The OPEC’s Algiers Informal Meeting tomorrow, regardless of the various scenarios of its running, would not be a failure, but a success for Algeria’s economic diplomacy, if it manages to bring together a good number of participants. According to our information, there will not be question of lowering any production but rather to try and reach a consensus with a view to reconcile, contradictory points of view so as to stabilize the market on an equilibrium price ranging between $50 and $60. However Utopian the idea might seem, of the growth of the world economy taking off, this is the very factor that will ultimately determine the price of oil. Taking into account the global geo-strategic map and the approaching fourth global industrial revolution whilst avoiding to reason on a model of linear consumption, one must as just announced by the Chinese president at the recent G20, that no expert can accurately predict scenarios of evolution of the price of oil as well as that of the new world economic structure of between 2010 and 2030.
As highlighted in a number of my contributions, refer to Maghreb Emergent.com and contrary to some Algerian experts’ speculations, global demand for oil can only be mitigated as per the Organisation for Economic Co-operation and Development (OECD) for years 2016 and 2017 in its 2016 report.
According to this report, the low growth in trade and distortions in the financial system do cloud the Outlook for global economic growth which has a direct impact on demand for oil.
In case the price was held at a reliable level, any freeze of the production of the OPEC countries would certainly benefit those non OPEC countries who will consequently take larger market share. Conversely in case of a production freeze, this would allow an increase in prices up to $60 but would not avoid the same scenario, and at term could have a negative impact on prices with oversupply. Those who reason about the rigidity of supply tend to easily forget two factors: 1. the reduction of costs with new technologies, thus offering a premium to those that relied on the knowledge economy, and penalising the net importers of patents and 2. the new model of energy consumption which is gradually taking place (energy efficiency and mix).
The difficult equation to solve at the Algiers meeting would be although the US as one of the largest producers will not be present and playing on the reduction of costs of production has become a net exporter. Observers agree that the future price will depend on an agreement between consumer and producer countries on the one hand and on the other, by an OPEC and non-OPEC countries agreement. Negotiation should then focus on the level of the freeze or nothing has been decided yet.
The transformation of the informal meeting into a formal meeting according to the statutes of the OPEC is a sovereign decision of OPEC ministers, which may postpone the final decision to the meeting scheduled for November in Vienna. And the big problem, then would be, if freeze was agreed, its level. If this were at a high level, of say Russia’s and Saudi Arabia’s during July to September 2016, there would be no significant impact on the price.
Also, the determination of the price of oil, (the price of gas is indexed on it) will depend on an agreement between, Saudi Arabia and first, Russia that reached a record level of production in early September 2016 and between Saudi Arabia and Iran that desperate for funds, is keen to return to its before sanctions quotas of over four million barrel per day (BpD). The Saudi proposal to reduce its output by 500,000 BpD back to its January 2016 level would be conditioned by Iran not exceed 3.5 million BpD. This is a big problem but what about Russia?
Country with obvious geostrategic stakes, and leaders alleging that the Americans are up to wanting to put Russia’s economy back, including foreign reserves at an exchange rate of over 40/50 Dollars may run out by 2020.
To all this, should be added the future growth of production by end of 2016/2017 of Nigeria, of that of Libya, of Iraq (for these two countries to achieve their quotas) and of Kazakhstan with the entry into production of a large deposit in December 2016, not to mention that of the USA as well with shale oil and gas (through a reduction of 30 / 40% of the costs) that has upset the whole global energy map (1).
Basically, the future equilibrium price will be determined by an agreement between the USA and their strategic allies for a long time, Saudi Arabia. But it remains that the major factor will be the growth of the world economy with a negative or positive impact on producing countries, because of the interdependence of economies. In case of a low growth, the stabilization of the oil price will be difficult to achieve, prices should fluctuate between $45-50. In the case of a slight recovery, it could go to the next band of $50/60 between 2017 and 2020. In the event of a strong recovery between 2017 and 2020, it could even reach the next band of $60/70.
In the event of a crisis similar to that of 2008, it could sink to below $40. Beyond 2020/2030, because of the disruption the global geostrategic map and the upcoming fourth global industrial revolution, no expert would be in a position to anticipate with a relative accuracy any scenario of evolution of not only the price of oil but also of the new global economic structure, between 2020, 2030 and 2040. All we could say at this stage is that strategies for adaptation by successive layers are necessary.
In short, far from the vision of gloom that announces the failure of the meeting in Algiers, and regardless of any of the scenario put forward, and after years of isolation, being aware that in practice of the business of fossil oil is not ready yet to be replaced by any other form of renewables, the informal meeting in Algiers OPEC would have at least served to bring some value added to the current discourse and therefore is after all a success in its own right. Success for notably the “economic diplomacy” of Algeria.
