Opec at 60: ‘Road to stability long and bumpy’
On the occasion of Opec's 60th anniversary, Algerian energy minister and current Opec president Abdelmadjid Attar was interviewed by Argus' Ruxandra Iordache on the producer group's achievements to date and the challenges that lie ahead.
How would you describe Opec's 60th anniversary on 14 September? What are Opec's challenges and opportunities in the future?
It is truly a matter of legitimate pride to celebrate the diamond anniversary of Opec. That such a developing-country organisation survived the test of time and has even gone from strength to strength is by itself a great achievement. I wish to take this opportunity to express my thanks and gratitude to all those persons who have contributed to such success.
The world in 1960 was so different. Many countries were still suffering from colonialism and were still in the midst of the struggle for independence. My country, Algeria, was one of them. The oil industry was dominated by a few international companies, dictating their terms on the countries where they operated, including by unilaterally setting the price of oil. It is against this background and with a view to safeguard their sovereign rights and interests that five countries decided to establish an organisation of oil exporting countries, Opec. It was an unprecedented, courageous and visionary act.
Ten years later, the oil industry went through fundamental changes, with member countries asserting their sovereign rights to the exploitation of their petroleum resources, notably through nationalisations and by establishing national oil companies, and with Opec setting the price of oil. Then the cyclical nature of the oil business, market requirements, technology advances, policies and regulations imposed themselves. Opec skilfully adapted to this reality, by focusing on supply and demand fundamentals, extending a hand of co-operation to other oil exporting countries, being an active actor of the producer-consumer dialogue, and expanding its coverage to other global issues, such as sustainable development, poverty alleviation and environment.
It is recognised by all that Algeria played an active role in Opec. It was in Algiers, in 1975, on the occasion of the first Opec summit, that the Opec fund for international development (Ofid) was conceived to support economic development and social progress in developing countries. Since then, more than 130 countries have benefited from Ofid's support, an achievement that we are proud of. It is also in Algeria that landmark agreements have been adopted, in 2008 and 2016.
Today, Opec is a respected, credible, and influential organisation. Its voice is listened to in multilateral fora. This crisis year has been a clear demonstration of the unique ability of Opec to act, in partnership with other oil exporting countries, in order to avoid chaos and bring back much-needed stability. This positive role is now recognised by all.
Opec has been successful for three main reasons, I believe: sovereign equality of its members, loyalty to its mission, and ability to adapt to new realities.
What are the challenges ahead? What are the opportunities?
The immediate challenge is to navigate through this unprecedented crisis stemming from the Covid-19 pandemic. It is a huge challenge. I will come back to this later on.
It is difficult to project what the future is going to be. It will be shaped by the interplay of technology, policies, consumer behaviour and geopolitics. So clearly, there are many possible future energy paths and we could likely face many surprises, too. Twenty years ago, the common view was that the world was drowning in oil and prices will never reach $30/bl again; 15 years ago, oil supply peak was a hotly debated issue along with huge US gas imports projected needs. None has occurred.
The world will undoubtedly need more energy, due to population increase, expanded economic activity, improved living conditions and poverty alleviation. This is good news.
The key challenge is to respond to these energy needs in a sustainable manner, which means providing an affordable and environmentally-sound energy.
To this end, I believe that all energy sources will be required. Energy systems are huge, and energy transitions take time. Coal continues to be used decades after its demand has peaked, even in countries claiming to be green.
So, I believe that oil will continue to satisfy a large share of world energy needs in the foreseeable future, though its share in the global energy mix might be declining.
And I believe that Opec will remain relevant, as long as it continues being open, flexible, forward-looking and able to adapt.
With the first stage of the latest Opec+ agreement behind us, where do you see the oil market?
