Effectiveness Of OPEC In Achieving Its Objectives Economics Essay
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Published: Mon, 5 Dec 2016
The UAE is a rich source of natural resources and it has substantially developed itself as a major player in the oil and gas industry. UAE is one of the member countries of OPEC and has been given a remarkable position in oil and gas industry all over the world by having 10% holding of total oil reserves of the world in the federation (Hellyer, 2001). The central theme of the report is to analyze the oil and gas industry of UAE country so as to analyze the contribution and impact of oil and gas industry to the GDP and economic development.
Fundamentals of the Oil and Energy Industry:
Historical Development of the Oil Sector around the World:
The UAE is a member of the OPEC since 1967 and holds superior position in terms of the oil and gas industry with the federation holding of 10% of the total oil reserves of the world. The future holds lucrative prospects in the natural gas sector as it would cater to the manufacturing industry, generation of power and petrochemical industry by providing a source of fuel. Abu Dhabi and Dubai are the two prominent emirates responsible for the success and growth of the oil and energy sector in the U.A.E. (Energy Statistics: Oil Reserves (By countries) Most Recent)
Importance of Oil in the UAE:
The UAE is essentially an imperative provider of oil to global energy markets, by making around 10% of the overall global supply of crude oil reserves. In terms of oil exports, UAE accounts for nearly 30% of its gross domestic product becoming a mainstay in the economy.
Also, UAE is emerging as a relevant consumer of energy in addition to being an important global supplier of energy. The UAE will continue to maintain its long convention of being responsible energy stewardship owing to its diversification and development of economy; acceleration of growth of additional hydrocarbon reserves and contributing significantly towards the implementation and development of other alternative sources of energy (The UAE and Global Oil Supply, 2009).
Production and Reserves:
3,096.34 (Thousand Barrels Per Day)
Crude Oil Production
2,687.67 (Thousand Barrels Per Day)
Natural Gas Production
1,811 (Billion Cubic Feet)
81.08 (Billion Kilowatt-hours)
Oil – proved reserves
97.8 (Billion Barrels)
Natural gas proved reserves
214 (Trillion Cubic feet)
Background of OPEC:
The Oil Producing Exporting Countries (OPEC) has been established with the sole purpose of stabilizing the prices of oil in the member countries and also to impose quotas so as to prevent the wrong and over usage of natural resources which result to their extinction sooner than expectation. As per the current information, OPECââ‚¬â„¢s combined reserves accounts for 1190 billion barrels of oil. According to the 2008 agreement, the production cut was imposed on the existing quota and continuing to till now. Facts reveal that the OPEC countries produce 2 million barrels a day in excess of the permitted capacity of 24.845 million barrels per day (Alternative Energy Sources – Synthetic Fuels – Renewable Energy, 2011).
Source: (OPEC share of world crude oil reserves)
Effectiveness of OPEC in achieving its Objectives:
OPEC was primarily formed to keep a check on the oil prices and bridging the gap of demand and supply in the global oil market. But still the quota implementations are not followed by various countries resulting in the production of oil more than the permitted quota. According to the claims of OPEC, the fluctuation in the prices is not due to the changes in demand and supply but due to the overproduction oil other than the allotted quotas (OPEC share of world crude oil reserves).
OPEC and Oil prices in the last 4-5 years:
The following figure shows the fluctuations in the global oil prices with the adherence of OPEC rules associated with oil production:
Source: (Why oil prices are so high: Production shortfall, Iran concerns, and low interest rates, 2012)
OPEC Quota and how it has changed over time:
The OPEC quota for the production of oil for UAE is 2.23 million barrels per day.
It had joined OPEC in 1967 and is the Full Member country. It produces 2798000 barrels of oil and exports 3.32% of oil in all over the world. It is ranked as the 6th largest country for the oil reserves in the world. The OPEC aims at providing the stabilization of the price of oil as regards the member countries and also the imposition of quotas as will prevent overuse of the resources which could lead to finishing up of oil reserves sooner than expected. OPEC decides the production quotas for its member countries as per the global requirement of oil which could be changed by the OPEC as per the strategic decisions pertaining to conservation, preservation, demand and supply of the oil globally (Sousa, 2011) .