Dr. Abderrahmane Mebtoul, University Professor, International Expert, ademmebtoul@gmail.com
The oil price fell to a level never reached in more than four years losing more than 60% as of 2014, though rallying slightly a month earlier; the Brent managing $47,19 and the WTI $44.72 whilst at the same time, the Dollar lost some ground to the Euro. An Informal Meeting of OPEC in Algiers this September was envisaged in this context.
The Organization of Petroleum Exporting Countries (OPEC) 14 member countries have agreed to meet however informally on the side-lines of an energy forum scheduled for September 26th through 28th in Algiers. Miracles are not expected but potential solutions would rather depend on an agreement between Saudi Arabia and Iran, on the one hand, and on the other between Saudi Arabia and non-OPEC Russia and the US.
Avoiding to both reason on a linear model of consumption or to making risky predictions and whilst some experts predicted the price of $70/80 by late June 2016, misleading public opinion (1), I would like to think that we are in presence of 12 basics as follows :
1 – OPEC, composed of Algeria, Angola, Ecuador, recently reintegrated Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela, whilst having the largest world conventional oil reserves would represent only a third of the world’s marketed production. Algeria and Venezuela, campaigning for a reduction of the quotas by 2 million barrels per day (2 Mb/d), are marginalized leaving Saudi Arabia and the Gulf countries a freehand in the cartel strategy.
2 – The non-OPEC countries’ strategy of expansion represent 65 to 67% of global market. Russia home to Gazprom oil & gas main producer is in need of finance, and tensions in Ukraine do not seem to have affected its exports to Europe where its market share for gas was 30% between 2014/2015. It is well known that Russia has taken market share when OPEC was reducing its quotas. Any decrease in the production of the non-OPEC countries for productivity’s sake, would impact the supply side and in case of expansion of demand would act positively to raise prices and vice versa. The countries of the Gulf, notably Saudi Arabia, confirmed on several recent occasions that they would reduce their production only if producers outside the cartel, notably Russia whose production lately reached record levels, also embarked on this path.
3 – Slow growth in the world economy, including that of the emerging countries, Argentina, Brazil and India between ½% and China’s 7%, mainly due to the increase in interest rates with the construction industry contributing to more than 25% of its GDP, in order to pre-empt a real estate bubble, would explain present demand.
4 – The emergence of American shale gas/oil did upset the world energy map; with a production from 5 million barrels a day to over the current 10, impacting supply and turning the US in July 2016 into an exporter to Europe. Cost of Saudi production however is between $5 and $10 per barrel (that of Iraq’s below $5) against that of the US marginal shale gas deposits that is $40 to $60 and that of the larger deposits at $25 to $40, thanks to new technologies helping to substantially cut the costs by more than 30 to 40% in recent years.
5 – Rivalries within OPEC with respect to quotas, include Iran-Saudi Arabia, and for purposes of market share objectives, would increase their supply. Saudi Arabia with more than 35% of OPEC’s as well as 12% of the world’s production could be the only producer country in the world today that is able to weigh on world supply, and therefore on prices, not existing for geostrategic reasons of rivalries with the USA. Eventually, the equilibrium price will be basically determined by an agreement between Saudi Arabia and the USA.
6 – The arrival of several new producers must be taken into account on the supply-side, including Libya ranging up to 2 million barrels a day, of Iraq with 3.7 million barrels a day (at a cost of less than 20% compared to its competitors) that can go to more than 8/9 million, and Iran with more than 5/7 million in the medium term, and in a very short period exceeding 3.5 million barrels per day. Moreover, with new discoveries in the world, especially in offshore sites particularly in Eastern Mediterranean (20,000 billion m of gas) and Africa’s Mozambique that could have the third largest world reserves. All this is amplified by new technologies that allow the reduction of the cost of the marginal deposits.
7 – We are presently seeing new technologies for energy efficiency in the majority of Western countries, with a forecast of 30% reduction thus questioning Algeria’s continuing regardless of that with its two million housing units development using old methods of construction.
8 – Trends are for a new division and international specialization with concentration of high-intensive energy manufacturing in Asia with 65% of world consumption by 2030 notably in India and China. Customer-supplier relationships will be to their advantage to have comparative advantages pushing prices down as does currently China for Venezuela and Ecuador.
9 – The upward or downward level of US stocks would intensify speculation of traders in the stock markets.
10 – Terrorism interference in oil and gas fields in Iraq and Syria with flows through to the black market and Turkey at $30 a barrel has some transient and marginal consequences on prices.
