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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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The New Oil Cartel Threatening OPEC

When reports emerged that India and China are in talks about forming an oil buyers’ club, OPEC was probably too busy with its upcoming June 22 meeting to concern itself with that dangerous alliance. Now, it may be time for it to start worrying.

“The timing is right. The boom in U.S. oil and gas production gives us greater leverage against OPEC,” the Times of India quoted an Indian official as saying last month after the formal start of said talks. The two countries, after all, account for a combined 17 percent of global oil consumption and they are the ones that would be the hardest hit if prices rise as a result of OPEC’s actions.

What’s more, they might not be alone in this attempt to curb OPEC’s clout on the global oil market. According to Bloomberg’s Carl Pope, Europe and Japan, previously reluctant to take part in any anti-OPEC projects, may now join in. The reason they are likely to join in is that unlike in previous oil price cycles, now there are alternatives to fossil fuels. Electrification is where OPEC may have to face off with a future oil buyers’ cartel.

India, China, and Europe are all very big on EV adoption. Japan is a leader in battery manufacturing. If they set their minds to it, these four players could upend the oil market and effectively cripple OPEC. Of course, this is a best-case scenario of the kind that rarely unfolds in reality. Related: Why Oil Prices Are Surging

Let’s take India, for example. A recent survey suggested that as many as 90 percent of Indian drivers were willing to switch to EVs if the government built the necessary charging infrastructure, reduced road taxes, and increased subsidies. Another survey identified price and range as additional roadblocks towards the mass adoption of EVs in India. Because of these challenges, New Delhi recently amended its ambitious goal of having an all-EV fleet on the roads of the country by 2030 to having 30 percent of the fleet electric.

China, for its part, is the undisputed leader in global EV adoption: the country accounted for more than 50 percent of global EV sales last year in case you were thinking, “Wait, wasn’t that Norway?” However, this was in large part made possible by generous government subsidies for EV manufacturing. These subsidies are due to be wound down to 0 by 2020, and carmakers are already beginning to brace for a future without the support of the state. It’s safe to say it remains uncertain if the EV boom will continue after 2020.

This precarious situation with EVs is reason enough for China and India to seek more clout on international oil markets dominated by OPEC and would justify the formation of a “buyers’ club.” Europe, for its part, is, as a whole, a top performer in EV adoption and it is also very big on environmentalism. At the same time, it still imports crude and quite a lot of it, so it cares about oil prices as a large buyer. Related: Stranded BP Cargoes: A Red Flag For Chinese Oil Demand?

China and India are facing challenges in EV adoption. Europe could help and benefit from it. After all, taken together, Europe, China, India, and Japan account for the manufacturing of as much as 65 percent of the world’s cars, and a lot of these are manufactured in Europe. These four also consume 35 percent of the world’s crude oil and would like to reduce this number.

According to Pope, if they get together, they would be able to negotiate either a more gradual or a faster shift to EVs. It would all depend on whether OPEC would agree to maintain lower prices or not.

A more skeptical view would note the challenges in EV adoption such as subsidies and infrastructure. These would take time to be overcome even if everyone played together. Yet long-term, an oil buyers’ alliance could be a force to be reckoned with by the oil producers, and the latter need to start paying attention now.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on July 04 2018 said:
    OPEC has seen its clout ebbing and flowing since it came into existence 78 years ago but it has continued to play a pivotal role in the global oil market. OPEC accounts for 71.8% of the world’s proven oil reserves. In 2017 it accounted for 42.6% of global production and 10% of the world’s consumption. Its achilles’ heel, however, is Saudi Arabia’s policies on prices and levels of production which are mostly inspired by US geopolitical and economic objectives or Iraq with its huge reserves and production potential wanting to go it alone.

    The idea of an oil buyer’s club is not new. The International Energy Agency (IEA) acts as one representing the world’s biggest consumers of oil particularly western consumers.Still, it has proven a total failure.

    A new oil buyers’ club led by the world’s biggest and third biggest economies (China and India) based on purchasing power parity (PPP), will not threaten OPEC but it will strengthen their hands when negotiating oil deals with OPEC.

    If, however, the purpose of an oil buyers’ club to be joined by Japan and Europe is to promote a faster penetration of electric vehicles (EVs) into the world’s transport system, this can only be achieved even without an oil buyers’ club if EVs are as cheap as the current efficient internal combustion engines (ICEs), able to survive completion with ICEs without huge government subsidies , enhancing the global electricity generation to cater for millions of EVs on the roads and the global infrastructure to charge them.

