OPEC’s plan to absorb oil from Guyana and Namibia and regain dominance of global crude oil

OPEC’s plan to absorb oil from Guyana and Namibia and regain dominance of global crude oil
OPEC’s plan to absorb oil from Guyana and Namibia and regain dominance of global crude oil

The Organization of the Petroleum Exporting Countries has been losing weight in world oil for years. The emergence of new and powerful players (USA, Canada, Brazil…) and the departure of some of its members has led to its market share decreasing little by little. In an attempt to reverse this situation, OPEC, led by Saudi Arabia, sought to hit the table with the creation of OPEC+ in 2016, which expanded the cartel to other members, among which Russia stands out, which produces around 10% of the world supply. This new group has managed to increase the cartel’s market share to around 50%, a more than notable amount, but insufficient to tightly control the market. For it, OPEC is seeking to seduce new ‘sources of oil’Taking advantage of the fact that they are still ‘promises’, the cartel is trying to convince Guyana and Namibia to collaborate.

The Organization of Petroleum Exporting Countries, Known as OPEC, it was formed in 1960 by Iraq, Iran, Kuwait, Saudi Arabia and Venezuela.. Since then, the organization has expanded to 13 members. In 2016, OPEC+ (23 members in total) mentioned above was formed with the objective of having more than 50% of all crude oil production. However, infighting and problems maintaining market share have led to Angola exiting the cartel last year, slightly weakening OPEC’s position.

In 2016, largely in response to the dramatic drop in oil prices driven by significant increases in production of shale oil (shale oil) from the United States, OPEC signed an agreement with 10 other oil-producing countries to create what is now known as OPEC+. Among these 10 countries was the third largest oil producer in the world in 2022, Russia, which today pumps around 9 million barrels of crude oil.

OPEC meets regularly to set oil production targets and coordinate production to help manage global oil prices for the entire group. OPEC’s stated objective is “coordinate and unify oil policies among member countries” to ensure prices for producers, supply for consumers and return on capital for investors, although the group is best known for the impact of its policies on global crude oil prices, according to the US Department of Energy. A greater market share is synonymous with greater price control and, most importantly, greater profit maximization, that is, achieving a greater margin for each barrel of oil sold. The danger of seeing its market dominance reduced is leading OPEC to look outside for new ‘players’.

OPEC looks for oil promises

As happens in football, to achieve a great squad without the need to spend a lot of money, it is interesting to have good scouts who find young players who are beginning to emerge, but who are not yet among the best in the world, which is why they tend to be much more affordable than the big stars. This is what OPEC must have thought, seeing that the new oil arrives or will arrive from countries that have recently discovered its potential, the cartel’s negotiators have set to work to convince the leaders of Guyana and Namibia to join. join OPEC+.

The promise is the same as always: being part of the cartel helps obtain a greater margin for each barrel of oil sold in exchange for constraining the world’s supply of crude oil. Oligopolies are not healthy for the economy in general, but especially for consumers (they pay a higher price). However, the other side is the oligopolists, who take the part of the ‘late’ that consumers lose. On the other hand, OPEC offers advice to its members on how to exploit their crude oil and sometimes facilitates investment in countries that have problems finding the technology and qualified personnel to obtain the maximum performance from their crude oil.

The latest report from the International Energy Agency (IEA) on medium-term oil forecasts highlighted this aspect: “The OPEC+ alliance will see its share of global oil production decline below 50% starting this year, as non-OPEC+ countries dominate growth Angola left the group in early 2024, reducing its ranks to 22 members Brazil has signed the OPEC+ ‘Charter of Cooperation’, but this agreement does not subject the. country to production quotas. As such, Brazil remains in our classification outside of OPEC+. Meanwhile, the producer alliance is trying to court countries like Guyana and Namibia as possible new recruits,” they say from the IEA.

Brazil has not committed to cutting its oil production or to follow the agreements signed within OPEC+, so, although it is considered an allied country of the cartel, its oil production should continue to be governed by the inventive measures launched by prices. and the market: if oil is profitable, Petrobras will produce more oil. The case of Namibia and Guyana is even more uncertain, since neither of the two countries has said that they will join OPEC+, although everything indicates that talks have already taken place.

Guyana is a real oil promise. Its brief but intense history can be summarized as follows: Guyana has recorded strong growth in its crude oil production in the last five years. Its first barrel of oil came to the surface in 2019, and it is now pumping just over 600,000 barrels a day. The ExxonMobil-led consortium has continued to make discoveries in the prolific Stabroek block, where current estimates of recoverable oil equivalent resources They stand at close to 12,000 million barrels. Three FPSO vessels are expected to be commissioned over the next three years, adding a total of 750,000 more barrels, which would lead to Guyana producing a cap of 1.3 million barrels per day.

Although the case of Guyana and OPEC is quite opaque, there have been some exchanges of statements that reveal a certain interest on the part of the cartel. In the summer of 2023, one of Guyana’s top leaders declared that “we have not been formally invited to join OPEC. That is something that does not interest us. However, we have been invited to participate in cartel meetings“A senior member of the Government assured Reuters. Hours later an OPEC spokesperson appeared to deny everything and assure that Guyana had not been invited to join the cartel… ‘When the river sounds, it carries water.’

More evident has been the case of Namibia, a country that barely produces crude oil today, but the impressive discoveries made recently reveal the potential of this African country to be a large crude oil producer. Without going any further, in April of this year the secretary general of the OPEC, Haitham Al Ghaissaid in a statement that the group looked forward to the prospect of a partnership with Namibia, the new oil frontier, whose discoveries speak of oil reserves of 2.6 billion barrels.

“We are excited about the potential of Namibia’s OPEC partnership and are ready to offer support at this crucial juncture,” Al Ghais said in a pre-recorded message at an international energy conference in Namibia. “We are excited about the discoveries in Namibia. Namibian oil and energy will be essential to meet future demand,” Al Ghais said, adding that the cartel is encouraging potential investors to delve deeper into the area.

The point is that even today’s crude oil production in these countries is almost insignificant for a market in which around 100 million barrels are pumped every day, a good part of the production growth that OPEC ‘can dominate’ in the coming years. years will come from these two countries. Guyana and Namibia are two promises within OPEC’s reach (more Namibia than Guyana). On the contrary, the other sources of the new oil (the US or Canada) are unattainable for the cartel.

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