11 – Any variation in the exchange rate between the Dollar and the Euro would impact the oil price at between 10 to 15%, although there is no direct linear correlation.
12 – The determining factor in the future will be the energy transition between 2020 and 2040. It is a strategic mistake to reason on a linear consumption model and make risky predictions without sticking to the fundamentals. Each year in the world, $5,300 billion ($10 million per minute) are spent by all States to support fossil oils, according to estimates of the IMF in its report for the COP21. However, it seems that the majority of the leaders of the world have become aware of the urgent need to go for an energy transition. In the case of a mutation of the model of energy consumption at the global level, (the future in 2030 being hydrogen), this will influence fossil energies pricing down. .
According to experts of Citigroup, the Saudi strategy preparing for the energy transition, is investing massively in renewable energy so as to reduce its dependence on oil; $2,000 billion could also be seen as a precursor sign of OPEC weakness, as being able of acting sustainably on prices. Rebalancing also of the market will depend on a series of factors that are outside of OPEC countries. The financial tensions in many oil-exporting countries reduce the capacity of these countries to mitigate the shock, resulting in a significant decline in their domestic demand.
A spectacular rise in the price of oil that is expected not to occur, we anticipate to have four scenarios :
The first scenario is about an expansion of the world economy including China’s where the oil price approaching $60/65 between 2017/2020; no one can predict beyond that but all depend on the energy mix between 2020/2030.
The second scenario is moderate growth, and the price would fluctuate between $50/60.
The third scenario, with low growth course would fluctuate between $40/50.
The fourth scenario a global crisis where the price would plunge below $ 40.
Dr. Abderrahmane Mebtoul, University Professor, Expert International, ademmebtoul@gmail.com
(1) – Professor Abderrahmane Mebtoul, PhD (1974) – Director of Studies at Department Energy/SONATRACH 1974 / 2007. Audit director, February 2015 on the risks and opportunities of the shale gas assisted by 23 international experts. – See study by Professor Abderrahmane Mebtoul, published at l’Institut des Relations Internationales (IFRI Paris France November 2011) in French – “Maghreb cooperation / Europe geostrategic challenges”–“for a new strategic management of SONATRACH» – revue international HEC Montréal Canada (2010) – International Conference ADAPES / French Parliament, November 2013 -“new mutations energy global’ – ‘Gas strategy of Algeria facing global changes’ review International Gas today (Paris France – January 2016).
Also – See different contributions in MaghrebEmergent.com (2014/2016) and Interviews of Professor Abderrahmane Mebtoul, on :
CNN Arabic on August 25, 2015
The weekly London based Arab Economic News
Al-Arabiya TV, London, August 27, 2015
The Spanish official agency E.F.E., main agency in Spanish, «Global energy changes, impacts of the decline in the price of oil on the Algerian economy and prospects»
RFI (Paris, France in December 2014) “what Algeria must do to avoid the crisis”
Report of the IMF/Bank world level of foreign exchange reserves 2018 and impact of the informal meeting of OPEC in Algiers
The transition energy guarantor of global security . . .
The one day 15th World Forum on Sustainable Development in Paris ended on March 13th, 2017 in the presence of many personalities from the world’s governments, politics, business, academic experts in energy.
I want to first thank the President of the World Forum of Sustainable Development for his kind invitation and for allowing me to put my view forward in an intervention, as an independent expert. It followed on that of the Algerian Minister of Energy who has objectively presented his vision of Algeria’s. Utopia aside, fossil fuels such as gas, still have time to go as the main source of energy at least until 2030. But governing is anticipating, it is up to Governments to deal with the new and irreversible global energy changes notably those enshrined in the agreements of the COP21 in Paris and signed off a year later at the COP22 of Marrakesh in order to prepare the necessary energy transition.
It is a strategic mistake to reason as in the past on a linear energy model of consumption.
As far as energy engaging the security of Nations is concerned, the strategy of renewable energy must form part of a clear and dated definition of a new model of energy consumption based on an Energy Mix by evaluating resources to achieve all objectives that have to prepare the industries of the future. These will be based on the new technologies related environmental industries, object of the new economic revolution that is anticipated to be in 2020/2040
Strategy for the Energy of the Future
Photovoltaic solar energy refers to the energy recovered and converted directly into electricity from the sunlight by photovoltaic panels. It results from the direct conversion into a semiconductor of a photon to electron. In addition to the benefits associated with the low cost of maintenance of the Photovoltaic systems, this energy fits perfectly for isolated sites and whose connection to the electric grid is too expensive.
