An interesting balancing game is on. And the “informal” OPEC meeting in Caracas has underlined it further. With the pressure on energy producers to increase the crude production even further, and invest massively in the sector, so as to meet the rising global demand and taming the spiraling prices. It seemed as if the onus was on the producers only and thus the OPEC with the leftist Chavez in the lead, was also positioning itself to counter the onslaught. Moves are being made on the energy chessboard, all around!
Venezuelan Energy Minister Rafael Ramirez in a statement just before the OPEC summit last week reiterated, “it was necessary to reinforce OPEC in the face of pressure from the industrialized countries.” At stake apparently is the control of the global crude markets.
Hence at the Caracas moot, the oil group besides agreeing to roll over the current output quota of 28 million barrels per day, also held “informal” talks on admitting new members “Sudan, Angola and possibly Ecuador” to the OPEC, apparently to tighten the group’s grip on the global oil supplies and increase its weight still further. Analysts say the OPEC risks losing its grip on world oil supplies unless it finds fresh sources of production, to counterbalance the non-OPEC output from countries such as Russia, Norway, Canada and Mexico.
Saudi Arabian Oil Minister Ali Al-Naimi also reinforced at the Caracas meeting that the global crude market was “oversupplied and overpriced”, and that the “OPEC would welcome new members.” Reports also confirmed that OPEC heavyweights such as Saudi Arabia were taking the entry of Angola and Sudan more seriously than others. A consensus thus seem to have emerged at the “informal” meeting to allow new members into the group. Indeed the oil producers knew too well that in order to ensure a “fair price” for their output, they need to counter balance the onslaught from the consumers.
There has been considerable stress among the major oil producers in current years to incorporate the non-OPEC producers into the OPEC line of thinking. The growing Saudi-Russian amity is believed to be a very pleasant offshoot of this thinking process. Both Riyadh and Moscow realize that in order to protect their interests, as major global crude producers, there was a need to coordinate and cooperate with each other. Similarly OPEC members and Norway also regularly consult each other on energy issues. Riyadh has also been trying to make bridges with Mexico too, and indeed energy remains a common string between the two.
Similarly when Hugo Chavez visited Riyadh, in mid-90s, the late King Fahd, despite not keeping good health then, was himself present at the airport to receive him. And ever since that defining visit, Venezuela, which earlier was known within OPEC as a major quota buster, had been a vocal defender of OPEC policies.
And while all this is taking place, Saudi Arabia seems to be taking additional steps to ensure that it remains the OPEC kingpin. Indeed for the Saudi economy to flourish, it is imperative that it continues to produce and market crude in large quantities. And then it is very much in Riyadh’s interest to ensure uninterrupted, continued flow of crude in required quantities to the global markets. Riyadh was thus seen taking major steps in the last weeks to ensure that the markets get what it needs.
In order to utilize its available heavy crude, Saudi Arabia has embarked on two major refinery projects in recent weeks, one with Total and other with ConocoPhillips. The two joint venture proposed refineries would refine the heavy crude and convert them into the desired lighter products. Once that happens, the Kingdom’s ability in meeting the global energy requirements would be boosted still further.
According to available reports, the current global refining capacity stands at just below 85 million barrels per day against the current global production capacity of around 86 million bpd. In view of the increasing global requirement of refined products, the global refining capacity needs to touch 93 million bpd by the turn of the decade, market pundits indicate.
Hence in view of the easy availability still of the heavier crude, industry can’t simply take the normal approach of focusing only on distillation capacity, but rather, needs to look more closely at conversion capacity — the potential of a refinery to transform undesirable heavy derivatives into market-demanded light ones. The petroleum value chain thus needs to concentrate on refining the available, as the crude slate is becoming heavier by the day.
By investing in these two new refineries, Saudi Arabia is not only making sure that its heavier crude is put to use, but is also making available to this energy hungry world extra crude which hitherto had virtually no taker.
As the world needs additional resources, interesting moves and counter moves are being made, on the energy chessboard to reduce the influence and the grip of some from the market.
Politics and energy somehow go hand in hand. But as doctrinated in physical science, “every action has an equal and opposite reaction” seems to be holding sway in this case too. Producers are not willing to take the blow as a silent spectator.