OPEC's future is once again up in the air after the decision by Qatar to leave the oil cartel on January 1 2019.
Saad Al Kaabi, Qatar's minister of energy, stated to the press that Doha will be leaving OPEC in order to concentrate its investment and political efforts on natural gas. Qatar's decision to leave OPEC is being painted as evidence of a new rift inside of the organization. This assessment, however, is built on wrong assumptions and does not take into account the nature of OPEC.
The future of OPEC is not in doubt, it could even be argued that the future at present is brighter than it has been for the last couple of years. The oil cartel always had to deal with internal discord or even outright clashes, such as the diplomatic rift between Iranian hardliner Ahmadinejad backed by Hugo Chavez and Saudi Arabia during the 3rd OPEC Heads of State Summit in 2007. The oil cartel survived these conflicts, and recovered. The Qatari decision to leave will not put a dent in the shiny armor of the group, as Doha's oil production is insignificant compared to some of its more influential peers within the cartel. Qatar's future is natural gas, with a primary focus on LNG exports.
Most of Qatar's crude oil is produced at the offshore Al-Shaheen field, developed in conjunction with Danish oil independent Maersk Petroleum. This oilfield, which for years has been a technological showcase due to its extended multilateral drilling, setting new world records, has been hit by technical challenges regarding scaling and slugging. The current owners are fighting an uphill battle, which might not yield the expected results. Qatar's oil future was already very cloudy, and by leaving OPEC, Doha seems to be throwing in the towel. Related: Qatar Quits OPEC
Regardless of how significant one considers Qatar's decision, it is hard to view it as a very rational one. As one of OPEC's most vocal members, Qatar had a say far beyond its real economic or military capabilities. By shaping OPEC's strategy, Doha played a pivotal role on the global stage. Leaving OPEC will immediately result in it losing this influence. Shifting focus from OPEC to maintaining its status as an LNG powerhouse is maybe economically rational, but it could end up costing Qatar geopolitical leverage. Except for Russia, 'gas geopolitics' is not a real power factor taken into account by global powers or military strategists. Being part of the 'decision-making' group within OPEC is most of the time the key to the White House, the Kremlin or Brussels. Having an insight and a say at the table of OPEC ministers grants nations a great deal of power.
Questions still remain as to why Qatar has made this decision. Until insiders give us the background and rationale for this decision, we will all be left to guess at the truth. In guessing however, we can infer certain factors that will have weighed on the decision. Since the start of the Saudi Alliance clash with Qatar, the minister of oil and his delegation have almost become outcasts at OPEC meetings. The last meeting in Vienna made it clear that the majority of OPEC ministers would not openly talk to their Qatari and Iranian counterparts. Walking through the rooms and corridors of the meeting hall in Vienna, the fallout of the clash was visible. This ongoing open conflict is most probably one of the reasons for Qatar leaving the cartel. And don't underestimate the negative effects of cultural pride in rational decision-making processes. After a long period of prominence (Al Attiya), Qatari ministers were removed from the spotlights.
Another reason could be a totally new strategy set in place after the reshuffle of the Qatari government, including the minister of energy position. So far we have only heard the usual diplomatic Arab standard phrases that have been used in the media. A possible reshuffle and power struggle in the Qatari power structures around the Emir could well have been behind it too. Related: Oil Jumps On Trump-Xi Trade Truce
In the coming days things will become clearer. Analysts should keep an eye on the position Qatar takes in Vienna at the OPEC meeting. Doha will still be a full member, which should give it a say in all matters. One of the most interesting things will be the relationship between Qatar and Iran, and whether this is a symbiotic relationship or perhaps somethinng more. Iran and Qatar are also linked strongly in a possible global gas power structure, currently called GECF.
The Qatari decision will certainly put some pressure on Tehran too. Losing another pro-Iranian power broker in the Saudi led oil cartel, which could even expect Egypt and others to join very soon, will put Iran fully into a corner. Improving Saudi-Russian relations is another major slap in the face for Tehran. Russia's gas power politics, combined with OPEC interests, could be a deadly threat to Qatari LNG dreams in the future.
It is an overstatement to say that OPEC's future is threatened, it seems instead that possible destabilizing factors have removed themselves from the cartel. The Vienna meeting however will still be very interesting, with Doha still part of the proceedings. Saudi Arabia and Russia, supported by the UAE will have no problem weathering the storm.
