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TO: Minister, Economic Affairs and Energy of Germany
RE: OPEC Internal Structures and Potential Future Long Term Strategies
It is our prime duty as custodians of the mandate on energy supply and regulation to be comprehensive and plan to proactively address the dynamics associated with the Organization of Petroleum Exporting Countries (OPEC). This will guarantee a long-term energy security to our country and possibly the whole world that will be instrumental in the sustenance of our strong economy. It is evident that the current global energy security and its core pillars ‘demand and supply’ may be rocked with uncertainties but nonetheless efforts to revamp and set new strategies for future market stability reside in our hands.
Demand as a key factor in this industry is dictated by demographics. The dynamic global variations in demographic structures and their impact on oil demand show definite uncertainty that we need to confront. The world’s population rises by approximately 20,000 in an hour, which is an equivalent of 480,000 in a day. At this rate it is anticipated that in the next five to ten years the current world population would have risen by half. Although some countries such as China, Russia, UK, Germany, among others are putting much emphasis on family planning mechanisms in order to check the steady population growth rates, the trend of population growth especially in developing countries leaves much to be desired.
OPEC’s Current Internal Structure
In the recent past we have witnessed, among numerous other occurrences, the catastrophes which the OPEC market has had to promptly adjust to. For instance, extreme weather conditions in Europe and some parts of Asia, the recent blizzards in Northern USA and the geopolitical tensions that are ever escalating around the world, form part of the confounding challenges that OPEC has to deal with expeditiously to keep the supply of crude on the oil market intact.
I am therefore endowed with the obligation of examining OPEC’s internal structures and potential future long-term strategies for sustenance of a harmonious global supply with oil products. Efforts are directed to stipulating a coherent and consistent framework for the organization’s future in recognition of the significance of petroleum in terms of meeting future global energy demands and its envisaged impact on the socio-economic development of OPEC’s member countries.
The demand for oil is greatly affected by the policies laid down by the consuming countries. For instance, the heavy taxes imposed on oil products are in most cases translated to signify a means of generating revenue as well as a control measure in addressing issues related to environment and energy security. Such policies are indeed a great discrimination of oil industry for they adversely affect subsidies for competing fuels.
We are uncertain in relation to the stipulation of policies in consuming countries in future. This is regarded as one of the main constraints in availing sufficient security of demand. Statistics revealed at the OPEC secretariat depict the potential uncertainty of the order of 5-10 mb/d to 2025, posed by such policies. It is therefore a worrying trend that is top on the agenda that will be deliberated upon during the forth-coming advisory meeting to be held next week.
Interpretation of Traditional Policy of Reciprocal Energy Security
Since time immemorial, OPEC’s member states have associated more with upstream but currently they are seriously taking initiatives to invest in downstream projects. At least the construction of 0.9 mb/d of refinery capacity is underway while an additional 2.3 mb/d is part of future prospects. But the underlying fact remains that downstream investment is basically the mandate of the international oil companies and consuming states.
There is an ineffective global refining capacity due to the past meagre investments and rigorous product specification. This has also been succeeded by a slow pace at which today’s investment in the refining sector is made, rendering the downstream sector as the potential source of market instability over the coming years.
Future Projections and Prospects
As a short-term strategy, OPEC is anticipating to increase the world’s oil demand by a significant margin of about 4.6 million barrels a day by the year 2016. The United States is expected to contribute a lion’s share to this, specifically about 1.4 mb/d. However, much demand is expected to come from the third world countries.
Besides this projection, it is expected that OPEC’s long-term strategy will feature prominently next week’s advisory meeting where experts will have to ponder about the future security of supply and security of demand. This is because security of global energy is a contentious issue critical to the needs of every state in the world; a factor that puts it top on the agenda due to the influence it has on every generation of the world.
I therefore find it very necessary to reiterate the strong linkage between security of supply and security of demand which are intertwined and dependent variables. While some may be asking the question of whether there will be adequate supply to meet demand, the wisest question to ask is whether there will be sufficient demand to meet the prospective supply. This will cultivate a balanced and mutually supportive supply and demand network as the basis of global energy security. Such a platform will be a foundation on which consumers and producers can develop, build and adopt short-term, medium and long-term demand and supply strategies to meet the dynamic needs of the market.
- OPEC should generate appropriate strategies geared towards addressing the challenges brought about by the dynamics in the demographic movements; both accelerating and slowing.
- We should also discuss and set up appropriate modalities that will harmonize policies of the consuming countries which have seen unhealthy duties imposed on oil products.
- Another key concern should be ways of boosting global economic growth which has a direct impact on the global pricing of oil products. The extreme economic trends in the recent past have led to a difficulty in assessing the possible expectations in about 20 years. Stable economic growth translates into stable global energy security and vice versa.
- Since there is a threat posed by stiff competition between demand for and supply of oil products, OPEC shall also explore ways of ensuring a sustainable equilibrium to avoid strain on the resource which might as well trigger exaggerated inflation in the global economy; which is heavily dependent on the oil products. This is crucial because the steady increase witnessed in the world population will have a direct impact on the demand of the petroleum products, especially in the developing countries.
The world’s economy is heavily dependent on oil energy in a way that without it nearly all aspects of life will adversely be affected. All countries including Germany are either members of OPEC or consumers of petroleum products. Though much effort has been put in place to ensure steady supply of oil energy, the fast growing population has posed a potential threat to the sustainability of the proportional supply rate to meet the existing demand. Appropriate mechanisms should be initiated to curb this possible threat and ensure maximum availability and affordability of the products.