OPEC in Danger of "Disappearing": Expert

Oil cartel OPEC celebrates its 50th Anniversary today [September 14, 2010]. The last five decades have been a turbulent time for the group which has seen members declaring war on each other; undergoing revolution, invasion and struggling with the financial crisis. But just as the party gets in full swing, one senior Chinese academic believes the oil producing group may be about to face its toughest challenge yet. CRI's Dominic Swire has the story.

OPEC, or the Organisation of Petroleum Exporting Countries, was formed on September 14, 1960. The founding members consisted of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Now the organization has expanded to twelve and represents some of the world's major oil exporters, mainly from the Middle East and Africa. Together they account for a significant proportion of global output, as international energy expert Henry Wang explains.

"The twelve OPEC states excluding Iraq are pumping something like 29.25 million barrels per day, and the producers outside OPEC will produce something like 51-2 million barrels per day so OPEC still accounts for a sizable amount of the world's total production."

The organisation's main mission has been to safeguard its members' interests through maintaining a consistent and stable price for oil. It does this by suggesting the value at which its members should sell. As a consequence OPEC is seen to have a significant influence in the global oil market and, by extension, world politics. But this is far from the truth, according to Professor Zha Daojiong from Peking University and a member of China's State Energy Expert Commission.

"The actual impact of the organisation was much inflated by western media. The organisation was, by and large, a stand-by, should we say, a place for oil ministers to project an image to say they were relevant in fixing price or production quotas but it never really was that effective."

Professor Daojiong says a major reason for this inefficiency was because not all OPEC members agree on policy and the organization has never devised an effective way to enforce its recommendations. On top of this much of the new oil found in recent years has been from non-OPEC members. The future, in other words, does not look good.

"I have a feeling, this is very vague because I'm not an oil geologist or an engineer, that, say 10 to 15 years down the road OPEC will just disappear into the horizon because when you look at the exploration, the drilling technology, they're not in the hands of OPEC states, they're in the hands of those companies that have a competitive edge in a particular technology."

Whether or not this grim prediction for OPEC turns out to be true, it will have little bearing on China because Beijing has never had strong relations with the organization. Professor Daojiong again.

"It has been, by and large, irrelevant to China. We were never a member of OPEC, it never really tried to give any preferential treatment to China when China was buying things from OPEC."

OPEC may be flying its flag today but, according to some, the organization needs major reform before thinking about planning a centenary.

For CRI, I'm Dominic Swire