PRODUCER-CONSUMER COOPERATION SOUGHT

Iran stepped toward the oil industry mainstream last week in its role as sponsor of an international conference on cooperation between oil producers and consumers, the first of its kind.

About 600 persons attended the meeting in Isfahan, among them oil and energy ministers from 11 countries, oil company representatives, and analysts.

Conference sessions concentrated on the meeting theme and petroleum economics. Many participants, however, seemed more interested in the host country.

A CHANGE FOR IRAN

The meeting apparently signaled a change.

Since the Iranian revolution of 1978-79, when the country shed its role as military keeper of Middle East political stability along with its shah, Iran has functioned in turbulent near isolation. It fought an 8 year war with Iraq and until recently pushed the Organization of Petroleum Exporting Countries for ever higher oil prices.

Now it seems to want to rejoin the oil market leadership as an early champion of cooperation and price stability.

A rapidly growing population and huge war reconstruction needs are pressuring the government to use its vast oil and gas reserves to maximum economic advantage. It is tentatively looking abroad for assistance, although the effort, at this point, is muted.

Mitsui & Co. has an off ice in Tehran, along with several trading companies. A European group is said to be negotiating an appraisal well drilling program for Pars natural gas field.

One U.S. oil company representative at the meeting was invited by National Iranian Oil Co. to remain in Iran after the meeting to discuss joint projects.

"They're opening up," he said.

Representatives of other companies at the conference said they are interested in Iranian opportunities but didn't expect the country to move quickly to make projects available.

ACCOMMODATING TONES

Still, remarks at the meeting by high level Iranian officials, as well as the meeting itself, struck accommodating tones in commerce and regional politics.

"Cooperation should replace confrontation," declared a message read at the meeting from Iranian Pres. Hashemi Rafsanjani.

Foreign Minister Ali-Akbar Velayati said, "We firmly believe a general understanding for the preservation of interests of oil producers and consumers can hold significance for Iran's reconstruction and the future of her economy."

He tied cooperation to regional security, saying Persian Gulf countries haven't been able to use their petroleum resources to fully advance their economies because their natural gifts have been "most often the target of calamities and military and political conspiracies."

Gholamreza Aghazadeh, Iran's petroleum minister, hinted at possible forms of cooperation, mentioning supply and market guarantees to ease price fluctuations, technology transfers, and environmental initiatives.

These, he said, call for establishment of dialogue among all the world's nations, "especially producers and consumers."

SUPPORT FOR COOPERATION

Iranians weren't alone in the call for cooperation.

Indonesia's Subroto, secretary-general of OPEC, cited the role spare productive capacity--and the willingness to use it -played in stabilizing the market after Iraqi and Kuwaiti exports were embargoed by the United Nations at the start of the Persian Gulf crisis last August.

OPEC members need help financing capacity expansions to preserve the productive capacity cushion, he said. And they need assurance of markets for their oil before they make the required investments.

That theme was common among the strongest supporters of producer-consumer cooperation: Consuming nations should support investments in new capacity because maintenance of surplus capacity stabilizes prices. Along with market guarantees and financial help, producers seek assurances that consuming nations won't impose stiff oil duties or taxes designed to discourage oil consumption.

MARKET PRINCIPALS

Some consuming nation governments--mainly the U.S. and the U.K., neither of which sent delegates to the meeting--resist multinational market cooperation because they fear it would lead to price management.

Several speakers responded to those concerns by insisting cooperation need not compromise market principles.

Ginandjar Kartasasmita, Indonesia's minister of mines and energy, said the goal of cooperation should be free exchange of information. Harm from the Persian Gulf crisis price spurt might have been reduced if major producers, which tapped spare productive capacity early, had been able to coordinate with industrial nations, which did not tap strategic stocks until late.

"This dialogue should not be intended to replace market mechanisms," Kartasasmita said.

Reinforcing the message, Hisham M. Nazer, Saudi Arabia's minister of petroleum and mineral resources, said the world economy is guided by "interdependence based on the interplay of market forces."

Nazer, generally neutral on the issue of cooperation, adapted classic economist Adam Smith's reference to the market when he urged ,.an invisible handshake"--a balance between market forces and producer-consumer cooperation.

"Spontaneous chaos in the market does not work," he said. "Short term gain leads to long term harm. High prices lead to low prices."

Producer interests, Nazer said, are secure access to markets, secure market share, and stable prices.

Nazer lashed consuming nations that raise taxes or impose high duties to discourage oil use.

"If oil demand is managed by an array of taxes and duties or price management the future is uncertain," he said, adding, "Predictability is essential to any investment decision."

The Saudi minister said prospective areas of producer-consumer cooperation include producer access to investment funds for upstream and downstream projects as well as reintegration of the petroleum industry through producers' investments in consuming nation downstream projects.

NIGERIA'S VIEW

Not all cooperation supporters are as enthusiastic as Nazer, Kartasasmita, and others about reliance on the market.

Jibril Aminu, Nigeria's minister of petroleum resources, said oil is too important to treat as just a commodity.

"It should not be left to traders alone," he said.

Like several speakers, Aminu took aim at consuming nations' strategic stocks, calling them "the antithesis" to market forces.

Concerns of that type brought a response from Silvan Robinson, former head of Shell International Trading Co. and now chairman of the energy and environmental program steering committee of the Royal Institute of International Affairs, London.

He warned exporting countries to view stockpiling and efforts to develop alternative energy sources not as attacks on them but as rational customer behavior.

The Isfahan meeting was the first in a series of gatherings at which further discussion of producer-consumer cooperation--if not action--might occur.

OPEC oil ministers meet this week, followed shortly by the International Energy Agency, which represents industrialized consuming nations and has resisted calls for its involvement in the cooperation effort.

On July 1-2, France and Venezuela will sponsor a meeting on the subject in Paris.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.