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OPEC’s Algiers Informal Meeting

OPEC’s Algiers Informal Meeting

A success for Algeria’s economic diplomacy ?

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

Translation from French by Microsoft / FaroL  faro@farolco.onmicrosoft.com

References :

(1) – Interview on this subject of Professor Abderrahmane Mebtoul by

  • State controlled Arabic daily El Chaab of September 25th, 2016
  • On Ennahar TV live on September 24thand 25th, 2016 between 14 h and 14:30
  • On Dzair News TV live on September 24th, 2016 from 19:00 and 20:00 and
  • On Chorouk TV on September 26th, 2016
15th World Forum on Sustainable Development in Paris

15th World Forum on Sustainable Development in Paris

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

 

Facing Energy and Geostrategic Global Changes

Facing Energy and Geostrategic Global Changes

OPEC meet informally in Algiers next week . . .

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

Translation from French by Microsoft / FaroL  faro@farolco.onmicrosoft.com

References :

  • MENA-Forum, London – «Democracy & Development as a Dialectic Relationship with Security» by Dr A. Mebtoul | September 10th, 2016.
  • 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
  • Further reading on the subject is in our previous article dated August 15 and titled “Informal Meeting of OPEC in Algiers this September”  at https://mena-forum.com/informal-meeting-opec-algiers-september/ 

 

Oil Market and OPEC’s non decision

Oil Market and OPEC’s non decision

The oil market is reportedly nervous in the run-up to the Algiers meeting of next week. 

Why? A lot of things directly or otherwise linked to that market have recently occurred.  Here are but a few.  Oil prices unsurprisingly fell on yesterday afternoon after Saudi Arabia announced it “doesn’t expect any decision” next week at OPEC’s informal meeting in Algiers. Oil Market and OPEC’s non decision stance as demonstrated by the Saudis and Iranian respective oil Ministers are definitely not the only culprit.

The latest news on the Algeria meeting is that Saudi Arabia reportedly sent an offer to Iran, proposing a cut to its output if Iran agreed to limit production at its current level of 3.6 million barrels per day (BpD). Saudi Arabia offers to curb output if Iran accepts the proposed production capping level. “The Saudis are ready for a cut but Iran has to agree to freeze,” a reliable source told Reuters. Talks are on-going but so far there is no agreement of any significance. Meanwhile, Bloomberg surveying oil analysts informed that 21 out of 23 respondents said that there would be no agreement in Algeria thus confirming what is known for some time.

In the meantime, Nigeria and Libya are increasing their production thus affecting the so-called production freeze negotiations meant to take place in Algiers next week, and helping make this meeting look even less relevant in importance.

Russia has been investing in their aging oil fields in Siberia, rather trying out unexplored to date fields. This is carried out with apparently the objective of raising output whilst keeping costs down. The FT published a must-read article on Russia’s campaign to boost oil production from drilling in existing brownfield sites, as opposed to drilling in frontier regions like the Arctic, is a shift of focus for Russia’s oil industry.

China’s renewables installations to fall next year  its central government is looking at paring back subsidies for its renewables programmes simply because of its economy is noisily slowing down. In effect, China’s demand for renewables, which is still the largest in the world as predicted by Bloomberg New Energy Finance impacting its pace of solar and wind installations, will decline by 11 percent next year. This might have an enormous impact on the global solar and wind industries.

Exxon embroiled in possible court standing for their alleged hiding knowledge of Climate Change are these days considering selling $1 billion of their Norway assets. Bloomberg says that the oil major has had unconfirmed discussions on selling Norwegian oil fields that produce around a 65,000 barrels per day.

French oil giant Total SA slashes spending through deeper cuts in spending this September, hoping it will improve its profitability. The move call for sharper cuts to spending, boosting operational efficiency, and increase oil and gas production.

