OPEC president raises question on inventory carrying cost

Who pays the carrying costs of oil inventory could be a question OPEC grapples with in the future, Chakib Khelil, OPEC president and Algeria's Minister of Energy and Mines, said Wednesday. Drawing a parallel with electricity markets, Khelil observed at the Cambridge Energy Research Associates conference, power generators get paid for keeping standby capacity�or spinning reserves�available which can be called upon at the last minute.


By Kate Thomas
OGJ Online

HOUSTON, Feb. 14�Who pays the carrying costs of oil inventory could be a question OPEC grapples with in the future, Chakib Khelil, OPEC president and Algeria's Minister of Energy and Mines, said Wednesday.

Drawing a parallel with electricity markets, Khelil noted power generators get paid for keeping standby capacity�or spinning reserves�available which can be called upon at the last minute. He noted OPEC played a similar role by dipping into unused capacity to help drive high oil prices down, but gets no direct compensation for keeping it on hand.

Compensation came in the form of a sharp price increase. "People are surprised," he said. "Now they are paying for it."

Since instituting a policy of production based on an effort to keep prices in a $22-$28/bbl range, Khelil said, the organization has learned it is difficult to stabilize the market with price alone. Demand responds to many events outside OPEC's control. He ticked off a list that included weather, the Asian economic downturn, market speculation, climate change negotiations, and product taxes. But, he said, the mechanism has improved price stability and was a "good move," allowing "us to learn as we go."

He reiterated OPEC members contention that taxes on oil products in consuming nations are too high. "Consumers are fed up," he said, "especially when it is unclear who in government is benefiting from these revenues." And it would be a mistake to raise taxes further as a result of climate change negotiations, Khelil said.

"UN climate change negotiations have gone on for a decade," he said. "Even if the Kyoto treaty is a nonstarter, it could still have implications for the industry." He called for a industry-wide response to the challenge so there are "no net winners or losers," resulting from the negotiations.

With the prospect of the world becoming more dependent on OPEC oil well into the future, Khelil said, the organization deserves recognition as a credible, reliable supplier committed to stability. He called for an end to "sensitivity about relying on OPEC."

Responding to a question, Khelil said Angola participates in OPEC meetings and decisions as an observer. Whether the country becomes a member is a "political decision we hope they will make in the future," he said.

Speaking of Algeria, he said five technical bids on 2,000 Mw of electric generating capacity, including 1,200 Mw destined for export to Spain, are being reviewed. Once the review is completed, the next step is commercial bidding. He said Algeria is trying to make its energy industry more transparent and less bureaucratic by separating the national oil company from the state.

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