The last six months were truly without precedent in the history of Opec, and probably the oil industry. The Covid-19 pandemic led to a dramatic loss of lives and livelihoods, everywhere. It also resulted in a sudden, global and synchronised decline in economic activity, a drastic limitation of mobility and, consequently, a sharp reduction of oil demand. In April, demand of oil contracted by over 20mn b/d, and oil prices went spiralling down, losing more than 70pc of their value compared to the beginning of the year. We have even witnessed for the first time a negative price for oil.
I am recalling this context to underline the importance of the April Opec+ agreement and the decision taken by 24 countries to co-operate and work hand in hand, with the objective to overcome this crisis. We can say today that it is a successful agreement and we shall all be proud of this achievement.
Where are we today? Clearly, oil market fundamentals are improving and rebalancing is underway. Indications of economic recovery are visible in most countries and regions, aided by a successful containment of the pandemic and sizeable government support to wither the adverse impacts on jobs and businesses. Mobility has improved everywhere, though it still remains at lower level than before the crisis. According to the Opec Secretariat, oil demand is expected to increase by around 10mn b/d in the third quarter, compared to the second, leading to depletion of global stocks at a pace of around 3mn b/d, with this figure increasing to even more than 5mn b/d in the fourth quarter. Going into 2021, the picture is even rosier, with market rebalancing continuing and global stocks depleting at a pace of 4mn b/d.
However, uncertainties remain large. The number of new infected cases is soaring in some countries, though with lower severity. Oil prices have declined in the last week, and market contango has widened. Is this a temporary correction, or is it an indication of strong headwinds ahead?
What is sure is that the journey to stability is still long and the road bumpy. We need to remain vigilant. Until an efficient treatment or vaccine is made available worldwide, the downside risks to market stability cannot be ignored. I can assure you that we carefully monitor market evolution and remain ready to take further corrective actions, should market stability require that.
What is the biggest challenge still facing Opec? Do you think the second phase of lower Opec+ cuts began too soon, given the likelihood of a second wave of the Covid-19 pandemic?
I do not think so. Clearly, the transition to the second phase was smooth and market reaction was positive. The Opec basket price remained stable in August, fluctuating within a narrow range of $44-46/bl.
The biggest challenge facing Opec in the short term relates to the pandemic. How is it going to evolve? Will the world face a second wave? When is a vaccine going to be widely available? Clearly, downside risks stem from a resurgence of the pandemic that would lead to substantial reduction in economic activity. However, there is an undeniable fact: countries have a better knowledge of the disease, are better equipped and have mitigation policies in place. So, I believe the impact is likely to be less dramatic than in spring. Trade tensions constitute another risk that could surprise to the downside.
But I remain optimistic, prudently optimistic.
Medium to long-term, the challenge is to adapt to potential changes in lifestyles, economy, trade, technologies, policies and geopolitics. We are also in the midst of an energy transition. It is difficult to foresee what would be its future path, given the diversity of drivers, be they related to technology, policies or lifestyles. However, it is clear that we already entered a period of change. Opec should, as in the past, adapt to new realities and find adequate responses that promote the use of oil, such as cleaner technologies and more sustainable production patterns. It shall not do this alone, but with partners. The charter of co-operation adopted last year could be a suitable platform for such permanent co-operation in the medium to long-term, expanding to other areas than oil market related matters.
Opec hesitates to target a global oil price. But what would be a comfortable one?
Opec does not have a price target. It aims at ensuring a balanced market and reducing oil price volatility in a manner that safeguards the interests of its member countries, ensures secure supply to consuming countries and a fair return to those investing in the oil sector. Opec member countries rely on oil export revenues to satisfy the needs of their populations and finance their socio-economic development programmes. Furthermore, oil is an exhaustible and non-renewable resource and requires large investments to be produced.
Finally, a large part of the end-user price is due to consuming countries' taxes. Consequently, from this perspective, it is clear that the current price is a too-low oil price.
The comfort zone depends on circumstances. Today, in the face of this unprecedented crisis that resulted in a huge stocks build-up, this zone could realistically be within a range of $45-55/bl. However, after market rebalancing, this zone will have to migrate to much higher levels. Huge investments are needed to cope with increasing demand and oil fields' natural decline.
