Opinion Energy Opec’s challenge: oil market stability and sustainability Balancing demand with calls to cut emissions points to a different future By Robin Mills July 18, 2023, 10:53 AM Reuters/Ahmed Yosri UAE energy minister Suhail Al Mazrouei said his country would not make voluntary oil cuts Opec+ events planning the way forward for oil today veer between the bland and routine and the colourfully quotable. Having switched back from monthly to six-monthly meetings, a seminar in Vienna on July 5-6 was a different forum to exchange market views. Among the usual Opec ministers, it included international oil company chiefs and European politicians. And it produced some biting pronouncements and contradictory market views on the short and long term. Meeting the colourfully quotable requirement, Saudi energy minister Prince Abdelaziz bin Salman told the seminar that the Opec production policy announced on June 4 is “too big for people to comprehend”. The agreement extended production cuts to the end of 2024, and reallocated quotas to reflect actual capacities more accurately. On July 3, the kingdom said it would extend its voluntary 1 million barrel per day (bpd) production cut to August, at least. Russia, the major non-Opec component of the Opec+ alliance, said it would cut its exports by 500,000 bpd in August, while Algeria chipped in with 20,000 bpd, which it could probably not produce anyway. The UAE has a difficult path to negotiate Why are Opec+ supply cuts failing to boost oil prices? Saudi and Russian oil cuts add to palace intrigue at Opec The UAE’s energy minister, Suhail Al Mazrouei, went for bland, saying the group’s actions “help boost stability across the market.” However, he believed his country was “doing enough” given its large spare capacity, and would not make voluntary cuts itself. Yet the actualities of the Opec+ group’s moves seem to defy its own analysis. On July 12 Opec’s regular monthly report bumped up its demand forecast, adding 400,000 bpd to China and 100,000 bpd to the world as a whole. This looks unrealistic. The International Energy Agency’s (IEA’s) outlook has been considered optimistic, but Opec’s is even higher, foreseeing 2.44 million bpd of demand growth this year, ahead of the IEA’s 2.23 million bpd. By contrast, the IEA, having added 240,000 bpd to its 2023 demand forecast last month, cut off 220,000 bpd this month. However, it did make substantial additions to its demand growth forecast for next year, boosting it to 1.15 from 0.86 million bpd. But even here Opec is well ahead at 2.25 million bpd. Given that most of the demand recovery from the Covid pandemic was achieved in 2021 and 2022, this would otherwise be the strongest two-year performance since the late 1970s – which seems odd for a world worrying about inflation, recession, trade wars and climate action. To complicate matters further, after many forecasts of a stronger second half to the year, Opec’s cuts may finally be starting to have an effect. Brent crude is up more than $5 per barrel since late June, helped by some supply disruptions in Nigeria and Libya and some moderate economic encouragement. But the organisation’s next scheduled meeting is in November. If prices do strengthen significantly before then, presumably Saudi Arabia will relax its voluntary cuts. However it does not appear that the organisation thinks it will have to adjust targets urgently. Reuters/Saudi Press AgencySaudi energy minister Prince Abdelaziz bin Salman told the seminar that the Opec production policy is “too big for people to comprehend” Expanding the Opec+ group further What about the longer term? Here, more comes into question than just levels of oil production. In Vienna, UAE energy minister Al Mazrouei floated the idea of a producer grouping larger even than Opec+. He said: “Imagine if we are 60 percent of the producers or 70 percent…we would do a better job”. Today’s enlarged Opec+ has a market share over 50 percent, higher than Opec alone ever achieved even at the height of its power. Opec has invited Azerbaijan, Malaysia, Brunei and Mexico, which are already part of Opec+, to join the core body although Mexico does not participate in cuts. Meanwhile emerging South American producer Guyana has been approached informally but its vice president says it is not interested. These countries would anyway add together about 4 percent of market share once Guyana ramps up. Other leading producers – the US, Canada, Norway and China – are ruled out for obvious political reasons. So it would take a real heavyweight such as Brazil to shift the dial towards Al Mazrouei’s aim – or a major boost in output from his own country, as it plans, plus others such as Iraq. Reuters/Todd Korol Reuters/Antara Photo Agency Opec+ faces the complex consequences of oil production cuts or increases in relation to energy transition Azerbaijan’s energy minister also floated a wider and perhaps more intriguing concept, saying: “We need to expand beyond the realm of oil and into the energy sector as a whole because we are in a transitional time.” In a departure from the haggling over quotas and cuts which has characterised Opec meetings, the seminar echoed that sentiment, featuring sessions on energy sustainability, emissions, energy transition pathways, energy poverty, climate change policies and economic diversification. Patrick Pouyanné, chief executive of French supermajor TotalEnergies, advocated that both international and national oil companies set targets for emissions cuts. BP boss Bernard Looney stressed the need to continue investing in the traditional energy sector, pointing out that oil and gas still account for 55 percent of energy demand. And Tengku Taufik, the chief of Malaysian state oil company Petronas, pointed out that “some idealists tend to forget that there are burgeoning economies south of the equator and east of the Suez”. A different future for Opec Such observations point to a different future for Opec. Indeed, if it picks up more adherents, and production declines in Western countries for reasons of climate policy and resource maturity, it will become even more influential in the oil market. But oil itself is likely to lose market share to other energy sources and systems. That could mean more volatile prices if the forecast of two years of rapid demand growth are succeeded by declines and mismatched investment. That calls out for Opec’s proclaimed purpose of market stabilisation. But beyond that, Opec could find a role in helping its members adjust to an oil market in a process of profound transition and in charting a climate-compatible path for the petroleum industry. That may help attract new joiners beyond the prospect of simply signing up for production restraint. And talk of electric cars, hydrogen and solar power will grace the halls of Vienna’s opulent Hofburg Palace in future years. Robin Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis
Transport PIF acquires 15% stake in London’s Heathrow airport Saudi Arabia’s Public Investment Fund (PIF) has acquired a 15 percent stake in FGP TopCo, the holding company of Heathrow Airport Holdings. The stake was purchased from Spanish infrastructure giant Ferrovial and other FGP TopCo shareholders. Simultaneously, Ardian, a Paris-headquartered private equity fund, has acquired 22.6 percent of FGP TopCo from the same shareholders through a […] 4 hours ago
Finance Jordan to get $131m under IMF’s finance programme Jordan will receive $131 million from the International Monetary Fund (IMF) under its $1.2 billion extended fund facility programme (EEF). The four-year programme, approved in January 2024, remains on track, the IMF said in a statement following the completion of a second review. Jordan’s economy continues to grow amid low inflation, the fund said, adding […] 3 hours ago
Leisure & Hospitality Hilton set to triple Egypt presence with new brands Hilton is set to triple its presence in Egypt, increasing the number of hotels to 25 and expanding its footprint to more than 40 properties over the coming years. The expansion includes the opening of its lifestyle brand, Tapestry Collection, on the African continent, as well as Egypt’s first Curio Collection and a resort under […] 2 hours ago
Trade UAE finalises trade deal with five-nation EAEU bloc The UAE has finalised an economic agreement with the Eurasian Economic Union (EAEU) that will reduce or remove tariffs and eliminate technical barriers to trade with five countries. The economic partnership agreement with the EAEU, made up of Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia, will align customs procedures and harmonise digital trade and ecommerce, UAE […] 13 hours ago