By Michael Eboh
Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, has issued a threat to the United States and other oil producing countries who are non-members of the Organisation of Petroleum Exporting Countries (OPEC), stating that OPEC would soon stop playing the role of stabilizer in the global crude oil market.
Addressing newsmen in Abuja, Kachikwu stated that ensuring high and stable prices of crude oil globally should be the role of OPEC and non-OPEC oil producing countries alike and should not be left alone for the former.
He stated: “The difficulty and reality is that OPEC is producing about 30 per cent of world oil today. Everybody keeps looking to OPEC to find a solution; but there are 70 per cent producers who have a major impact on world price and unless everybody begins to come back to the pot, OPEC cannot continue indefinitely to just take the tank, take the blames and take the issues and yield the market space and also create the cuts that are essential to stabilise.”
As a result of this, Kachikwu disclosed that OPEC has commenced moves to engage with non-OPEC member groups led by the United States and some Latin American countries on the need to regulate shale oil production and stabilise crude oil supply globally.
He said, “It is in the interest of everybody that somehow we find a way that shale would become a bit more matured and sensible about the long term outlook for shale production as opposed to short term intervention and sporadic in-playing that we have seen in the market place. We are working on that with OPEC.
”That is why the engagement with shale producers and bigger oil companies need to happen. I think efforts are being made right now, by the Secretary-General to try and begin to create avenues for such engagements.”
He explained that OPEC made a significant achievement when it conquered the first frontier, which has relationship with non-OPEC team members led by Russia, adding that the collaboration had been excellent and efforts are being made to keep fostering it.
He noted that efforts are on presently to move from that to the non-OPEC members led by the US and Latin America in terms of what they can do to help.
“Unfortunately, the private sector led market in the US cannot tolerate a government-led market penetration. However, most of the majors who are playing in those fields are also playing here, and in other countries, the big Exxons, Agips and the rest. We need to begin to converse with them on how to stabilise the shale market, because if we do not do that everybody will be hurt,” he argued.
Continuing, Kachikwu said, “There are lots of things that affect pricing in the crude oil area; speculation is one of the key elements. Traders have just learnt how to speculate on these things and sometimes these have a major impact. Obviously, there are some barrels that are coming back, we are recovering gradually; some other countries that were not in the mix are beginning to come in. Shale production is scaling up.
“We believe that the steps that we have taken and the price range that we have created, which is in the mid-$50s is enough to encourage just enough shale and not encourage excessive shale production. If you look at the drawdown on shale over the last two, three to four months, the cumulative increases are very low.”
Furthermore, he said, “I think what you are seeing are market dynamics, but what that goes to show is the need for why you must refine your products. Every government is focusing on how to improve the yields of their products and not just selling crude oil. So the more of that you can process, the better for everybody.
“Which is why this refining scheme is important; which is why investment in refineries and processing are very important. Which is why in terms of how you do your crude oil marketing is also important; you got to begin to look at long term markets as opposed to doing sporadic year to year crude term contracts. You need to move away from ‘short termism’ into the long term and position yourself and your market.
“We need to go back to that same long term modules. More importantly, we also need to begin to address IOCs in terms of what they need to do to help local refining, because if we encourage all these refining capabilities and we begin to run out of crude oil availability, we can look at them and say why are you taking out crude oil when you can get the same pricing equivalent here and then put it into local mixes and get a better yield.”