Solar Thermal energy is the conversion of solar radiation into heat energy. This transformation can be used directly to heat a building, for example or indirectly (such as the production of steam for turbo-alternators and thus get electrical energy). Using this transferred heat through radiation rather than the radiation itself, these modes of transformation of energy differ from other forms of solar energy as solar cells such as Photovoltaic cells..
By definition, wind energy is the energy produced as a result of the action of wind on specially designed turbines to generate electrical power.
Average solar irradiation in African countries, according to IRENA (International Renewable Energy Agency) is between 1,750 kWh/m²/year and 2,500 kWh/m², nearly double that of the Germany (1150 kWh/m²) which has an installed photovoltaic farm of 40 GW (a photovoltaic capacity 20 times greater than that of Africa).
The load factor of any photovoltaic systems would be much higher in Africa than in European countries. And by end of 2015, Africa had 2,100 MW of installed solar photovoltaic plant, 65% of this capacity is concentrated in South Africa and 13% in Algeria and 9% the Reunion.
In the past two years, the continent has more than quadrupled its capacity in photovoltaic farming but this would remain still modest in the light of the great African potential because some 600 million Africans do not have access to electricity.
According to the Agency, this energy would be competitive today with currently used fossil fuels, whether in the case of important plants or isolated micro-grids (as well as home systems). According to IRENA, the investment of large photovoltaic power plants in Africa costs decreased by 61% since 2012 and possible a decrease of 59% of these costs over the coming decade.
These currently are nearly $1.3 million by installed MW (the world average for photovoltaic is around $1.8 million per MW/h according to IRENA). IRENA highlights the fact that photovoltaic energy presents for Africa a decentralized and “modular” solution (with facilities of a few to several tens of MW) for rapid electrification of areas not connected to power grids.
According to experts, it is true that the energy needs of Africans are limited to a few KW/h per capita per year, for mainly electric lighting. Electrical power networks are rare in Africa; therefore there could be no possibility of economy of scale. Africans pay 2 times more expensive power than Europeans do. It’s always more interesting to have cheap electricity.
But industrial development requires great levels of power and heat specially. Photovoltaic source of energy is certainly more suited to small off-grid installations and for some African countries but industrial production would require this to be combined with heat production.
Renewable energy expansion would be part of the professed Energy Transition.
The transition may be defined as the passage of a civilization built on energy essentially fossil, polluting but abundant and cheap, to a civilization where energy is renewable, rare, expensive but less polluting and aimed at the eventual replacement of energy (oil, coal, gas, uranium) stock by energies of flow (wind, solar).
Energy transition refers to subjects other than techniques, such as those related to societal problems. It is a move towards an Energy Mix as justified by the scarcity of resources, thus the urgency of a new model of consumption on a global scale which poses the problem of energy efficiency, and a social consensus, today’s technical choices engaging society in the long term: how much is this transition, how much is it worth and who will be the beneficiaries?
It was necessary to first make few remarks on the current approach to development of renewable energy. We must target priority projects which contribute the most to the achievement of the objectives. Without any decision between the Photovoltaic and Thermal, we would discuss solar heat that seems suitable in the regional program of the South. Algeria that has significant potential in this area can become between 2020 and 2030 an exporter. The lack of knowledge of the field could not explain the selected program.
Indeed, wanting to test all technologies before opting does not seem to be the right approach. This would hide all studies that have been used including the studies in question had been carried out in collaboration with key research centres in the USA, as the ENREL, as regulators of solar technology: the DLR (Germany) and CIEMAT (Spain). The Kramer Junction plant works in the USA since 1980 with a capacity of 300 MW on the same technology that was used in Hassi R’Mel, Algeria.
Solar towers in Spain have been proven for many years. This is to identify the parameters of different technology assessment. With GTZ (Germany) the decomposition of the value chain by component and by cost helped to set a realistic integration of 70% for the solar heat rate. Manufacturers of solar thermal converge with this rate, while also according with the level to export electricity to Europe. Indeed Europe will need to import 15% of its needs by 2030 that is the electrical equivalent of 24 GW or the equivalent of 50 billion M3 of gas per year.
The study has also defined the conditions:- a stable political framework, a sustainable local market the size of 250 MW/year and a market that is open between the countries of the Maghreb. Technologies must correspond to the most important value potential allowing a rate of integration, the greatest creation of jobs, offering the best match with the electricity market and finally, the most important technologies with the greatest potential for cost reduction up to competitiveness with fossil fuels.
The technology partnership and integration generally appeal to private companies. The risk is too great for an investor to agree to be put under the control of a public company.
