Climate change will be key challenge for OPEC in long term

Climate change will be key challenge for OPEC in long term

BAKU, Azerbaijan, Sept.15

By Leman Zeynalova – Trend:

In the long term a key challenge for OPEC will be climate change, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris) told Trend.

“The willingness of the international community to reduce the share of fossil fuels in world energy consumption is a threat to oil producers and exporters' interests because these countries are very dependent on oil revenues.

“In 2019 OPEC countries accounted for about 70 percent of proven oil reserves and 37 percent of global oil production, according to the BP Statistical Survey of World Energy. These two figures clearly show that OPEC is and will be one of the most important players in the world oil market. It does not mean of course that OPEC is the only key player and that this organization can do what it wants. But we must not underestimate its ability to have a strong impact on the oil supply-demand balance and on oil prices.

“OPEC was historically one of the many attempts by developing countries to recover their sovereignty on their natural resources. Other attempts covering some mining resources or agriculture have failed. OPEC is alive and active 60 years after its birth in 1960 within the context of decolonization in the 1950s and 1960s. This is a very significant accomplishment. OPEC countries have in the past nationalized (totally or partly) their oil and gas industries, have set up their national oil companies (NOCs), have renegotiated oil contracts which were not very fair at the time, have greatly increased their share of the oil revenues and oil prices are much higher than in the 1960s or at the beginning of the 1970s.

“Thanks largely to OPEC the world oil market has been well supplied since the first oil shock of 1973-74. OPEC's aims are to ensure a regular supply of oil to consumers, a steady income to producers and a fair return on capital to those investing in the oil industry. The organization's record is rather good in this regard.

“A lot of successes but also some weaknesses: it is not easy to take decisions in an organization comprising 13 countries with huge differences in terms of oil reserves and production, population, surface area, level of GDP and GDP per capita plus a lot of political problems (Saudi Arabia and Iran for instance); during the ministerial conferences of the organization unanimity is required in order to reach a decision, which is obviously not an easy task; when decisions are taken they are not always applied by all member states; the rise of U.S. shale oil since the 2000s is a big challenge for OPEC's capacity to regulate the world oil market; and, in 2020, with the Covid-19 and the economic crisis which followed this pandemic, it is very difficult to try to rebalance the market. We are living testing times for OPEC.

“OPEC had the very good idea some years ago to develop a lasting cooperation with several non-OPEC countries. This cooperation, often called OPEC+ in the media, began in 2016 and 10 countries are concerned, including Russia, Azerbaijan and Kazakhstan. Several countries were ready to work with OPEC but not to become members of the organization and it was very smart to accept this trend and, perhaps, to ''institutionalize'' it. Last year, before the Covid 19, OPEC+ countries covered about 50 percent of world oil supply, which is a very important market share. The OPEC+ meeting in Vienna on 6 March 2020 was a huge failure but these 23 countries reached an historical agreement in April in order to reduce considerably their production from 1 May 2020 to 30 April 2022. Oil consumption and oil prices are now higher than during the second quarter of this year but it is not the end of the pandemic and OPEC and OPEC+ will have to remain very vigilant and reactive in the coming months,” said the expert.

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Follow the author on Twitter: @Lyaman_Zeyn

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