The Opec+ agreement has achieved strong, but incomplete compliance, with some repeat overproduction from certain countries. Is Opec+ satisfied overall?
The overall conformity is indeed relatively high. It reached 97pc in July. This is satisfactory. At the same time, what is even more satisfactory is that, without credit for over-conformity, the level is the highest since January 2017, meaning a substantial improvement in compliance by most countries. Having said that, I wish to underline the repeated statement by the JMMC that achieving 100pc conformity from all participating countries is required, for reasons of fairness as well as vital necessity to wither the current unprecedented crisis and rapidly restore market stability for the benefit of all.
Furthermore, participating countries have agreed in June to compensate for overproduced volumes. I believe that this is a landmark decision. It provides enhanced credibility to the agreement and to Opec+ pledges and actions.
Let me take this opportunity to underline and praise the positive role of His Royal Highness Abdulaziz bin Salman, minister of energy of the Kingdom of Saudi Arabia, and chairman of the JMMC. His hard work, smart diplomacy and persuasion skills have contributed to successfully navigate through this crisis, and to turn the JMMC into a credible monitoring body.
Do you see Opec+ compliance continuing at strong levels (above 80pc) into next year, if crude oil demand improves and global prices continue to rise? Is there a risk of diminishing compliance in a higher oil price environment?
I am confident that conformity levels will remain high in the future, for at least four reasons.
First, there is a clear willingness of participating countries to co-operate towards oil market stabilisation.
Second, the sharp and harmful fall in prices observed in April was a clear demonstration to all actors in the oil industry that, in the absence of strong and credible co-operative adjustment actions by oil producing countries, it would require very low oil prices to stabilise the market, with damaging consequences to producing nations, consumers, the oil industry, and ultimately the world economy.
Third, should demand and prices increase, the required level of production adjustment will be revised down.
Fourth, the active role of the JMMC in monitoring market conditions, compliance and compensation is set to continue.
As we saw in June, Opec must sometimes respond to market conditions with very short-notice decisions. But many producers commit their term supplies months or even a year in advance. How do these obligations to buyers limit Opec's responsiveness?
I do not think this is an issue. Country crude export allocations are made with due consideration to the sovereign decisions taken by the said country within the context of Opec and Opec+.
Why did Opec decide to now require compensation for overproduction? Was this widely embraced by members, or has it led to tensions?
As I have explained earlier, this is a landmark decision. It was supported by all participating countries. I am thankful to all partner countries for such support. It makes Opec+ actions more credible vis-a-vis market participants. Furthermore, and this is important to underline, in July and August JMMC meetings, countries with low conformity rate have reiterated their commitment to compensation.
Would Opec+ reconsider, on an individual case-by-case basis, adjusting the cut baseline or targets of specific countries?
This falls within the remit of the Opec conference and the Opec+ ministerial meeting, and requires a consensual decision.
The Opec configuration has shifted over the years, but the group has not attracted a larger new producer to its ranks since Angola in 2007. What benefits would Opec argue that membership could offer for a major and growing producer such as Brazil?
Opec welcomes all countries to join, be they big or small exporting countries. It strived to develop co-operation and partnership with other oil exporting countries. The best example is the Declaration of Co-operation, a successful platform of collaboration of 24 countries. The Charter of Co-operation aims at being a permanent platform for such co-operation. I hope that more countries will join this multilateral, co-operative, win-win and forward-looking undertaking.
Brazil is an important oil producing and consuming country. In June, the secretary general of Opec held bilateral discussions with Bento Albuquerque, minister of energy. The dialogue is ongoing with Brazil.
Over the years, there have been suggestions of friction between big and smaller Opec producers. Are there any, and how does Opec guarantee the interests of all members are served?
No, there is no friction. Such suggestions are simply not correct.
