a scenario-approach for the energy scene, it
is designed to be robust and adaptive throughout the various possible
futures.
Vienna
March 2006
OPEC L O N G – T E R M S T R A T E G Y
Introduction
The OPEC Long-Term Strategy recognises the important role of oil in
meeting future global energy demand and for the socio-economic de-
velopment of OPEC Member Countries, and provides a coherent and
consistent vision and framework for the Organization’s future. The ob-
jectives for the Strategy relate to the long-term petroleum revenues
of Member Countries, the stability of the world oil market with fair
prices, and the security of regular supply to consumers, as well as the
security of world oil demand.
There are key challenges that may constitute constraints for OPEC
in the attainment of the objectives of the Strategy. A major hurdle
relates to the uncertainties surrounding future demand for OPEC oil,
stemming from, inter alia, future world economic growth, consuming
countries’ policies, and technology development, as well as from future
non-OPEC production levels.
Market Tightness (PMT) and Prolonged Soft Market (PSM), map out a
coherent and credible set of assumptions for these drivers of change.
The key implications that emerge from these scenarios are described
in the following section.
OPEC L O N G – T E R M S T R A T E G Y
30
25
20
2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 2020
PMT
110
DAU
100 PSM
90
80
70
60
2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 2020
OPEC L O N G – T E R M S T R A T E G Y
main fuel over the next 20 years, the introduction of non-oil fuelled
vehicles and the use of alternative fuels, such as biofuels, are drivers
that could affect oil demand growth patterns in this sector.
OPEC L O N G – T E R M S T R A T E G Y
The outlook for oil demand must be seen very much in the context of
these uncertainties. In the DAU scenario, oil demand increases annu-
ally by, on average, 1.5 mbd, with around 75 per cent of the increase
to 2020 coming from developing countries. The transportation sector
is the single most important source of increase and represents close to
half of the expected rise in oil demand.
On the other hand, over the next 10-15 years, lower demand growth
must also be considered as a credible alternative to these DAU figures.
In fact, downside risks are seen even greater than upside potential:
lower economic growth could emerge, characterised by increased
regionalism and protectionism, which may well combine with policy
measures designed to reduce demand. Implications of these possible
alternative trends have been examined in the PSM scenario, with
demand 7 mbd below DAU values by 2020.
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OPEC L O N G – T E R M S T R A T E G Y
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Uncertain future demand and non-OPEC supply translate into a broad range of demand for
OPEC oil in the scenarios
mbd
60
55 PMT
50 DAU
45
PSM
40
35
30
25
20
2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 2020
12
120
OPEC L O N G – T E R M S T R A T E G Y
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potential growth in demand for OPEC oil that stems from these great
uncertainties over the coming years, particularly given the long lead
times involved.
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OPEC L O N G – T E R M S T R A T E G Y
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OPEC L O N G – T E R M S T R A T E G Y
“... extreme price levels, In addition, the need to be flexible and adaptive led to the inclusion
either too high in the Strategy of elements that are pertinent to specific situations as
or too low, explored in the three scenarios.
are damaging for
both producers The strategy re-emphasises OPEC’s commitment to support oil mar-
and consumers ...” ket stability. It builds upon the fundamental recognition that extreme
price levels, either too high or too low, are damaging for both produc-
ers and consumers, and points to the necessity of being proactive
under all market conditions.
Oil price volatility renders all the more difficult the interpretation of
price signals, whether they are an indication of structural change or
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“… there is a need to a reflection of temporary phenomena, and thereby affecting the
support fair and stable ability to support longer-term market stability. Given the dynamic
prices, sustainability and complex behaviour of oil markets, there is a need to support
of supply, and fair and stable prices, sustainability of supply, and security of
security of demand.” demand.
In a tight market environment, too high oil price levels may affect
the prospects for economic growth, especially in developing coun-
tries, and therefore threaten future oil demand growth. On the other
hand, low oil price levels would place strains upon the aspirations of
OPEC Member Country populations for their economic development
and social progress. The use of ´leading indicators` to assist in foresee-
“The use of ‘leading
ing economic downturns and upturns that affect oil demand and supply
indicators’ to assist in should be a fundamental tool, to help avoid excessive market tightness
foreseeing economic or softness. Other developments, such as policies and technological ad-
downturns and upturns vances, should also be closely monitored.
that affect oil demand
and supply should be a In supporting market stability and security of supply to consumers,
fundamental tool …” OPEC will continue to expand its production capacity, both to meet
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OPEC L O N G – T E R M S T R A T E G Y
“The timing and size the increased demand for its oil and to maintain an adequate level of
of capacity expansion in spare capacity. The timing and size of capacity expansion in Member
Member Countries … Countries in the medium- to long-term, however, should be such that
should be such that a a reasonable level of spare capacity is available. Yet large and inher-
reasonable level of spare ent uncertainties concerning the scale of projected future OPEC oil
capacity is available.” production signify a heavy burden of risk in making the appropriate
investments.