Transition based on Realism
It is therefore to identify the real actors and have a strategic vision based not on utopia but on realism as it is generally believed that laws and changes in organizations would not solve the foundations of problems, the political actors are therefore essential, referring to the political and social base. As far Algeria is concerned, I warned the Government and particularly SONATRACH of a suicidal adventure that could involve the security of the country, if these were to engage in massive investments in conventional hydrocarbons whereas the world at this time would undergo between 2020 and 2030 a major shift in energy consumption.
The Government that was misled in the past into believing that $90/100 per barrel would be the market price of oil, must at all costs avoid to reason about a model of linear consumption. It is that large firms in the U.S., in the European and Asian International spheres are reportedly investing massively, preparing the future in other alternative energy segments. Also, future profitability must register for the deposits between a fork of $40/55 and for marginal deposits between $60/70 before despite the recent report of the IEA on a possible barrel at above $80/90
What are the axes for the energy transition of the 2017/2025/2030 Algeria?
The first axis, would be to improve energy efficiency with new technology; energy consumption whether at the household level and / or the economic sectors referring to the policy of the currently widespread subsidies source of wastage that should be targeted for energy products. The Algerian Government would be bound to reflect on the creation of a National Chamber of Compensation that would be charged to coordinate all inter socio-professional and inter-regional equalization.
The second axis would be for Algeria to decide on investing upstream for new discoveries. But for the profitability of these deposits, it will depend on price at the international level and the costs,.
The third axis, Algeria planning to build its first nuclear plant by 2025 for peaceful purposes, in order to meet its soaring electricity demand.
The fourth axis, would be the option of Shale Oil/Gas (3rd global reserves according to international reports) introduced in the new law of hydrocarbons from 2013, folder that I have the honour to lead on behalf of the Government and handed over in January 2015. In Algeria, in order to avoid positions decided for or against, a broad national discussion, because we cannot minimize the risk of pollution of aquifers in the South of the country where as a semi-arid country, the problem of water is a strategic issue in the Mediterranean and African level.
The fifth axis would be the development of renewable energy by combining Thermal and Photovoltaic whose global costs of production decreased by more than 50%. Algeria has decided to apply the resolutions of the COP21 and 22, about global warming. But effective action cannot be designed by a Nation on its own. It will involve wide consultation with especially between the countries of the South Mediterranean and the Maghreb because for the Maghreb including Algeria, water resources are vulnerable to changes in climate. Water and its management problems would definitely affect the future of all these countries.
With more than 3000 hours of sunshine a year, Algeria has what it takes to develop the use of solar energy in a win-win partnership. For this purpose, the CREG (regulatory agency) issued decrees to accompany the implementation of the program of Algerian of development of renewable energy in the context of the implementation of a national fund for energy efficiency (FNME) to ensure the funding of these projects and grant loans at subsidized interest rates and guarantees for loans made from the banks and financial institutions.
By 2020, it is expected that the installation of a total power of about 2,600 MW for the national market and a possibility of export of the magnitude of 2,000 MW and by 2030, it is expected the installation of a power of nearly 12,000 MW for the national market as well as a possibility to export up to 10,000 MW. According to the CREG, Algeria plans to launch a tender for investors for a mega project of 4,050 MW Photovoltaic solar power plants, soon split into three lots of 1,350 MW each and backed by the construction of one or more factories of manufacturing equipment and components of solar power plants.
Development of electric interconnection between the North and the Sahara (Adrar), will enable the installation of large renewable energy plants in the regions of In Salah, Adrar, Timimoun and Béchar, and their integration into the national energy grid system. If these achievements were effective, apart from the problem of funding with budgetary tensions, the country would have by 2030, 37% of the installed capacity of electricity for domestic consumption from renewable sources.
In conclusion, economic dynamics alter the balance of power throughout the world also affect the political compositions within States as well as at regional and nationwide areas. Energy, in particular, is at the heart of the sovereignty of States and their security policies.
As I had to sustain it in various international conferences of mine and recently in a long interview by the American Herald Tribune of January 28th, 2016), co-development, and collocations, which cannot be limited to economics, including cultural diversity, can be the field of implementation of all the ideas at the level of the Mediterranean basin as to hopefully turn it into a shared Lake of peace and prosperity.
In the interest of both the Europeans and all of the southern Mediterranean populations, borders of the common market, of Schengen, of social protection, would be the borders of the environmental requirements of tomorrow. These must be along a line south of the MENA region for a lasting peace, where Arab, Jewish and all other ethnic populations have a thousand-year history of peaceful coexistence.