    This will not happen in the foreseeable future. My conclusions are, therefore, that there will not be a post-oil era throughout the 21st century and far beyond. Oil will continue to reign supreme throughout the 21st century and far beyond.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Neil Dusseault on July 04 2018 said:
    I agree...there needs to be a counter-group to the OPEC cartel now more than ever.

    Yes, China and India are the 2 most populous countries in the world (accounting for about a third of all humans). If Japan is included, you'll have another highly-populated and strong Asian country in the group.

    European members will not include Russia (as it will most likely replace Iran's spot in OPEC), but rather very influential nations such as Germany, France, Norway (a huge percentage of their GDP consists of oil exports), and the United Kingdom. Switzerland will most likely remain out (as a usual "neutral" country), but should also be home to this counter-OPEC group's meetings.

    But don't leave out the U.S. and Canada! Not only is the U.S. and Canada large in both size and population, but also account for far enough global consumption of oil, not to mention oil production.

    It's high time that we form our own group, as the major oil exchanges are based in New York and London anyway...we need to protect our own interests and stop playing into the hands of particular members of OPEC+ (e.g., Saudi Arabia & Russia) as seen via the recent gimmicks that Trump has requested from the Saudis for oil production. Otherwise, the whole world is vulnerable to the ongoing conflicts within smaller members of OPEC (e.g., Venezuela, Nigeria, Libya, etc.)
  • Jerrell Strawn on July 04 2018 said:
    Luckily for America we have at least 250 years of our own oil reserves.
  • Brian on July 04 2018 said:
    So where does the electricity for the EVs come from?

    In China and India, it's coal, which is worse for the environment.

    In Japan, it's natural gas in the form of LNG imports

    In Europe, it's coal and natural gas.
  • Eric Thompson on July 04 2018 said:
    Electric cars will never "cripple" OPEC.
  • Matt Schilling on July 04 2018 said:
    President Trump should declare it is in the strategic interest of America that a barrel of oil cost less than $60. Then he should open up the SPR.
    He should also call for a rapid build out of infrastructure to make enough pristine clean diesel and jet fuel from our cheap and abundant domestic coal as is needed to fully satisfy the needs of the US military. The Nobel Prize in Chemistry was awarded over a decade ago to a trio of scientists for unfolding a way to greatly enhance the efficiency of that effort. It's high time their work made it from the lab to the manufacturing facility!
    We should also break ground on a major nuclear power plant each and every month, until we've doubled our inventory.
  • Harold Golden PhD on July 04 2018 said:
    Watch China!
  • William R Smith on July 04 2018 said:
    Many nations can diversify even further...return to the horse and buggy.... and the bicycle...let it ride.
  • Dave on July 04 2018 said:
    According to the pope? Really?
  • Vanessa Kettler on July 04 2018 said:
    Why is the US so far back in the development of the EV industry? Isn't that a huge problem for the United States? Oil production continues to block innovative energy solutions and has contributed for far too many difficulties we have with other elements in our society.

