EDEN IAS CURRENT AFFAIRS – Qatar to withdraw from OPEC

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EDEN IAS CURRENT AFFAIRS – Qatar to withdraw from OPEC

Introduction

Qatar has recently announced plans to pull out of OPEC in January 2019. The decision has been taken just days before a crucial meeting between the influential oil cartel and its allies. It has been a member of OPEC since 1961, and the decision to pull out after all these decades comes at a turbulent time in Gulf politics, with Doha under a boycott by former neighbouring allies, including Saudi Arabia for 18 months.

 

Reason behind Qatar’s decision

OPEC mainly governs oil production of its members and influences global oil prices, but oil plays a small role in Qatar’s economy, which now wants to focus on liquefied natural gas (LNG) development, which is mainstay of Qatar’s economy.

 

What is OPEC?

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, created at the Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.

The five Founding Members were later joined by ten other Members: Qatar (1961); Indonesia (1962) – suspended its membership in January 2009, reactivated it in January 2016, but decided to suspend it again in November 2016; Libya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973) – suspended its membership in December 1992, but reactivated it in October 2007; Angola (2007); Gabon (1975) – terminated its membership in January 1995 but rejoined in July 2016; Equatorial Guinea (2017); and Congo (2018).

OPEC had its headquarters in Geneva, Switzerland, in the first five years of its existence. This was moved to Vienna, Austria, on September 1, 1965.

 

OPEC’s objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.

 

OPEC members produce more than two-third of global crude oil. By increasing or reducing oil production OPEC influences prices of oil in the international market. Other major non-OPEC oil producers, like Russia, also collaborate with OPEC in its decisions, which widens the influence of OPEC’s policies.

 

Qatar has oil output of only 600,000 barrels per day (bpd), compared with the 11 million bpd produced by Saudi Arabia, the group’s biggest oil producer and world’s biggest exporter. But Doha is an influential player in the global LNG market with annual production of 77 million tonnes per year, based on its huge reserves of the fuel in the Gulf.

 

Strategic decision

Al-Kaabi, who is heading Qatar’s OPEC delegation, said the decision was not political but related to the country’s long-term strategy and plans to develop its gas industry and increase LNG output to 110 million tonnes by 2024.

OPEC members, Saudi Arabia and the United Arab Emirates, and fellow Arab states Bahrain and Egypt, have imposed a political and economic boycott on Qatar since June 2017, accusing it of supporting terrorism. Doha denies the charges and says the boycott aims to impinge on its sovereignty.

He said Qatar Petroleum planned to raise its production capability from 4.8 million barrels oil equivalent per day to 6.5 million barrels in the next decade. Doha also plans to build the largest ethane cracker in West Asia.

 

Challenges for OPEC

As we settle into the new century, we are beginning to get a clearer image of the challenges that will face the oil industry in the coming years and decades. There is a consensus on the contention that, of the world’s five main commercial energy sources, oil will maintain its present leading role well into the 21st century.

  • Currently, oil accounts for around 40 per cent of the energy mix. This is because it is a unique commodity, with a combination of attributes which far exceeds that of any other energy source — sufficiency, accessibility, versatility, ease of transport and, in many areas, low costs.
  • The world’s proven crude oil reserves total around 1,100 billion barrels, which, in simplistic terms, will be enough to meet demand for around 45 years, at current production rates.
  • There is also a broad consensus on the projection that energy demand will continue rising in an era of increasing globalisation, rapid communications and continued advances in technology, but that consumers will want this energy to be as clean and as safe as possible, as well as integrating itself fully into their plans for sustainable development and economic growth.

 

The growth in US shale and Renewable energy reserves are putting stress on OPEC. Further discovery of other resources of energy like gas hydrates, coal bed methane reduces the monopoly of oil.

 

Implications of Qatar’s decision

Qatar’s exit would have a psychological impact and could prove an example to be followed by other members in the wake of unilateral decisions of Saudi Arabia. Qatar’s withdrawal from OPEC might also cripple the effectiveness of GCC and its regional stability objective, which also has Saudi influence and may eventually trigger withdrawal of Qatar from GCC. Qatar’s decision may weaken the fight against global terrorism. It may give more bargaining power to groups like the Oil buyer’s Club.

 

India and China, OPEC’s major oil importers, are deliberating upon establishment of an ‘oil buyer’s club’ that can negotiate better terms with OPEC sellers to cut dominance of the oil block

 

About 85 per cent of Indian crude oil imports come from OPEC nations and by 2040, out of total increase in global oil demand, around 40% demand would be created by India, which highlights importance of OPEC and India for each other.

 

Conclusion

There are huge areas of uncertainty affecting the clarity and consistency of future world oil demand, and, clearly, the magnitude of these uncertainties increases as we venture further into the future. These uncertainties include changing regulations, fiscal regimes, strategic and political factors, evolving life-styles, natural disasters and, of course, human error. Countering these uncertainties requires transparency, consultation, meticulous planning and careful scheduling across the industry.

The challenges facing the oil industry in the 21st century are formidable and extend across all time-horizons. The world has enough crude oil to meet growing consumer needs throughout the early decades of the century, at least, and most of this resides within the borders of OPEC’s Member Countries. It is up to all of us to ensure that these finite resources are exploited in an efficient, effective and equitable manner both now and in the future, so that the world community at large can derive the maximum benefit from them.

 

 

 

 

 

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