In these moments of great geo-strategic upheavals, the African continent with very strong potential, would have to face up to significant challenges in the 21st century, such as rivalries between the major powers, USA/China/Europe for its control, whilst by 2040, it will have a quarter of the world’s population and perhaps drawing the growth of the world economy. This is subject to good governance and of the primacy of the economy of knowledge and the struggle to lower global warming which hits it hard by the preservation of its environment. In this context, the development of renewable energy is the guarantor of the coverage of needs and energy security of humanity. –
Written in Paris on March 14th, 2017 by Professor, Expert Dr Abderrahmane Mebtoul, Director of Studies Department of Energy 1974/2008 – ademmebtoul@gmail.com
At the 15th Forum of Sustainable Development “The Mediterranean and regional borders” on Monday, March 13th, 2017 at 9, Avenue Franklin Roosevelt, Paris 75008, FRANCE.
See also recent contributions of Pr Abderrahmane Mebtoul on MENA-Forum.com
It is widely believed that no binding decisions would be taken at the informal meeting of OPEC of Algiers on September 26th and 27th, 2016. The price of oil is at a relatively low level on September 16th, 2016 closing at $45.99 for the Brent and $43.22 for the WIT whilst the Dollar was $1.1156 fora Euro. According to our information, at this meeting, whilst facing energy and geostrategic global changes, OPEC informal meeting in Algiers, would be expected not to produce any major binding decisions but it will rather be the opportunity for a broad dialogue. It will be as repeatedly highlighted in my contributions to essentially analyse the impact of OPEC in the face of the new global geo-strategic changes. OPEC members may call for another meeting if some sort of consensus is reached at this meeting of Algiers. It will be to discuss oil prices as explained by OPEC Secretary General.
Meanwhile, OPEC, despite its large reserves does represent only a third of world marketed production with a declining influence. According to international statistics, the ten largest producers in descending order in 2015 were :
Saudi Arabia, the United States, Russia, and China in fourth position are closely followed by Canada, Iran, the United Arab Emirates and Iraq. This latter has the capabilities of Saudi Arabia, Kuwait with Nigeria and Venezuela in 10th. Brazil, Angola, Kazakhstan, Qatar, Norway and Algeria with a quota of 1.2 million barrels per day off about 33 million of total OPEC’s daily. Colombia, Oman and Libya, far from its potential because of civil war close the pack as members with some however respectable weigh.
The Gulf countries spearheaded by Saudi Arabia have repeatedly indicated that they would agree to cut their production only if producers outside the cartel, notably Russia whose production recently reached a record level, committed also in this way. At most, we should expect a freeze in case of agreement between Russia and Saudi Arabia and on the other hand between Iran and Saudi Arabia. But it is generally thought that the future depends on the global economy growth, notably that of the emerging markets, Argentina, Brazil, India and especially that of China.
On the supply side, there must be taken into account, the entry of many producers, including Nigeria, Libya which could go up to 2 million barrels per day and announcing only September 15th, 2016 on the eve of the informal meeting of OPEC it will be quickly moving towards exporting 1 million barrels / day. The return of Iran with Russia would most probably dominate the Asian market.
But beware of Iraq with its potential 3.7 million barrels per day, second global reservoir and at a production cost of less than 20% as compared to its competitors) and a production that could go to more than 8/9 million, via a 4/5 million in medium-term in case of political stabilization. This would pose some discipline problems to the OPEC as Iran also is in want of return to its old quota that is over 4 million barrels a day prior to the embargo.
It is the introduction of the US shale gas / oil that has upset the entire global energetic map, that helped with state of the art technologies have substantially reduced costs for more than 30 / 40% in recent years, moving the US production from 5 million barrels a day to over 10 currently. The US in 2016 have become exporter to Europe (1) and seem not to be interested by the meeting in Algiers.
Saudi Arabia (with more than 35% of OPEC’s production and 12% of world production) is today the only producer in the world that is able to influence global supply, and therefore prices. There do not seem to be any existing geostrategic reasons of rivalries with the USA, but only tactical rivalries. The equilibrium price will basically be determined by an agreement between Saudi Arabia and the US. Eventually, the rebalancing of the market would depend on a number of exogenous factors that are outside of the OPEC control; Saudi Arabia for instance equilibrium price ranging between $50 – $55 a barrel. According to the International Energy Agency (IEA) in its report of September 2016, world consumption of oil are expected to increase by 1.3 million barrel per day (MBD) to 96.1 MBD this year, against a previous estimate of 1.4 MBD from the fact that the recent pillars of growth that are China and India are “vacillating”. A new slowdown in demand growth is anticipated for 2017, with an increase of 1.2 MBD to 97.3 MBD. According to the IEA, supply remains steady, especially from OPEC with a near-record of 33,47 MBD in August 2016 – level or 930,000 barrel per day more over one year. This helped to offset the production decline in third countries because of the low prices that have reduced investment, and to limit the decline in global production in August at 96.9 MBD to 0.3 MBD. Thus, Kuwait and the United Arab Emirates have produced unprecedented levels and Iraq has increased its deliveries. The production of Saudi Arabia amounted to a near-record level and that of Iran has amounted to 3.64 MBD, a high since the lifting of the sanctions. OPEC, in its monthly report published in September 2016, considers that the total production of the countries not part of the cartel will increase in 2017; a forecast which induces a larger than expected surplus for 2017. Thus, the production of non-OPEC countries should increase by 200,000 barrels per day in 2017, against a previous projection of a decline of 150,000. The OPEC report induced an average surplus of 760,000 barrels on the oil market in 2017 against a surplus of the supposed 100,000 in the previous report. Moreover, according to international data, Russia, confronting financial difficulties, will increase its production of 2.2% over 2016 by between 546 and 547 million tonnes.