    Americans are famous for innovation. Why have we cut ourselves off so severely in such an important area?
  • Jose Sanchez on July 04 2018 said:
    Sorry, but this was a dumb article. I am no economist, but I do know that buyers have no leverage unless there is an equal or better alternative. EV's are not a viable alternative at this time, and the current trends have EV's, as an affordable option, about 20 years out. Ms. Slav makes it seem that OPEC better lower prices, or they will be severely impacted by this "buyers cartel" production of Electric Vehicles - that's rich. Here in the US (EEUU), the magic number for the viability of electric cars is $4 a gallon for fuel. If we hit that threshold, I am sure OPEC will lower prices, thus neutralizing the "threat" from the EV producing countries.
  • z zimmerman on July 04 2018 said:
    EV requires power plants to provide the electricity. Is that more fuel efficient than directly burning gas in cars? Anyone have the engineering analysis of that? What's the cost-benefit? because more demand for coal and natural gas to supply power plants raises the price of those fossil fuels, which traditionally shifts some demand to oil , which also raises to cost of oil incrementally. So, how does EV reduce the demand for oil?
  • Bubbah on July 04 2018 said:
    A buyers club with two contradictory goals? To promote EV without subsidies would require high oil prices. Then the comparison between EV vs gas car would tilt towards EV being more economical. A buyers clubs clout would shrink if it buys less and less oil as EV gains marketshare.
  • Matman on July 04 2018 said:
    Vanessa Bettler - why are you whining? Maybe the economics and efficient technologies aren't there yet. If you're so smart, go ahead an innovate on your own dime.
  • Bill on July 04 2018 said:
    Texas is sitting on so much oil it a joke.thats why number 1 and number 2 largest refinery in America are in Texas City. Then there the shale oil fields in West Texas. Company are paying 140.000 a year for truck driver and building more pipe lines because they cant get it to refinery's fast enough
  • laserman on July 04 2018 said:
    This would be great news for US oil prices if it was true. But its just speculation, and a wild one at that! Less chinese and Indian oil use = $2/gallon gas in the US! ($4 in Mexifornia).
    But those EV's need an awful lot of lithium, which takes time and a lot of money to mine from deep in the earth. Well over 10 years away. We haven't even seen an EV with over 400 mile range, which is what is needed to break into the US market successfully. And any Chinese invasion of Taiwan will stop all imports to the USA and AU from the communist chinese.
  • Ed on July 04 2018 said:
    Until electric cars cost the same as gas powered cars, get 300 miles per charge (with the lights, and AC running ) they will never pentetrate the market beyond a city only car or a rich persons toy to alleviate their eco guilt. Cheap gas will encourage consumers to continue buying large trucks and truck like vehicle. I for one would welcome an electric vehicle in my driveway. I think that might be 10 years away maybe longer if gas stays cheap.
  • George A Spix on July 05 2018 said:
    Time ro buy Thorium nukes by the thousands, are also a great goodness in the face of natural disaster and anyone down always has two or three backup neighborhoods around the edges. Plus, I'd dig a couple of holes for each, and maintain them by turning on the new and putting a couple of ton cap on the old, turning on the new. Then in 300 years the first hole can be recycled, No need for dead fuel dumps. They'd never all be down at the same time. Even for maintenance. Add redundant control systems run by an elite trained military like cadre of specialists like the French do for their 60 neutron burners. They even wear uniforms. Look all this up on YouTube for the rest of the story and some great presentations. We need to remember the central role that the cost of power plays in the wealth of a nation and the freedom of action this enables. Less dependence on other countries., and there's no cleaner, less polluting source than this all-up. Model their worst-case failure scenarios, and the surrounding damage it would take to trigger them. This would be the least of their problems. Plus, there's no more terrorist attack resistant solution. No Chernobyl’s here. Rising waters swallow one, you don't care. If my nation's wellbeing, health wealth and welfare and quality of life were in my hands, I'd scatter these under neighborhood playgrounds, power for 1,000 homes. grid them so anyone down always has two or three backup neighborhoods around the edges. Plus, I'd dig a couple of holes for each, and maintain them by turning on the new and putting a couple of ton caps on the old. Then in 300 years the first hole can be recycled, No need for dead fuel dumps. Because in 300 years they’d really be dead, dead, dead. They’d never all be down at the same time. But what about cooling? Given enough spacing, use ground as the heat sink. That means the playground above can be green and snow free year-round, even streets. And if the area is 100+c year-round air conditioners can run all the time. Plus there will be other more inventive uses for that heat. Swimming pools for everyone everywhere for therapy and exercise. Add redundant control systems run by an elite trained military like cadre of specialists like the French do for their 60 neutron burners. They even wear uniforms.

    Look all this up on YouTube for the rest of the story and some great presentations. We need to remember the central role that the cost of power plays in the wealth of a nation, and there's no cleaner, less polluting and more reliable source than this all-up. Including renewables. Want an all-electric inexpensive economy quickly, and the great goodness it brings. Start here. You know you should rethink when decisions are being driven by anxiety rather than numbers. Where we all want the same thing. Power too cheap to meter. Buy a subscription and your done, like cable TV.
  • Stuart McColl on July 05 2018 said:
    I thought this was a well written article. Perhaps should have also covered China's outstanding efforts to produce panels, and India's need to follow China in that way, the difficulties and challenges of producing panels.
  • Sekhars on July 05 2018 said:
    India and China control 22 percent of market and they are growing to control 26 percent by 2020. That is 1/4 the of the oil consumed in the world as their economy grows faster at the rate of 7 percent. US consumes 19 percent of the oil. India and China also doing a lot better in alternate energy. Buyers set up the price as crude is mostly driven by demand. Venzuela is seeing huge influx of money from China
  • Dick Forster on July 05 2018 said:
    Price fixing collusion is illegal. Bust OPEC.
  • John C on July 05 2018 said:
    Prices are being artificially hiked in an attempt to make President Trump look bad, it won't work.

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