Opec is an organisation of equals. According to its statute, it shall be guided by the principle of the sovereign equality of its member countries. Each member has one vote and conference decisions require the unanimous agreement of all its members. Opec's budget is also equally funded. Chairmanship of the conference and the board of governors is on a rotational basis.
I believe that this very principle of sovereign equality is the key driver behind Opec's success and great achievements in 60 years of existence. Building consensus may take lengthy discussions, many contacts and bilateral meetings. However, this brings diversity and richness to ideas and solutions. It is a source for smart flexibility. It is not a waste of time.
Related news posts
UK eyes new environmental guidance for oil, gas: Update
UK eyes new environmental guidance for oil, gas: Update
Adds comment from Shell London, 29 August (Argus) — The UK government will develop new environmental guidance for oil and gas firms, in the light of a recent Supreme Court decision that ruled consent for an oil development was unlawful, as the scope 3 emissions — those from burning the oil produced — were not considered. The ruling means that "end use emissions from the burning of extracted hydrocarbons need to be assessed", the government said today. The government will consult on the new guidance and aims to conclude the process "by spring 2025", it said today. It will in the meantime halt and defer the assessment of any environmental statements related to oil and gas extraction and storage activities until the new guidance is in place, including statements that are already being assessed. The Supreme Court in June ruled that Surrey County Council's decision to permit an oil development was "unlawful because the end use atmospheric emissions from burning the extracted oil were not assessed as part of the environmental impact assessment". The government also confirmed that it will not challenge judicial reviews brought against the development consent granted to the Jackdaw and Rosebank oil and gas fields in the North Sea. A judicial review in the UK is a challenge to the way in which a decision has been made by a public body, focusing on the procedures followed rather than the conclusion reached. Environmental campaign groups Greenpeace and Uplift launched legal challenges in December seeking a judicial review of the government's decision to permit Rosebank. Norway's state-owned Equinor and London-listed Ithaca hold 80pc and 20pc of Rosebank, respectively. Greenpeace in July 2022 separately filed a legal challenge against the permitting of Shell's Jackdaw field. "This litigation does not mean the licences for Jackdaw and Rosebank have been withdrawn", the government said. The Labour government, voted into office in July , pledged not to issue any new oil, gas or coal licences, but also promised not to revoke existing ones. Equinor is "currently assessing the implications of today's announcement and will maintain close collaboration with all relevant stakeholders to advance the project. Rosebank is a vital project for the UK and is bringing benefits in terms of investment, job creation and energy security", the company told Argus today. Shell is "carefully considering the implications of today's announcement... we believe the Jackdaw field remains an important development for the UK, providing fuel to heat 1.4mn homes and supporting energy security, as other older gas fields reach the end of production", the company told Argus . North Sea oil and gas production "will be a key component of the UK energy landscape for decades to come", the government said today. The UK government introduced a climate compatibility checkpoint in September 2022, designed to ensure that oil and gas licensing fits UK climate goals. The UK has a legally-binding target of net zero emissions by 2050. The checkpoint, though, does not take into account scope 3 emissions. These typically make up between 80pc and 95pc of total oil and gas company emissions. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Baghdad issues ultimatum to KRG to drive output down
Baghdad issues ultimatum to KRG to drive output down