Indeed, according to a Moscow School of Economics, emergency resources established to supplement the Russian budget would be about to run out. The emergency fund would be at a level of $30.6 billion from $88.8 billion in 2014, which took in May 2016, Russia to launch a bond issue in Dollar.
Moreover, according to Reuters, citing Rystad Energy, the US have reserves of exploitable oil greater than those of Saudi Arabia or Russia, thanks mainly to shale oil, estimated to 264 billion barrels in existing fields, against 256 billion for Russia and 212 billion for Saudi Arabia. And according to the OECD, oil supply will continue to exceed demand at least during the first half of the year 2017.
We do not expect a spectacular rise in the price of oil and therefore miracles at the informal meeting which will be held in Algiers. Success would be a freeze on production, which is not obvious according to my information, the solution being to each producer margins of manoeuvres to avoid the failure of Doha. The big problem is the frost level, if freezing there is, not to touch the countries in situations of war and Iran, knowing that Russia and Saudi Arabia have reached a level of record production between June and August 2016. Maintaining this level would then not influence prices.
Also all depend on discipline within OPEC, on the attitude of non-OPEC countries; the latest reports from September 2016 of IEA and the European Economic Commission is encouraging for the future of the growth of the global economy. As must be taken into account a new model of energy consumption. In effect, the world will have to attend between 2020/2030/2040 to a new model of consumption and to a new global energy power. According to the World Economic Forum for 2016, we should be going through the fourth industrial revolution by 2025/2040 whereby new technologies for energy efficiency in the majority of Western countries, with a forecast of 30% reduction (energy and sustainable building materials).
Each year in the world, $5.300 billion are spent to support fossil fuels, according to estimates of the International Monetary Fund (IMF) report for the COP21. However, it seems that the majority of the leaders of the world have become aware of the urgency to go towards an energy transition. Because if China, India and the African continent had the same energy consumption of that of the US, there would be need for a five times the present planet Earth. In the event of a change at the global level in the model of energy consumption, the level of prices of fossil hydrocarbons will be affected downward. The two influencing factors that are growth of the global economy and the new model of energy consumption are and will remain beyond the OPEC countries.
Those who reasoning on a model of linear energy consumption as in the past, predict high prices by 2020 are making a strategic error; major investment groups are already moving into research / development in the energies of the future. It’s all over with a price of more than $ 80/90 (1).
In summary, the OPEC countries must as off now prepare their transition economics that depend on energy transition so as to avoid certain strains in their future. The only solution would be to think of a new model of energy-mix-whilst assuming to review the policy of subsidies which must be targeted coupled with action on costs to be competitive, all referring to strategic adaptation taking into account the rapid transformation of the world.
Dr. Abderrahmane Mebtoul, University Professor, Expert International, ademmebtoul@gmail.com
Les Afriques magazine international, Dakar, Genève, Paris, « Le Maghreb a besoin d’une transition énergétique, 13 septembre 2016
Debate on Algerian public radio in Arabic Channel 1 on the informal meeting of OPEC on September 4, 2016, from 12 h to 13 h intervention of Professor Abderrahmane Mebtoul in Paris on the price of the Brent oil and subsidies of energy products.
Interview on BBC London radio on the situation of the European crisis and the impact of deflation ; September 15, 2016
State daily El Moudjahid of September 15, 2016-“SMBs:”a strategic vision is needed” and also in the same daily “job creation: the contribution of Internet sites and social networks»
Interview in Paris by Chorouk TV on September 16, 2016 on OPEC’s informal meeting in Algiers
El Khabar – KBC in Paris TV interview on the meeting Prime Minister, Employers, Unions on September 16, 2016
Dr Abderrahmane Mebtoul is invited as an international independent expert at the informal meeting of OPEC by the Algerian Government, which will be held in Algiers from 26 / 28 September
An article written by Ebrahim Fallahi and published on Tehran Times of September 28, 2016. It is about the recent informal OPEC meeting held on the sidelines of the International Energy Forum 2016 ( IEF ), which groups producers and consumers.