In the meantime, India is talking to the United Arab Emirates (UAE) and Saudi Arabia to fill half of the 1.5 million tonnes (mt) of the Mangalore strategic storage, along with Iranian crude, its oil minister said last week.  The country is exploring two to three other models for sourcing oil to fill the remainder of the storage.

Truth-out.org published an article on Exxon-Mobil that is worth reading.  We would advise its attentive reading for purposes of spreading further as it were the news.

 

OPEC agrees to cut Oil Production

OPEC agrees to cut Oil Production

The energy ministers of Qatar and Nigeria announced this decision after an informal meeting of the group in Algiers. The OPEC agrees to cut oil production.  Its members have reached an agreement on Wednesday evening to limit but not freeze oil production.  In effect, the agreement was to cap total members production to something between 32.5 and 33 million barrels per day. The deal which is the first in eight years is expected to come into force in November.  Meanwhile, the 15th International Energy Forum (IEF15) did take place in Algiers as scheduled on from 26-28 September 2016, hosted by the Algerian Government in the newly completed Center for International Congress of the ‘Club des Pins’ of Algiers, gathering Ministers, senior officials, CEOs, International Organisations, and experts from the 72 member countries of the IEF.  Sadly, it did not come to any conclusive new arrangement between the producers and consumers. 

Oil Prices Climb on OPEC’s Output Cut Deal, But Skepticism Looms

Dow Jones Business News on Nasdaq reported  in the evening of September 28, 2016th, in an article of Jenny W. Hsu who elaborating on Crude oil prices rising in early Asia trade this Thursday after the Organization of the Petroleum Exporting Countries after informally meeting in Algiers, surprised the market by agreeing to a framework to cut production.

The group proposed cutting its collective output to between 32.5 million barrels a day and 33 million barrels a day, down from the levels of 33.2 million barrels a day in August, national oil ministers said. This is the first time the group has agreed to cut production since 2008 . . . The move is a turnaround from the cartel’s “market-share first” tactic, signalling that perhaps even large producers are feeling the pain of prolonged low prices . . . Prices had surged over 5% overnight to their biggest gains in five months, following news that the 14-member bloc had agreed Wednesday that a production cut is necessary to buoy oil prices, which has been weighed down by a persistent glut. The group will wait until November 30 to finalize the decision.

Efforts to freeze or cut production since oil prices started falling in mid-2014 had failed so far. Talks in April this year in Doha, Qatar, broke down when Iran refused to participate.  Apart from

“This should remove the systematic risks in the global banking system with leveraged loans to oil exporting countries and upstream oil producers,” said Gordon Kwan, the head of oil and gas research at Nomura. The move will also eliminate risk of further devaluation of the Middle East.

However, the minor gains seen in the Asia session reflect the intense skepticism in the market on OPEC’s commitment in actually implementing the plan.

Goldman Sachs noted that pushing up the prices via a production cut among the low-cost producer is “self-defeating” because it would provide more premium for oil drillers around the world to return to the oil patches. Moreover, it would leave the low-cost producers with only one choice to increase revenue: volume growth.

“The jury is still out whether OPEC will take any real actions,” said Ben Le Brun, an analyst with OptionsXpress, saying the global oil markets will face a high degree of uncertainty leading up to the late November meeting as OPEC members will battle over who will be exempt from the deal and who should take a steeper cut.

For example, Iran, Libya, Nigeria may fight to postpone cutting their production until their output resumes their peak level.

“In any case, this is still kicking the can down the road to the formal OPEC meeting on November 30, where individual country quotas might be decided,” said Citi Research in a note.

Nymex reformulated gasoline blendstock for October–the benchmark gasoline contract–rose 60 points to $1.4837 a gallon, while October diesel traded at $1.4960, 50 points higher.

ICE gasoil for October changed hands at $436.75 a metric ton, up $20.75 from Wednesday’s settlement.

Benoit Faucon, Georgi Kantchev, and Selina Williams in Algiers contributed to this article.

Write to Jenny W. Hsu at jenny.hsu@wsj.com

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