PLAN FOR ‘SUPERGROUP’ OF OIL EXPORTERS GATHERS PACE
Minister of Energy says framework for alliance between Opec and non-Opec members will be finalised this year
Plans for a supergroup of oil-producing countries will be in place before the end of this year as Opec works to institutionalise the ongoing collaboration between 24 member and non-member nations that has helped crude prices to recover.
Suhail Al Mazrouei, the Minister of Energy and Industry for the UAE, which currently holds the Opec presidency, said a draft framework for a longterm alliance will be finalised this year.
The aim is “together with the secretary general [of Opec, Mohammad Barkindo], to put together a draft agreement for this group [of 24] to stay together for a longer time”, he said.
The charter for the broader
group is currently “a work in progress” but it is a clear aspiration, the minister told The National.
Mr Al Mazrouei has some hope the draft framework could even be endorsed and signed by all 24 countries before the end of the year.
Optimism is running high that there is now a strong base on which to make the collaboration with non-Opec members a more permanent fixture of energy markets. The Saudi oil minister, Khalid Al Falih, said last month that the kingdom’s energy alliance with Russia would continue for “decades and generations”, and on Wednesday there was news of plans for joint investments by both producers.
Opec’s Mr Barkindo said this week that the “building blocks” to institutionalise the partnership between the 24 countries had started to be put in place.
The UAE took over the group’s presidency at the start of the year. It picked up the baton from Saudi Arabia after the successful stabilisation of oil markets due to the historic Declaration of Co-operation between the 14 member countries of Opec and 10 producers from outside the group, led by Russia, in December 2016.
The co-operation has helped to lift oil prices to above $60 a barrel from lows of below $30 a barrel exactly two years ago. The rebalancing of demand and supply and the reduction of oil stocks has also been successful due to their agreement to restrain crude output by 1.8 million barrels per day.
A more permanent partnership between a grouping including the world’s biggest crude producers, Russia and Saudi Arabia, would help with
efforts to keep energy markets stable in the future as the growth of the US shale sector means the United States could overtake them both in terms of output by next year, according to the International Energy Agency. The oil price crash of 2014 was triggered by an over-supply driven by surging shale production in the US.
Mr Al Mazrouei said that during the course of last year, there had been “a lot of learning” among the broader group of 24 and that high levels of trust within Opec had been painstakingly built up since summer 2016 when the idea of a broader co-operation first took hold.
Mr Al Mazrouei said he did not see why “we cannot continue to work in the future, it’s [down to] what framework we deliver together with the secretary general to ensure we are giving something reasonable for everyone to adapt”.
It is significant that the UAE holds the Opec presidency this year, firstly because the group is clearly undergoing some kind of evolution that will need stable leadership, but also because this is the Year of Zayed, honouring the Founder.
Sheikh Zayed decided that Abu Dhabi should join the organisation shortly after he became the emirate’s Ruler. When the UAE was formed in 1971 with Sheikh Zayed as its President, it automatically became a member of Opec.
“It is the Year of Zayed, which has sentimental meaning for us here in the Emirates. Sheikh Zayed means peace and prosperity for us and, hopefully, in the Year of Zayed when the UAE is having the presidency is going to be a lucky year for the industry,” the minister said.
It is certainly a period of upheaval for the energy industry, however, with renewable sources becoming increasingly important and in demand. Irena forecasts that renewables will be cheaper than fossil fuels in two years.
“We are a believer that a mix of energy sources is going to happen where more emphasis is put on renewable energy. So it is really not something we are worried about. On the contrary, we are promoting discussion and collaboration to achieve a better world in the future,” Mr Al Mazrouei said. The international development arm of Opec, Ofid, has invested in renewables in developing countries including in small-scale solar projects in Rwanda, for example.
Also on the agenda for the UAE’s presidency is the continuation of Opec’s efforts to increase transparency.
“What we would like to do differently is structure that and work with the market, the financial markets, work with the media, share the right information at the right time, and allow less speculation and misinformation,” the minister said.
Over the past 18 months, it has been clear that Opec members now speak with a single voice as they worked to ensure maximum compliance among the 24 countries with the Declaration of Co-operation.
