The tropical capital of Malabo, with its wooden colonial buildings, near-unbroken rain and cloud, red-eared monkeys and crocodiles, does not have much in common with Riyadh, Baghdad or Tehran. Yet one thing is enough to admit Equatorial Guinea into an exclusive club – petrol. As Opec and non-Opec states pursue unprecedented cooperation, Equatorial Guinea is next to seek to join the producers’ organisation – but will there be more?
Since Indonesia rejoined briefly and then dropped out, Opec has had 13 members. Angola became the first new member since 1975 when it entered in 2007, Ecuador resumed membership in the same year and Gabon in 2016. Angola extracts about 1.6 million barrels per day (bpd) while Gabon, Ecuador and Equatorial Guinea are relatively small producers.
So more important for Opec’s clout since last year has been the output cut deal struck with non-Opec states. Opec produces about 32 million bpd currently, while the “Nopec” countries it has aligned with, notably Russia, Kazakhstan, Mexico and Oman, yield about 18 million bpd, of which 11 million bpd alone comes from the big bear, Russia.
Opec’s strength – and weakness – has come from its diversity. Excepting perhaps diamonds, it has been one of the longest-surviving, and surely the most influential, producers’ groups. Although its Middle East members have inevitably dominated, Venezuela, Nigeria and, in earlier years, Indonesia have all had key roles. This has prevented it becoming sucked into the morass of Middle East politics or being seen purely as an Arab pressure group.
But there has always been tension between producers with large, long-lived reserves and relatively small populations – Saudi Arabia, Kuwait and the UAE – with those seeking to maximise short-term prices, such as Algeria and Nigeria. Saudi Arabia has sought to deter competitors with major undeveloped reserves, such as Venezuela in the 1990s and Iraq today, from making a “dash for growth” at its expense.
The motivation for joining Opec today is very different from what it was in the 1960s – when the goal was to bargain collectively to extract better tax terms and control over pricing from the western oil firms. Production quotas and cuts came along in the 1980s. Now all are concerned by the threat from US shale, which cannot and will not ever align with Opec.
Equatorial Guinea hopes membership will revive interest in its upstream sector, as its main field, Zafiro, is in decline. Higher prices generally will help to revive worldwide exploration, but it is not clear how cutting production will draw investors to Malabo specifically.
Several new oil states are emerging that might also stake a claim: Ghana, Uganda, Kenya and Senegal in Africa and Guyana in South America. Sudan and South Sudan, both part of the “Nopec” agreement, have previously talked about becoming formal members of Opec.
From the bigger producers among the “Nopec” states, Mexico did not join in the 1970s, and probably will not join now, because of its closeness to the US and its desire to turn around its declining output. Malaysia is not a net oil exporter any more, while Oman and Bahrain gain more from retaining freedom of action, and are already closely aligned through the GCC.
Russia and its former Soviet colleagues are, for now, happy with their informal alliance. Moscow, feeling itself head of a great power, is not likely to acknowledge parity with Riyadh. It gains more as a mediator, deal-maker and, when it suits Russian interests again, free-rider.
So while Opec may well pick up a few smaller members, it is unlikely to do more than hold the line on its market share as shale expands. To retain its relevance and influence, it will have to continue, deepen and formalise cooperation with a willing “Nopec” coalition. But herding these very different players in the same direction is a new challenge for the venerable organisation.
Robin Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis.
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