OPEC+ oil producers head into meeting with quota unease and geopolitical risks casting a shadow
Saudi energy minister Abdulaziz bin Salman on Oct. 5, 2022.
Bloomberg | Bloomberg | Getty Images
The influential Organization of Petroleum Exporting Countries and its allies, collectively known as OPEC+, convene to decide next production policy steps on Thursday, in a postponed virtual meeting overshadowed by conflict in the Middle East, internal disgruntlement and the imminent expiry of a key Saudi supply cut.
All eyes have turned on whether the OPEC subset of the group — steered by heavyweight Saudi Arabia — will have mended its differences, after sources told CNBC that Angola and Nigeria objected to lower baselines for next year. Baselines, levels off which cuts and quotas are decided, have been a bone of contention within OPEC+, stalling talks amid UAE pushback in the summer of 2021.
Angola and Nigeria have struggled with declining output amid underfunding, spare capacity depletion and infrastructural sabotage. But accepting lower baselines would pose risks in the event of future output recoveries. The two countries’ baselines for 2024 — and implicitly their production quotas — were due to be studied following assessment from three independent data providers.
Two OPEC+ delegates, who could only speak anonymously because of the sensitivity of discussions, told CNBC Tuesday that a compromise had yet to be reached, as the clock ticks toward key meetings between OPEC, OPEC+ and their technical committee.
The gatherings were initially scheduled as in-person meetings last weekend in Vienna, before a last-minute downgrade to virtual conferences. Their new date overlaps with the first day of the 2023 United Nations Climate Change Conference (COP28) hosted by key OPEC member the UAE, which is trying to raise its profile as a champion of the green transition.
Beyond internal strife, OPEC+ has been contending with a perceived disconnect between prices and supply-demand fundamentals, which has frustrated the group — including Saudi Energy Minister Prince Abdulaziz bin Salman, who warned market speculators they should “watch out” in May.
Last week, three OPEC+ delegates stressed recent oil prices were pressured by liquidations in a tight future markets, while a fourth delegate said that prices are now shaped by global politics, including developments in Gaza.
OPEC+ members already have a 2 million barrels-per-day production cut in place, compounded by 1.66 million-barrels-per-day voluntary declines from some members. Both were agreed until the end of 2024.
Topping this, Saudi Arabia and Russia instituted respective supply drops of 1 million barrels per day and 300,000 barrels per day until the end of this year. These drops fleetingly boosted prices that languished amid high interest rates and banking turmoil in the first half of the year, but gains have since retreated, given a fragile recovery in China and political uncertainty in the Middle East.
One of the aforementioned delegates said that OPEC+ would have to make a policy announcement to “support the market,” while another delegate suggested cuts could be discussed. But a different delegate assessed it is unlikely that the coalition will change course, acknowledging uncertainty over Iran and Venezuela, where the U.S. signaled tightening and easing its oil sanctions, respectively.
Further cuts could stir dormant tensions with the White House, which prefers prices low at the pump but has stayed silent since a war of words with Riyadh last year. U.S. calls for additional production could conflict with Washington-endorsed efforts for global solidarity around decarbonization at COP28.
Oil spill
OPEC+ and broader markets face uncertainty whether the conflict between Israel and Palestinian militant group Hamas would spread into the Middle East, echoing the crisis of 50 years prior that resulted in several Arab countries restricting oil exports to the U.S.
Two OPEC+ delegates said the coalition would not politicize production, with one of the sources noting that the embargo of 1973 was decided by the Organization of Arab Petroleum Exporting Countries.
Riyadh’s tone against Israel, reined back by U.S. efforts to normalize relations between its two allies, has slowly sharpened, with Saudi Crown Prince Mohammed bin Salman now urging countries not to provide Israel with weapons. Iran’s supreme leader Ayatollah Ali Khamenei’s calls for an Islamic oil embargo against Israel have so far gone unheeded — and Iran’s sanctioned status has heavily reduced its influence in OPEC+ diplomacy.
Tehran’s own crude flows are themselves under long-term question. Amos Hochstein, White House energy security advisor, told Bloomberg TV that the U.S. will now enforce oil sanctions against Iran amid the resurgent Middle East war, noting of Iran’s oil exports, “Those numbers will come down.”
Separately, Libya voted to strengthen a law criminalizing relations with Israel, turning away a vessel from loading crude locally because of a previous voyage to Israel, a Libyan shipper told CNBC. A separate decision by Yemen’s Houthi to hijack a cargo ship on suspicion of Israeli connections and label all tankers owned by or dealing with Israel as a “legitimate target” dampens the security of popular oil routes in the Red Sea.
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China just connected its largest single-capacity solar farm built on a former coal mining area, which is in the Gobi Desert, to the grid.
The Mengxi Blue Ocean Photovoltaic Power Station, located in Otog Front Banner, Ordos, Inner Mongolia, came online on November 5. With a massive installed capacity of 3 gigawatts (GW) and over 5.9 million solar panels, the plant will generate around 5.7 billion kilowatt-hours of electricity annually – enough to power 2 million households.
This huge project will save about 1.71 million tons of standard coal each year and cut carbon dioxide emissions by roughly 4.7 million tons, which is equivalent to planting 62,700 hectares (around 155,000 acres) of trees.
Built on coal mining subsidence land, Mengxi Blue Ocean is part of China’s national West-East Electricity Transfer Project, which brings investment and development to western China west while supplying the growing need for electricity in the eastern provinces.
The solar farm includes the country’s first large-scale outdoor solar testing base in the Gobi Desert climate, demonstrating the potential for large solar installations in challenging environments.
The power station makes use of new rare earth alloy grounding materials, cutting costs by 40%. It also replaces traditional concrete foundations with steel to minimize impact on the local grassland ecosystem.
Chuang Xihong, deputy director of the Engineering Construction Department of Guodian Power Group, CHN Energy’s parent company, explained that Mengxi Blue Ocean is an agrivoltaic project as well [via PV Tech]:
Fine forage and sand-fixing plants are planted under the PV modules, providing grazing for Australian White Sheep and chickens. A composite ecological development model will be established where PV power generation and breeding will go hand in hand.
Read more: China powers up the world’s largest open-sea offshore solar farm
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