The Secretary General of the Organisation of Petroleum Exporting Countries (OPEC) and former group managing director of the Nigerian National Petroleum Corporation (NNPC), Muhammed Barkindo speaks with journalists at the annual meetings of the IMF and the World Bank Group in Washington D.C., United States, about the poor crude oil price, the state of the organisation, future projections, among others. Sulaimon Olanrewaju and Dare Adekanmbi bring excerpts.
What is the current state of OPEC. What ceases the attention of the body?
In the short time, which is attracting attention, is the issue of prices of crude oil and the current conditions of the market since the collapse of prices beginning from July 2014 to the loss that we have seen in the last quarter of 2016 when prices hit the low of about 22-26 dollars, which represents over 80 per cent reduction in prices from their peak in July 2014 with all the consequences on revenue and investments in the industry.
Looking at OPEC and the challenges before it, do you think it has lived up to expectations?
As you have seen here at the World Bank meetings, all organisations particularly intergovernmental organisations, have been struggling to adapt to the fundamental structural changes which have been sweeping not necessarily the oil and gas industry but the global economy in general.
The coming of the low prices as a consequence of the development in the United States regarding the shale fracturing technology necessitating a cut in the import of oil from Nigeria and other countries was a signal many expected OPEC member countries to take cognisance of and ensure that the drop didn’t have the kind it currently has. There was even an accusation of division among members of the body. What is your take on this?
To put it in proper and global perspective, when the last good run of prices saw crude oil price rising to over 140 dollars a barrel, in conventional economics it was just a matter of time that there will be correction in the market. But what most forecasting agencies, including OPEC and others failed to get correctly was the length of time it was going to take for this correction and for the market to re-balance. This is perhaps the longest cycle (of price drop) that we have seen in recent times.
It is taking us now into the third year of the correction with the rebalancing target being put at four. So, it is not only OPEC that missed the target but most agencies, including the IMF and the World Bank. You have heard in the last two days of extensive consultations and discussions that some of these models (of forecasting oil prices) were found wanting. Nobody expected that the cycle will last this long with the severe consequences on huge revenue that we have lost.
OPEC members, in the last two years, have lost over 1 trillion dollars in terms of revenue and in terms of investment into this industry, we have seen contraction of about 26 per cent in 2015 and in 2016, we are projecting a further contraction of 22 per cent. As I mentioned at plenary, the prospect is 2017 is also still looking bleak. So, for the first time in recent memory, we are not only having three consecutive years of depressed oil prices, but we are also seeing contraction in capital investment, particularly in the upstream sector. This is a very serious development that is threatening future supplies [of crude oil] to the global community with consequences on the fragile state of the economy as you heard from the IMF yesterday.
Having painted this gloomy picture, what do you think OPEC members, particularly Nigeria should be doing?
At our meeting in Algeria on the 28 September, OPEC took a very proactive and timely decision to agree on a range of ceiling of 32.5-33 million barrels per day production for the OPEC 14. This is the first time OPEC has taken such a decision since 2008.
The objective of this decision is to restore stability in the market to address the issue of high inventory that is depressing prices. Don’t forget that this crisis is driven by supply. We have seen growth in supply both from OPEC members and non-OPEC members because of the shale revolution in the. United States and North America.
We have seen supplies grow from non-OPEC members to the tune of 8 million barrels per day. So, the market became saturated, although demand is robust and in addition, inventory started rising to unprecedented levels. At the moment, we have stocks both onshore and offshore including frothy storage of over three billion barrels of crude oil.
The decision in Algiers was aimed at stimulating further stock draw down on a sustained basis which we have seen happening for almost five weeks now in the United States, which is the biggest market. The sum total of that, hopefully, will bring forward rebalancing of the market so that we will be able to achieve some form of equilibrium in prices with impact of revenues to member countries, especially our country Nigeria which has suffered both from lower prices (of crude oil) as well as low production.
This week, you talked about Nigeria, Libya and Iran being given preferential treatment in the decision on ceiling supply. What kind of treatment are you talking about?
The decision that we took in Algiers took into account the special but unfortunate circumstances of the three countries. Nigeria has been suffering from the impact of low crude oil prices as well as the impact of low production because of the communal disturbances in the oil-producing areas. We have lost, on the average, about 700,000 barrels of daily production.
Libya has lost over 1.3 million barrels per day as a result of similar and even more serious social and political unrest in the country. Iran is just emerging from sanction during which its production suffered significantly. So, in the interest of the whole organisation, the ministers decided in Algeria to take into account these special circumstances when it comes to the implementation of the production decision taken.
With the decision you took in Algiers, do you envisage an improvement in the prices or do you see the hopelessness continuing?
Since we took that decision, prices have risen by over eight per cent across the board. You can see that crude benchmarks-WTI and Brent-have attained over 50 dollars a barrel. So, we remain cautious optimistic that this trend will continue, especially driven by a further stock draw down and consequently bring forward the rebalancing period with firmer prices that are not only in the interest of OPEC members but also from consumers as you heard the IMF itself.
Looking at the implication of the general output cut for Nigeria, what is the true position? Would you say we are almost there or how long will it take us to be there?
OPEC would like to see Nigeria recover its potential. Nigeria has a much higher level of production capacity than what it is doing at the moment. So also is Libya and to some extent, Iran. We look forward to these countries recovering their potential to come back to the international market for us to move forward holistically.
Despite the accustomed division among OPEC members, you were able to pull through the output cut while giving others preferential treatment. How were you able to do this or was it part of your plan?
Every member of OPEC has its own sovereign national interest and objectives to achieve, but are bound together by the letters and spirit of the organisation. Despite what you may perceive to be differences, when they come round the table they have one common interest which drove them into reaching the decision we have talked about. Nevertheless, extensive consultations have been taking place.
Since April last year, before I was even elected the OPEC Secretary General, attempts had been made and the consultations had continued.