Plans for a super group of oil producing countries could be in place before the end of this year as Opec works to institutionalise the ongoing collaboration between 24 member and non-member nations that has helped crude prices to recover.
Suhail Al Mazrouei, the Minister of Energy and Industry of the UAE, which currently holds the Opec presidency, said that a draft framework for a long-term alliance will be finalised in 2018.
The aim is “together with the secretary general [of Opec, Mohammad Barkindo], to put together a draft agreement for this group [of 24] to stay together for a longer time”, he said.
The charter for the broader group is currently "a work in progress" but it is a clear aspiration, the minister said in an interview with The National in Abu Dhabi.
Mr Al Mazrouei has some hope that the draft framework could even be endorsed and signed by all 24 countries before the end of the year.
Optimism is running high that there is now a strong base on which to make the collaboration with non-Opec members a more permanent fixture of energy markets. The Saudi oil minister Khalid Al Falih said last month that the kingdom’s energy alliance with Russia will continue for “decades and generations” and on Wednesday, there was news of plans for joint investments by Saudi and Russia. Opec’s Mr Barkindo said this week that the “building blocks” to institutionalise the partnership between the 24 countries had started to be put in place.
The UAE took over the group’s presidency at the start of this year and picks up the baton from Saudi Arabia following the successful stabilisation of oil markets thanks to the historic Declaration of Cooperation between the 14 member countries of Opec and 10 producers from outside the group, led by Russia, in December 2016. The cooperation has helped lift oil prices to above $60 a barrel from lows of under $30 a barrel exactly two years ago. The rebalancing of demand and supply and the reduction of oil stocks has also been successful thanks to their agreement to restrain crude output by 1.8 million barrels per day.
A more permanent partnership between a grouping including the world’s biggest crude producers, Russia and Saudi, would help with efforts to keep energy markets stable in the future as the growth of the US shale sector means the United States could overtake them both in terms of output by next year, according to the IEA. The oil price crash of 2014 was triggered by an over-supply driven by surging shale production in the US.
Mr Al Mazrouei said that during the course of last year, there had been “a lot of learning” among the broader group of 24 and that high levels of trust within Opec had been painstakingly built up since the summer of 2016 when the idea of a broader cooperation first took hold.
Mr Al Mazrouei said that he doesn’t see why “we cannot continue to work in the future, it’s [down to] what framework we deliver together with the secretary general to ensure we are giving something reasonable for everyone to adapt”.
It is significant that the UAE holds the Opec presidency in 2018, firstly because the group is clearly undergoing some kind of evolution which will need stable leadership but also because this is the Year of Zayed, honouring the country’s founder. Sheikh Zayed took the decision that Abu Dhabi should join the organisation, shortly after he became the emirate’s ruler. When the UAE was formed in 1971 with Sheikh Zayed as its president, it automatically became a member of Opec.
“It is the Year of Zayed which has sentimental meaning for us here in the Emirates. Sheikh Zayed means peace and means prosperity for us and hopefully the Year of Zayed that the UAE is having the presidency is going to be a lucky year for the industry,” the minister said.
It is certainly a period of upheaval for the energy industry, however, with renewable sources becoming increasingly important and in demand. Irena forecasts that renewables will be cheaper than fossil fuels in two years’ time.
“We are a believer that a mix of energy sources is going to happen in the future where more emphasis is going to be put on renewable energy. So it is really not something we are worried about. To the contrary we are promoting the discussion and collaboration between the different forms of energy to achieve a better world in the future,” said Mr Al Mazrouei. The international development arm of Opec, OFID, has invested in renewable energy in developing countries including in small scale solar projects in Rwanda, for example.
Also on the agenda for the UAE’s presidency in 2018 is the continuation of Opec’s efforts to increase transparency and share data.
“What we would like to do differently is structure that and work with the market, the financial markets, work with the media, share the right information at the right time, and allow less speculation and misinformation,” the minister said.
Over the last eighteen months, it has been clear to see that Opec members now speak with a single voice, very much all on message, as they worked to ensure maximum compliance among the 24 countries with the Declaration of Cooperation.
As a result, Opec has achieved rare success, finding consensus on action in an increasingly complex world. There is much scepticism today over the approach of multilateral institutions, which have been blamed for globalisation’s failures. Opec’s success, Mr Al Mazrouei said, can be partly explained by its focus on a single area of interest. Yet, its ability to not just remain relevant but actually increase its influence in recent years, despite various political tensions among its members - unrelated to energy matters - could serve as a model for other organisations around the world.
Mr Al Mazrouei said that Opec’s members are highly aware of their responsibilities to the global economy at large and the impact that unbalanced energy markets can have on the potential for growth.
“All the member countries are mindful of their role in market stability and forget everything else. When we meet, when we discuss, we discuss the benefits to the markets, benefits to the member countries, and the benefits to the world economy. This is how we stay focused. We don’t concentrate on our differences, we concentrate on what unites us and those goals,” he said.