OPEC seeks oil alliance with Russia for next 10-20 years - Saudi crown prince

Saudi Crown Prince Mohammed bin Salman giving a speech during the Saudi-US Partnership Gala event in Washington, DC. (Photo: AFP via Saudi Royal Palace by Bandar Al-Jaloud)
Updated 28 March 2018

OPEC seeks oil alliance with Russia for next 10-20 years - Saudi crown prince

NEW YORK: Saudi Arabia and Russia are working on a historic long-term pact that could extend controls over world crude supplies by major exporters for many years.
Saudi Crown Prince Mohammed bin Salman said that Riyadh and Moscow were considering a deal to greatly extend a short-term alliance on oil curbs that began in January 2017 after a crash in crude prices.
“We are working to shift from a year-to-year agreement to a 10 to 20 year agreement,” the crown prince told Reuters in an interview in New York late on Monday.
“We have agreement on the big picture, but not yet on the detail.”
Russia, not a member of the Organization of the Petroleum Exporting Countries, has worked alongside the 14-member group during previous oil gluts, but a 10 to 20 year deal between the two would be unprecedented.
Top OPEC producer Saudi Arabia recruited Russia and other non-OPEC countries to help drain oversupply when oil prices collapsed to below $30 a barrel in 2016 from over $100 in 2014.
Crude has since recovered to $70 but fast-rising output from US shale producers has capped prices.
“This is all about whether the arrangement is a short-term expedient to deal with this particular crisis in the oil market, or whether it reflects a realignment in world oil,” said oil historian Daniel Yergin, vice chairman at consultancy IHS Markit.
“OPEC countries want to find a way to institutionalize this relationship rather than to have it be a one-shot deal.”
Robert McNally at consultancy Rapidan Energy Group said Riyadh wanted help in breaking the boom-bust cycles that characterize oil markets by capping crude on the upside as well as by helping lift low oil prices.
“History shows that without a long-term, powerful, competent coherent, disciplined swing producer in the oil markets ... you get space-mountain oil prices. Wild volatility of the sort we have seen in the past 10 to 15 years and that Saudi Arabia and Russia do not want to see again,” McNally said.
He said that would require Russia to join Saudi in building spare production capacity to use when prices rise too much.
A long-term pact between Moscow and Riyadh would effectively co-opt Russia to the Saudi-led OPEC cartel while strengthening Russia’s hand in the Middle East where the United States has long been the dominant super-power.
News of the potential oil alliance came at a time when the two have been working to cement an economic relationship despite being at odds over the conflict in Syria, where they back opposing sides.
A meeting between the Saudi crown prince and Russian president Vladimir Putin on the sidelines of a G20 meeting in China in September 2016 was instrumental in bringing Russia on board to support OPEC, non-OPEC oil curbs.
Last October, Saudi King Salman became the first Saudi monarch to visit Russia, providing investment and political support for a Russian economy battered by Western sanctions.
“It is a very important strategic development,” Helima Croft at RBC Capital Markets said of a potential 10 to 20 year Saudi-Russia oil collaboration.
“First, the Crown Prince is making the statement, not the oil minister, one more clear sign that he (like Putin) is the final word on his country’s oil policy.
“Second it is one more sign of the major reversal in Saudi-Russia relations. Saudi was a staunch cold war ally of the US Now this Russia-Saudi alliance appears to be thicker than oil and seems to be driven by the personal affinity between Putin and MBS,” said Croft.
The crown prince predicted that world oil demand would not peak until 2040, despite advances in renewable energy technologies and the electric vehicle.
In an attempt to end Saudi Arabia’s reliance on oil, he is leading a push to diversify the Saudi economy away from oil and gas by 2030.
Riyadh plans to raise funds through the flotation of a 5 percent stake in state Saudi oil company Aramco. Time is running out for an initial public offering this year but the crown prince said the IPO could still take place at the end of 2018 or in early 2019, depending on financial market conditions.
Saudi Oil Minister Khalid Al-Falih said last week that documentation was ready but that a venue for the IPO had not yet been decided. The New York stock exchange is still in the running for the IPO, alongside London and Hong Kong, but Falih said there was a risk of a “frivolous” legal action if Aramco were listed in the United States.

Exclusive: Russia, Saudi Arabia ‘cooperation can bring tangible benefits for both sides’

Updated 2 min 36 sec ago

Exclusive: Russia, Saudi Arabia ‘cooperation can bring tangible benefits for both sides’

  • Russia’s energy minister sees working with Kingdom on oil and gas as the first step toward a ‘new alliance’

Alexander Novak, Russia’s energy minister since 2012, has overseen the country’s oil and gas industry at a time of great geopolitical and economic change. On the occasion of the visit of President Vladimir Putin to Saudi Arabia, Novak tells Frank Kane why the Saudi-Russia relationship is about more than just oil — and how the “black swans” will continue to affect the global oil price.

Q: Russia and Saudi Arabia have become much closer in all spheres of activity in recent years. Why is this?

Novak: The expansion of interaction with our Saudi partners along the entire chain of cooperation for us, in essence, is the creation of a new alliance in order to maintain our competitiveness in world markets and to develop the national and world energy in general.