Dubai, 29 August (Argus) — The federal Iraqi government has issued an ultimatum to northern Iraq's Kurdistan Regional Government (KRG) to reduce its crude output to "the minimum required", or face the possibility of not receiving its share of the budget. The move, communicated today by a senior official at Iraq's state marketer Somo, represents the latest attempt by Baghdad to pressure the KRG into cooperating to help bring Iraqi output below its Opec+ production target. KRG was asked "on several occasions" to cut its production according to the budget law "to the minimum required for their local refineries" — around 50,000 b/d, the official said. "Otherwise, the KRG will have to pay [the federal government] all the revenues they receive, for the extra barrels beyond what their refineries need". Iraq has emerged as the Opec+ group's biggest overproducer, failing to meet its target in any of the first seven months this year. The country, along with Kazakhstan and Russia, which are overproducing too, submitted updated plans to the Opec secretariat last week outlining how it intends to compensate for the extra volume. Iraqi officials said that a lack of visibility on KRG production are complicating efforts. Output has been gradually recovering in Kurdistan this year, even though the 400,000 b/d export pipeline that links fields in the north to the Turkish Mediterranean port of Ceyhan has been shut-in since March 2023 because of a dispute between Baghdad and Turkey. Crude production from the region collapsed below 100,000 b/d in the months following the pipeline closure, but has risen steadily, particularly from fields operated by foreign companies, as they find new outlets for their crude. Foreign operators operating in Kurdistan said they rely on trucking crude to local refineries to stay in business, but Kurdish crude is also being smuggled — by truck — across the border to neighboring Turkey, Iran and Syria, Argus understands. Different accounts Crude output from Iraqi Kurdistan is currently averaging around 350,000 b/d , a spokesperson for the Association of the Petroleum Industry of Kurdistan (Apikur) told Argus. Apikur is an industry body representing the foreign operators in the northern region . Argus assessed KRG production at 200,000-250,000 b/d on average in the first half of the year. But the federal government disputes those numbers, insisting that production from Kurdistan is around 150,000 b/d. "Any more than that will put huge pressure on the KRG," the official said. Assuming refining capacity of 50,000 b/d, the official labelled the higher estimates as "illogical." He pointed to the fact that about 500 trucks are already needed on a daily basis to export the region's 100,000 b/d, and that the state of the roads and service stations does not allow for the double amount of vehicles. Earlier attempts by the federal government to scale back Iraqi Kurdish production have failed, but the official thinks that Baghdad's latest ultimatum will have the desired impact. "These are serious steps," the official said. If KRG production remains above the 50,000 b/d needed for domestic refining, and it does not deliver the proceeds to Baghdad, it will not receive its share of the budget, which it is heavily dependent on to support its economy. Getting back on track Iraq's latest compensation plan put its overproduction in January-July at 206,000 b/d, compared with 197,000 b/d in January-June. Opec+ secondary sources estimated that output rose by 57,000 b/d on the month to 4.251mn b/d in July, some 251,000 b/d above the Opec+ target. The official said Iraqi production should fall to required levels from September. Somo canceled a spot cargo of 1mn bl this month, and Iraq is "working on deferring two similar shipments, before the end of the month," the official said. "That means we will be down around 3mn bl, or 90,000 b/d". He added that a 50,000 b/d decrease in domestic crude consumption resulting from increased gas imports from Iran and stronger domestic gas output will also help with the country's compliance. He said Iraq's August output levels will be down on the month, but dependent "on the position of the KRG". By Nader Itayim and Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
UK plans new environmental guidance for oil and gas
UK plans new environmental guidance for oil and gas
London, 29 August (Argus) — The UK government will develop new environmental guidance for oil and gas firms, in the light of a recent Supreme Court decision that ruled consent for an oil development was unlawful, as the scope 3 emissions — those from burning the oil produced — were not considered. The ruling means that "end use emissions from the burning of extracted hydrocarbons need to be assessed", the government said today. The government will consult on the new guidance and aims to conclude the process "by spring 2025", it said today. It will in the meantime halt and defer the assessment of any environmental statements related to oil and gas extraction and storage activities until the new guidance is in place, including statements that are already being assessed. The Supreme Court in June ruled that Surrey County Council's decision to permit an oil development was "unlawful because the end use atmospheric emissions from burning the extracted oil were not assessed as part of the environmental impact assessment". The government also confirmed that it will not challenge judicial reviews brought against the development consent granted to the Jackdaw and Rosebank oil