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OPEC Member Countries should strive to strengthen co-operation in
upstream and downstream scientific research and technological devel-
opment among themselves and with international institutions. OPEC
stresses the importance of technology-based responses to the need to
protect the environment, in relation to both air quality and climate
“OPEC also calls for change concerns.
the promotion of the
The oil industry has a long history of successfully improving the envi-
development of technologies
ronmental credentials of petroleum, both in use and production, and
that address climate change
research and development in this area should be supported. OPEC also
concerns. One promising
calls for the promotion of the development of technologies that ad-
example is that of carbon
dress climate change concerns. One promising example is that of car-
dioxide capture and
bon dioxide capture and storage technology, in particular for enhanced
storage technology ...”
oil recovery, where suitable and feasible. In this regard, international
collaborative efforts are needed to develop large-scale demonstration
projects.
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OPEC L O N G – T E R M S T R A T E G Y
“In OPEC Member areas such as technology and knowledge- and experience-sharing.
Countries, the application In OPEC Member Countries, the application of advanced upstream
of advanced upstream technologies can potentially reduce costs further, increase recov-
technologies can potentially ery rates, and open up frontier areas, thereby maintaining com-
reduce costs further, petitive, cost-effective and successful exploration and development
increase recovery rates, and activities.
open up frontier areas ...”
In climate change-related multilateral fora, it is important for OPEC
Member Countries to continue to have an active role, recalling the
principle of common, but differentiated responsibilities. The interna-
“The international
tional community should fulfil its obligations to strive to minimise the
community should fulfil
adverse effects of policies and measures on developing country Parties
its obligations to strive to and, in particular, fossil-fuel exporting developing countries. This could
minimise the adverse effects involve, inter alia, assistance in relation to economic diversification,
of policies and measures on transfer of technology and capacity building.
developing country Parties
and, in particular, fossil- An active OPEC role in trade-related discussions is important, espe-
fuel exporting, developing cially as they relate to issues of concern to developing countries. OPEC
countries.” Member Countries should continue enhancing their economic and
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“Dialogue ... should be social development by using the comparative advantage offered by
widened and deepened to their natural resources.
cover more issues of
mutual concern, such Dialogue among producers and between producers and consum-
as security of demand ers should be widened and deepened to cover more issues of
and supply ...” mutual concern, such as security of demand and supply, market
stability, upstream and downstream investment, and technology.
Dialogue should be initiated or intensified with all countries, both
producing and consuming, regional groups, United Nations insti-
tutions, the International Energy Forum (IEF), the International
Energy Agency (IEA), etc. Participation of other producers in OPEC
ministerial meetings as observers should continue, with the pos-
“… preconception and sible expansion of the membership of the Organization, including
misunderstanding … Associate Membership.
calls for the effective
communication of the Despite OPEC’s role in supporting oil market stability, there is still
positive role OPEC much preconception and misunderstanding. This calls for the effective
plays for the world communication of the positive and beneficial role OPEC plays for the
at large.” world at large.
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OPEC L O N G – T E R M S T R A T E G Y
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OPEC L O N G – T E R M S T R A T E G Y
Concluding remarks
With this document, OPEC reaffirms its longstanding commitment to
oil market stability, as embodied in the OPEC Statute. OPEC’s role in
this respect is becoming better understood and appreciated, as its
continuous efforts at supporting such stability are increasingly ac-
knowledged as beneficial to the world at large. In supporting security
of supply to consumers, OPEC will continue to expand its production
capacity, both to meet the increased demand for its oil and to offer an
adequate level of spare capacity. This, together with the acceptance
that there are clearly sufficient oil resources, should provide a solid
foundation for future market stability. Moreover, due regard must
be given at all times to the need for fair returns on capital invested
throughout the petroleum industry, fundamental to a balance of in-
terest between all parties. At the same time, the important role of oil
in the economic development and social progress of OPEC Member
Countries must be recognised.
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investments with long lead times in the context of these uncertainties
lead to genuine concern over the possible waste of much-needed finan-
cial resources. The issue of security of demand must, therefore, be re-
garded as an inherent factor in supporting longer-term market stability.
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OPEC L O N G – T E R M S T R A T E G Y