Source: (Sousa, 2011)
Role and the influence of the UAE within OPEC:
UAE become the member of OPEC countries in 1967 and acts as an active member since 1974. Since then it act as a major contributor of oil and gas industry among OPEC members. It provides the constant source of oil to the consumers of OPEC by providing approximate 2.3 million barrels of oil per day. In addition to the supply of traditional sources of energy, UAE also contributes to provide new alternatives of energy through substantial development. (UAE contributes to global energy sector: OPEC, 2010)
Effect of a quota cut by OPEC:
The quota cut by OPEC will affect recovery of economy in the global market. As per the evidences, the quotas cut is not helping in controlling the price issues of the oil and gas industry rather it is increasing the problem as countries tends to produce oil other than the permitted quota. The hikes in the prices of oil will increase the prices of other commodities resulting increase the rate of inflation and slowing down the economic development. (Pirog, 2005)
According to the data obtained from the Journal of Oil and Gas, the UAE is an important producer of oil, holding significantly seventh position in terms of proven resources globally. The UAE has been able to sustain its global reserves owing to the advanced enhanced oil recovery technology, EOR being implemented that leads to increase in extraction rates of several major projects in oil sector. The technology combines with high oil prices eventually to make reserves more commercially viable (United Arab Emirates Energy Data, Statistics and Analysis, 2011)
Statistics of Oil Sector in United Arab Emirates:
Total Oil Production
Crude Oil Production
(Billion Barrels )
The policies and procedures of oil in the UAE is primarily carried out by the government under the flagship of the Supreme Petroleum Council, through ADNOC operating at every level of oil and energy sector in UAE. The government has pushed back several its plans to increase capacity in order to increase the production capacity of crude oil (United Arab Emirates Energy Data, Statistics and Analysis, 2011).
UAE economy, underpinned by its wealth in oil, has recorded a steady growth over the last couple of years. In terms of oil GDP, the figures have doubled from AED 387.8 billion to AED 934.3 in last assessment year.
GDP (Purchasing Power Parity):
GDP (Real Growth Rate):
GDP (Per Capita PPP):
GDP (Official Exchange Rate):
Recent Development in Oil Sector of UAE:
With the advent of Habshan-Al-Fujairah pipeline for the purpose of carrying oil from oil fields of Abu Dhabi to the exporting port has been essentially proved as a strategic and economic advantage for the overall sector of the country. The pipeline extending 350 kilometers from oil fields and with this the country will be able to export 1.5 million oil barrels in a single day. (Asoomi, 2012)
Alternatives to Oil Industry:
Keeping in mind the limited availability of fossil fuels and to prevent its overuse to meet the worldââ‚¬â„¢s growing energy demands, various alternatives to energy sources have been identified. Unconventional alternatives
Liquefied Natural Gas (LNG) is the upcoming form of natural gas which provides an excellent alternative to conventional natural gas usage. GTL is not only a beneficial alternative but is also environment friendly as there are no harmful emissions on its combustion. Oil sands also provide a source of the extraction of oil from it and its use is significantly increasing with time. The only limiting factor is the increasing cost of setting up the required infrastructure and cost of mining and extraction of oil from it. However the oil sands are accompanied by noxious fumes which are contributing to the global warming issue (Alternative Energy Sources – Synthetic Fuels – Renewable Energy, 2011).
Bio-fuels have been the outcome of recent developments in scientific researches. In this the organic matter is used to derive hydrocarbon based fuels such as Biodiesel, ethanol, etc. The conventional sources of energy include solar, wind and hydro energy all of which are renewable and 100% environment friendly. (Alternative Energy Sources – Synthetic Fuels – Renewable Energy, 2011) .
UAE has been involved in many new projects including increase in crude oil production to 4 million barrels per day by 2020. This would results to the increase in 40% from current capacity. The major upcoming projects include Bourouge complex expansion projects and the Habshan Gas Complex Expansion. UAE is planning to invest $ 6 billion to develop the infrastructure of oil and gas industry. Abu Dhabi government is planning to invest $ 20 billion in Masdar to develop alternative energy resources to oil and gas industry. (Oil & Gas Directory Middle East, 2011)
Future plans of the OPEC and the UAE Oil sector and their effect on the Economy:
To promote fair and stable oil prices and strategies of capacity expansion.
To examine the technological, economical, political growth and development pertaining to the oil & energy and other important sectors.
To encourage the oil consuming nations for the enhancement of investment associated with downstream sector.
To promote the technological development in order to addressing the issues pertaining to the climate changes.
To minimize the bad impact of environmental issues on the developing countries which exporting fossil-fuel (OPEC Long-Term Strategy).
Impact of Oil and Non-Oil Alternatives on the future of the UAE:
Oil sector is one of the essential components contributing towards the countryââ‚¬â„¢s economy with special economic consequence on rate of inflation, consumer spending and eventually auto sales of the country. The boom in the oil sector is bringing a gradual shift from trading and fishing to oil sector, making UAE depending heavily on petroleum and crude oil as a main source of foreign exchange earnings.
The real output growth of the country is increasing owing to the rising hydrocarbon production and other non oil sectors, especially trade, logistics and services eventually bearing a relative economic growth revival.
It is recommended to grab the opportunity from joint ventures to develop the sources not only in Dubai but also all over the UAE.
Need to pay attention to other prevailing sectors such as banking, real state, telecom and aviation in order to increase the GDP and economic development.
Identification of better source of material and labor should so as invest in major projects along with the implementation of Green initiatives
Oil and Energy is a certainly a very important sector of the world that nourishes and contributes as a largest part to the GDP of the country. The production of oil leads to the production of various by-products and therefore the oil producing and exporting companies in UAE earns great revenue. At the same time, country earns most of its export earnings from oil and gas sector. On the other hand, due to emergence of other non oil sectors and slow economic growth, the sector is now facing several challenges including the challenge of diversification and privatization.
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