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Arab oil grouping could have done a lot more

OAPEC member countries should use the present to reprioritize what it stands for

Gulf News

The Organisation of Arab Petroleum Exporting Countries celebrated its Golden Jubilee last week to coincide with its 99th Ministerial Council meeting held in Kuwait. Formed by a regional inter-governmental organisation, OAPEC was established in Beirut on January 9, 1968 by Kuwait, Libya and Saudi Arabia.

By 1982 it was joined by a further eight Arab countries and the secretariat was hosted by Kuwait ever since. While the Organisation retained the word “exporting” in its title, it did rightly change its mandate in 1971to allow oil producing — but non-exporting Arab countries — to join the Organisation.

The Organisation was to be “guided by the belief in the importance of building an integrated petroleum industry as a cornerstone for future economic integration among Arab countries and contributes to the effective use of the resources of member countries through sponsoring joint ventures.”

It was to coordinate petroleum economic policies, to harmonise the legal systems in member countries, to assist members to exchange information and expertise, and provide training and employment opportunities. Even more importantly, it was to aspire to establishing joint projects in the petroleum industry.

OAPEC was left out of deciding on issues of price and the level of production as this function was — and continues to be — left to Opec. In its formative years, OAPEC met some of its aims as it promoted the establishment of joint ventures in a number of activities.

In 1973, the Arab Maritime Petroleum Transport Company was established to handle marine transportation of petroleum and its products. In 1974 came the Arab Shipbuilding and Repair Yard Company (ASRY) in Bahrain. ASRY was to be engaged in ship building and repairs at its dry dock, completed in 1977, and later added two floating docks.

The company also ventured into steel fabrication of boilers and pressure vessels to serve the hydrocarbons industry. In 1977, the Arab Petroleum Services Company (APSCO) was established in Tripoli to perform petroleum services for drilling and workover, well logging and geophysical exploration.

The Arab Petroleum Training Institute was established in Baghdad in 1978, “to prepare instructors qualified to provide training in the many technical aspects of the oil industry”. Unfortunately, politics prevented this important venture from really seeing the fulfilment of its aims.

The Ministerial Council of OAPEC “decided to entrust Iraq with the administration and sponsoring of the Institute for a renewable period of two years commencing January 1995”. This remained the case and APTI lost the support of most member countries.

The jewel in the crown is the Arab Petroleum Investments Corporation (Apicorp), established in Al Khobar (Saudi Arabia), with all OAPEC members as shareholders. Apicorp is the investment bank of the Organisation with an initial authorised capital of $1.2 billion to “assist in the financing of projects related to the petroleum industry”.

It has participated in many joint projects and also a shareholder in a number of companies as well as providing project financing for others.

In 1980, Apicorp promoted a project to produce chemicals for detergents in Iraq and the Arab Company for Detergent Chemicals was established in 1981 as a joint venture between Iraq, Saudi Arabia, Kuwait and other Arab companies. The ending of this story is sad as the company’s successful facilities were severely damaged during the occupation of Daesh and the subsequent battle to dislodge them.

There were other failures too as the Arab Engineering Company, founded in the early 1980s folded after only a few years.

Since OAPEC’s establishment, the Arab oil and gas industry has made great strides. Arab energy consumption multiplied 15 times and oil consumption by 10 times; oil reserves grew to 710 billion barrels in 2016 from less than half of that in 1980, while at the same time gas reserves grew from 15 to 53 trillion cubic meters.

Oil production increased from 8.4 mb in 1965 to 24 mbd in 2016 and gas production from 10 bcm in 1970 to 547 bcm in 2016. Arab petrochemicals production is now close to 150 million tons a year.

Yet OAPEC has lost its momentum of more than 30 years ago. The success of some of its joint ventures should have prompted many others on the road to Arab economic integration. The Organisation is to be reinvigorated to meet new challenges and the unfulfilled aims in a fast moving world of severe competition.

Member countries should encourage the Secretariat to come up with ideas into what suits the industry and the further expansion that lays ahead.

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.

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