As a result, Opec has achieved rare success, finding consensus on action in an increasingly complex world. There is much scepticism today over the approach of multilateral institutions, which have been blamed for globalisation’s failures.
Opec’s success, Mr Al Mazrouei said, can be partly explained by its focus on a single area of interest. Yet its ability to not just remain relevant but actually increase its influence in recent years, despite various political tensions among its members – unrelated to energy – could serve as a model for other organisations.
Mr Al Mazrouei said that Opec’s members are highly aware of their responsibilities to the global economy and the effect that unbalanced energy markets can have on the potential for growth.
“All the member countries are mindful of their role in market stability and forget everything else. When we meet, when we discuss, we discuss the benefits to the markets, benefits to the member countries, and the benefits to the world economy. This is how we stay focused.
“We don’t concentrate on our differences, we concentrate on what unites us and those goals,” he said.
Mr Al Mazrouei said that Opec members are very aware of responsibilities to the health of markets and economies
Opec is encouraging its 14 members to build oil capacity buffers to temper any wild upswings in price as a result of a weakening dollar this year, its current president the UAE’s Energy Minister Suhail Al Mazrouei said yesterday.
“We are incentivising all the group members to have some buffers. That buffer is [to assure] that if you have a surge [in demand] or issue in one of the countries you can replace that in the market and achieve a short and medium-term re-balance of the market,” Mr Al Mazrouei told The National, in response to a question on the potential downsides of a weak dollar on global prices.
The US dollar is currently trading at its lowest level in more than three years, having lost two-and-a-half per cent of its value against other currencies this year, pushing up the price of commodities including gold.
Experts, including Mark Mobius of Franklin Templeton, are betting on a subdued dollar to push the price of oil to a high of $100 a barrel by next year.
The price of Brent traded at $64.15 per barrel at 3.30pm UAE time. Brent reached a three-year high of $70.52 a barrel late in January on the back of continued cuts by Opec and members outside the exporters’ group as well as a weakening dollar.
Mr Al Mazrouei, who assumed the presidency of the oil exporting group earlier this year, expects a market re-balance “earlier than expected” despite the prospect of more US shale hitting the markets.
“If we look at the last two months of the year, of last year, [our compliance was] 122 per cent in December, 129 per cent in January. We will see an over-delivering of the commitment, so that we have a higher hope of reaching a re-balance rather earlier,” he said.
North American shale is poised to flood the markets this year, and analysts forecast that Opec’s efforts to rein in production will be dwarfed by output from the United States.
The Paris-based energy watchdog the International Energy Agency said in a report this week that US production would reach 11 million barrels per day by late 2018, a year earlier than its earlier forecast, which will see it overtake both Opec kingpin Saudi Arabia and Russia, the largest sovereign producer outside of the group.
The US Energy Information Administration has forecast a growth of 111,000 bpd of shale in February, taking total shale production to 6.55 million bpd by the end of the month.
Mr Al Mazrouei, however, dismissed concerns of Opec losing ground to a shale influx, saying he was more worried about an undersupply in the market from slowing investments rather than a market awash with crude.
“I will put my worries not in the oversupply but on the undersupply in the future, so that’s why we’re keen [to do] this deal to [see] major investments in the exploration and production coming back into the market to give us assurance that we will achieve the balance on the supply side to the demand coming from the world,” he said.
Energy investments slumped worldwide after the price of Brent fell from a high of $115 a barrel in mid-2014 to $29 a barrel in the beginning of 2016.
Upstream investment in oil and gas declined in parallel, falling 26 per cent year-on-year to $434bn in 2016, the IEA said in its World Energy Investment Report for 2017.
Investment sentiment appears to have picked up in the Middle East, which accounts for around 34.5 per cent of total global oil production, according to the BP Statistical Review of Energy.
The UAE, Opec’s fourth-largest producer, announced in November a capex plan of $109bn over the next five years.
Kuwait in January announced a package of $500bn, which among other things will seek to raise its production capacity to 4.75 million bpd by 2040, with $114bn to be spent over the next five years.
Mr Al Mazrouei, who said last year an oil price environment that experienced swings of $40 a barrel to $60 was not encouraging for investment, acknowledged that the global sentiment on energy investment remained lukewarm.