This, in my opinion, is a completely legitimate response towards the current challenges of globalization, which are dictated by the prevailing geopolitical terrain.

Of course, Russian-Saudi cooperation in the past has gone far beyond the frame of energy cooperation intended to stabilize the oil market.

We have taken a pathway towards a consistent increase in the pace of Russian-Saudi trade and economic partnership.

We are engaged in an active dialogue in all sectors of trade and economic cooperation, including agriculture, industry, investment and energy sectors.

As you may know, on June 10 the 6th meeting of the Russian-Saudi Intergovernmental Commission was held in Moscow, as a result of which we noted a significant increase in our cooperation and outlined its new directions and priorities.

From January to June 2019, Russian-Saudi trade turnover increased 28 percent compared to the same period in 2018, reaching $637.7 million.

Q: In energy, what are the common areas of interest?

Novak: Investment cooperation is one of the key growth points for our economic relations. About $2 billion worth of investments have already been made in joint projects in Russia. In this case, we see energy as one of the most promising areas of collaboration.

We have many points of intersection; a number of Russian companies wish to work with Saudi counterparts on the supply and maintenance of oil and gas equipment.

We are conducting preparatory work to develop new breakthrough technologies that will allow us to adapt oil to the current climate and environmental agenda.

In addition, bilateral and international cooperation is important to stabilizing the oil market under the OPEC+ Agreement.

Thanks to our regular meetings, policy coordination between OPEC members and other parties of the Vienna deal is proving successful.

It is important that the practice of such confidential contacts gives appropriate signals to all participants in the oil market, who must be convinced that our commitment to maintaining balance remains unwavering, and we continue to keep abreast of, and monitor, fluctuations in the oil market, preventing its imbalance.

The development of cooperation in the field of raw energy is a good basis for cooperation in other areas.

Q: Saudi Arabia and Russia have been the leaders of the Opec + alliance that seeks to regulate oil output. Are their interests identical in this project?

Novak: Any union is built on mutual understanding and mutual trust. The OPEC + format is not an exception.

The results achieved are key to the long and painstaking work of its participants, including the cohesion of interests and the search for compromises.

Judge for yourself: At the last OPEC/non-OPEC ministerial meeting, we managed not only to extend the agreements in the framework of the Declaration on Cooperation, but also to switch to a new format of cooperation by signing the Charter for Cooperation of Oil-producing Countries.

This document will serve not only to improve understanding and trust among OPEC and non-OPEC countries. It will also become a basis for joint work on the development of new technologies to adapt oil to the modern climate and environmental agenda, requirements for ensuring global energy security and the implementation of the UN Sustainable Development Goals.

Q: What do you think is a fair price for oil in the global market these days?

Novak: Despite isolated cases of force majeure in the oil market this year, the situation is stable and is under the control of the countries participating in the market.

At the same time, we understand that due to the ongoing pressure on the market of “black swans,” such as trade wars, commodity prices may change in one direction or another.

Q: Not so long ago, Saudi Arabia’s oil facilities were brutally attacked. How do you think this affected the country’s oil sector? What needs to be done in order to stop such attacks in the future?

Novak: Situations such as an attack on facilities in Saudi Arabia lead us to the need to constantly conduct safety assessments at fuel and energy facilities around the world, especially in the Middle East.

Such attacks on large oil suppliers pose risks to global energy security.

What happened clearly showed how quickly the situation on the market can change; at that moment, 5-6 percent of world production left the market and prices jumped by 20 per cent, which is a record increase for at least 30 years.

At the same time, the market recovered in just a week.

I believe, provided that high security at the fuel and energy complex is ensured, and our actions are taken to stabilize the market situation within OPEC +, we will be able to further control the situation and quickly bring it back to normal.

Q: Do you see the basis for the development of gas cooperation between Saudi Arabia and Russia? What can the two countries learn from one another?

Novak: The interest in cooperation with Saudi companies is shown by many Russian oil and gas companies, such as Gazprom and Sibur.

We believe that when finding mutually interesting projects, our cooperation can develop along the entire value chain and can bring very tangible benefits for both sides.

For example, the energy strategy of Russia provides for a several-fold increase in the production of liquefied natural gas — as part of this strategy, our companies are implementing a number of projects that have great prospects in terms of the participation of foreign investors.

In addition, we strive for scientific cooperation — currently the possibility of creating a joint Russian-Saudi institute in the field of energy cooperation is being explored.

Q: What agreements can be expected from Vladimir Putin’s visit to the Kingdom?

Novak: As part of the work of the Joint Intergovernmental Russian-Saudi Commission on Trade, Economic, Scientific and Technical Cooperation, we have prepared a solid list of documents including in the energy field, agriculture, trade and other areas. In total, there are more than 30 documents. A high-level Russian-Saudi strategic cooperation program has been prepared based on the national development priorities of our states.

At the corporate level, I think our countries have already done a lot of work. At the moment within the framework of cooperation between the Russian Direct Investment Fund and the Kingdom of Saudi Arabia Public Investment Fund, investments have already been made in more than 30 projects from various sectors of the Russian economy, including energy, infrastructure, and technology worth over $2.5 billion.