It is against a background of the generalised exporting countries and Big Oil companies earnings shrinking, prompting OPEC producers and rival Russia to look for re-energising as it were, the oil market thus boosting revenues from oil exports and help their crippled budgets.
The idea among producers is to come to some agreement on a freeze of production levels but a deal has yet to be reached as it seems now it is complicated by acute political rivalry between Iran and Saudi Arabia, which are fighting several proxy-wars in the Middle East, including in Syria and Yemen.
Sources told Reuters last week that Saudi Arabia had offered to reduce its output if Iran agreed to freeze production, a shift in Riyadh’s position as the kingdom had previously refused to discuss output cuts.
Algiers meeting outcome hanging in the balance
Senior officials, corporate executives, representatives of international institutions and experts from all around the world along with major oil producers have come together in Algiers to attend the 15th International Energy Forum (IEF) from Sept. 26-28.
But the spotlight is more fixed on the sidelines than the main event, OPEC and key non-OPEC countries will hold an informal meeting today to discuss ways of stabilizing the oil market.
Iran and Saudi Arabia, the two main players in this scene, are standing in two different poles.
“Both countries are coming from different positions,” said Jason Tuvey, Middle East economist at consulting firm Capital Economics told Bloomberg.
On one side stands Saudi Arabia, hit by economic crisis at home and facing a second year of record budget deficit.
The kingdom’s move towards economic reforms aiming at reducing the effects of falling oil prices has resulted in a financial chaos and Riyadh is squandering its foreign exchange reserves.
In a latest attempt to recover from the unexpected turmoil, Saudis decided to cut the ministers’ salaries by 20 percent and scale back financial perks for public sector employees in one of the most drastic measures.
Now with the IEF opportunity on the horizon, in an attempt to save the sinking economy, Saudis tried to throw the world’s expectations ball into their longtime rival’s court, offering a reduction in oil production if Iran caps its output.
Almost all market and oil experts believe that the Saudis’ offer hasn’t originated from a good will.
“Saudi output had risen too steeply in recent months and even if it were cut to pre-summer levels, Iran would see an offer to freeze its own output as unfair,” Reuters quoted Gary Ross, a veteran OPEC watcher and founder of U.S.-based think tank PIRA.
“It is a carefully calculated offer because Saudi Arabia knows it will not be acceptable to Iran … Saudi Arabia wants to put the blame of OPEC inaction in Algiers on Iran,” Ross said.
On the other side, Iran, emerging from years of sanctions, says it agrees to cooperate with OPEC to help the oil market recover, but expects others to respect its right to regain its lost share of the market.
The Persian Gulf nation which has never been relied on oil as much as its rival refused to play along with Riyadh’s shifted position.
“Tehran would love to have higher oil prices, but Iran is the OPEC country that had to do fewer budget sacrifices due to cheap oil,” Bloomberg quoted Olivier Jakob, an analyst at Petromatrix GmbH in Zug, Switzerland as saying: “They feel they have a strong hand.”
On Monday before the IEF opening, Iranian Oil Minister Bijan Namdar Zanganeh who had called the meeting just advisory before leaving Tehran for Algiers, told the press that although the country backs any measure to help stabilizing the oil market, the country does not intend to cut its oil production.
Iran believes its fair production share in OPEC should be higher than its current output. What Iran wants is having the right to raise output to about 4.1-4.2 million bpd. The country should be allowed to produce 12.7 percent of the group’s output, the volume it was extracting before the sanctions cut its production.
Referring to the next formal OPEC meeting in Vienna on Nov. 30, Zanganeh said that “It is not the time for decision-making. We will try to reach agreement for November,” Reuters reported.
These comments were followed by a wave of different reactions both from the market and other participants to the meeting. In an immediate reaction Saudi Energy Minister Khalid al-Falih responded to Iran’s slap changing its position once again saying that “This is a consultative meeting … We will consult with everyone else, we will hear the views, we will hear the secretariat of OPEC and also hear from consumers.”
Saudi Arabia and Iran on Tuesday dashed hopes that OPEC oil producers could clinch an output-limiting deal in Algeria this week as sources within the exporter group said the differences between the Kingdom and Tehran remained too wide, Reuters wrote.
At the end of the first day of the IEF meeting, the participants left for Sheraton Hotel empty handed eyeing today’s informal talks.
The question remains now, whether Iran accepts to go along with other OPEC members to cut its production.
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