By Cyril Widdershoven for Oilprice.com
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Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently he works as a Senior Researcher at Hill Tower Resource Advisors. Next… More
Comments
Qatar is not a major player in OPEC. Its production in 2017 averaged 600,000 barrels a day (b/d) of which some 466,000 b/d were exported on average according to the 2018 OPEC Annual Statistical Bulletin. And like any shrewd businessman, it has decided to focus its full attention on the business that has enabled it to become as wealthy as it is now namely LNG production and exports.
Qatar is one of the earliest members of OPEC having joined the organization 57 years ago. Having been a member of OPEC has enabled Qatar to punch above its weight inside OPEC particularly when its relations were friendly with Saudi Arabia and the UAE. Qatar might have felt isolated inside OPEC as a result of being boycotted by Saudi Arabia and the UAE and also because of the escalating tension between Saudi Arabia and Iran inside and outside OPEC.
And while by leaving OPEC Qatar may lose some influence in the global oil market, its strategy to expand its LNG production capacity will not only consolidate its position as the world’s largest producer and exporter of LNG but will more than offset its loss of influence from OPEC and will also enhance its stature as the acknowledged world leader in the fast-growing global LNG market.
And contrary to your claim, Qatar’s withdrawal from OPEC will not in any way put pressure on Iran. Just remember that until the crisis with Saudi Arabia and UAE, Qatar always sided with Saudi Arabia inside OPEC in its conflicts with Iran. Iran is capable of looking after itself without Qatar.
And while you rushed to brand Qatar’s decision to leave OPEC irrational, Saudi Arabia was reported to be mulling over its future membership of OPEC with the realization that demand for oil will one day peak and Saudi Arabia needs to prepare for that day according to a study by King Abdullah Petroleum Studies and Research Centre.
Although Saudi Arabia is acknowledged as the de facto leader of OPEC, it is not within its power to decide to dissolve the organization. OPEC will remain an influential organization whether Saudi Arabia stays a member or not.
Of course, Saudi Arabia has always the option to withdraw its membership of OPEC but to what advantage. Saudi Arabia draws a lot of political and economic influence from being part of an influential organization such as OPEC. Were it to decide to withdraw from OPEC, it will certainly lose a lot of influence in the global oil market not dissimilar to Britain’s loss of economic clout in the global economy by its decision to withdraw from the European Union (EU). Still, Saudi Arabia doesn’t have to leave OPEC to prepare for a peak in oil demand.
If the objective of leaving OPEC is to give itself a free hand in its oil policies and increase its production freely, this is not going to happen because Saudi Arabia’s oil production peaked at 9.6 million barrels a day (mbd) in 2005 and has been in decline since. Even the 400,000 b/d which Saudi Arabia added to the market in June under intense pressure from President Trump didn’t come from new production but from oil stored on board tankers and on land. Saudi Arabia has no spare capacity. So a Saudi Arabia speaking on behalf of OPEC with 71.8% of global proven reserves and 42.6% of global production is far more influential in the global oil market than having the world pondering about the true volume of its proven oil reserves and production capacity.
Saudi Arabia’s partnership with Russia is not an alternative to OPEC. This is a tactical partnership used by President Putin to enhance his country’s influence over the global oil market. Russia is an energy superpower capable of living with an oil price of $40 or less compared with Saudi Arabia’s need for an oil price above $100 to balance its budget. Moreover, Saudi Arabia and Russia are diametrically opposed to each other ideologically and politically. Russia supported by China is trying to undermine the current unipolar role currently enjoyed by the United States whist Saudi Arabia will do anything to remain in the United States’ good books. So such a partnership will be very short-lived.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Qatar does not have much oil and so they smartly invested in refineries that liquefy the natgas, bought lng supertankers, signed deals with the buyers and exported recort amount of LNG to become the World #1. This made Qatar a World #1 in per capita GDP which should have made
Why being a member of OPEC and paying the dues and send a big delegation twice a year which costs a lot when they don't get significant revenues from Oil.
Saudis envy this tiny country and put baseless allegations and is trying to cut them off.
Despite all this, they withstood and became stronger.
The next this Qatar should do is to build facilities to convert Methane (Natgas) to Methanol.
In China, Methanol content is 10% in their gasoline/petrol and they would like to take it to 15%.
India also has big plans to blend Methanol in their gasoline/petrol.
Qatar can export this fuel at a somewhat discounted price and it will make them even more richer.
World is slowly moving from dirty petrol/diesel to cleaner fuels like Methanol/Ethanol and Qatar can play a role in this.
Even the shipping industry is planning to substitute the dirty bunker fuel with cleaner Methanol.
Once again, the Qatar's decision is rational.