and gas fields in the North Sea. A judicial review in the UK is a challenge to the way in which a decision has been made by a public body, focusing on the procedures followed rather than the conclusion reached. Environmental campaign groups Greenpeace and Uplift launched legal challenges in December seeking a judicial review of the government's decision to permit Rosebank. Norway's state-owned Equinor and London-listed Ithaca hold 80pc and 20pc of Rosebank, respectively. Greenpeace in July 2022 separately filed a legal challenge against the permitting of Shell's Jackdaw field. "This litigation does not mean the licences for Jackdaw and Rosebank have been withdrawn", the government said. The Labour government, voted into office in July , pledged not to issue any new oil, gas or coal licences, but also promised not to revoke existing ones. Equinor is "currently assessing the implications of today's announcement and will maintain close collaboration with all relevant stakeholders to advance the project. Rosebank is a vital project for the UK and is bringing benefits in terms of investment, job creation and energy security", the company told Argus today. North Sea oil and gas production "will be a key component of the UK energy landscape for decades to come", the government said today. Argus has also contacted Shell for comment. The UK government introduced a climate compatibility checkpoint in September 2022, designed to ensure that oil and gas licensing fits UK climate goals. The UK has a legally-binding target of net zero emissions by 2050. The checkpoint, though, does not take into account scope 3 emissions. These typically make up between 80pc and 95pc of total oil and gas company emissions. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Iraqi Kurdistan’s oil output at 350,000 b/d: Apikur
Iraqi Kurdistan’s oil output at 350,000 b/d: Apikur
Dubai, 29 August (Argus) — Crude production in northern Iraq's semi-autonomous Kurdistan region is around 350,000 b/d, according to a local industry body, just 50,000 b/d below what it was before the closure of a key pipeline to Turkey shut Kurdish producers out of international export markets in March last year. The production estimate relates to fields under the control of the Kurdistan Regional Government (KRG) and excludes those in the region that are controlled by the federal government in Baghdad. It was provided to Argus by the spokesperson for the Association of the Petroleum Industry of Kurdistan (Apikur), Myles Caggins. "The volume of production has generally increased since the shuttering of the pipeline in March 2023. All Apikur members remain focused on ultimately having the pipeline reopened for exports," Caggins said. Apikur represents eight foreign oil firms operating in the Kurdistan region — DNO, Genel Energy, Gulf Keystone, HKN Energy, Shamaran Petroleum, Western Zagros, Mol and Hunt Oil. Producers in the region have been selling their crude to local buyers since the pipeline was closed but they have had to settle for steep discounts. Caggins estimates local sales of Iraqi Kurdish crude are averaging $30-35/bl, which is around $45-50/bl lower than prevailing international oil prices. Apikur's estimate tallies with an operational update from Gulf Keystone today , which put crude output from the Shaikan field in the Kurdistan region close to capacity at 48,200 b/d in August and the current value of local crude sales at around $27/bl. Besides local refiners taking Iraqi Kurdish crude, Argus understands that some of the production is being smuggled into Turkey, Iran and Syria. Such robust production levels in the Kurdistan region are unlikely to be welcomed by Iraq's federal government in Baghdad, given the challenge it faces in keeping Iraqi output below the country's Opec+ cap. Iraq has failed to stick to its target in any month this year. Along with fellow overproducers Kazakhstan and Russia, Baghdad submitted updated plans on 23 August detailing how it intends to compensate. Iraqi officials say efforts to compensate for exceeding the Opec+ target are complicated by a lack of visibility on production in Iraqi Kurdistan, which they currently put at around 100,000 b/d, less than a third of the Apikur estimate. The KRG does not provide monthly production figures as part a wider clampdown on issuing data following the pipeline's closure. Sources at Iraq's oil ministry have told Argus that it will be easier to deliver compensation cuts after the summer season ends and temperatures begin to drop. By Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
![](/_next/image?url=%2F-%2Fmedia%2Fproject%2Fargusmedia%2Fmainsite%2Fimages%2F14-generic-hero-banners%2Fherobanner_1600x530_generic-c.jpg%3Fh%3D530%26iar%3D0%26w%3D1600%26rev%3D-1%26hash%3DFC2BEDE406483FEF5FDB9549159BAC11&w=3840&q=75)
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more