Challenges ahead as KSA looks to long-term OPEC-Russia oil deal

An oil pump is seen operating in the Permian Basin near Midland, Texas, US. (REUTERS/Ernest Scheyder/File Photo)
Updated 29 March 2018

Challenges ahead as KSA looks to long-term OPEC-Russia oil deal

NEW YORK: The potential deal between the Organization of the Petroleum Exporting Countries (OPEC) and Russia — announced by Crown Prince Mohammed bin Salman — is a game-changer in the global energy industry.
But it faces hurdles before it can be implemented and maintained according to the ambitious schedule outlined in New York.
Daniel Yergin, an energy expert and author of the Pulitzer Prize-winning history of oil “The Prize,” told Arab News that the possible deal “represents a realignment that reflects the new realities of oil and international relations.”
The crown prince said that the Kingdom and Russia were in talks to extend an agreement on output — sealed in Vienna in late 2016 on a temporary basis — to a longer-term pact of 10 to 20 years.
“We are working to shift from year-to-year agreement to a 10 to 20-year agreement. We have agreement on the big picture, but not yet on the detail,” the crown prince said.
If the deal goes through, it will put in place a new force in the global oil industry, with two of the top three producers, Saudi Arabia and Russia, acting in unison. With around 40 percent of the world’s output between the two producers and the rest of OPEC, the alliance would be a dominant force in the energy industry, able to control supply and — crucially — the price of oil for the next two decades.
But it is by no means a done deal. Ellen Wald, an expert on Saudi energy and author of the forthcoming book “Saudi Inc. The Arabian Kingdom’s Pursuit of Profit and Power,” said: “It would be impossible to extend the current production deal for 10 to 20 years because nobody knows what market conditions will be in the future.”
“What they must be referring to is a discussion on making Russia what amounts to a de facto OPEC member for a certain number of years,” she added.
But there are economic, financial and geopolitical challenges ahead before such a deal — likely to form the centerpiece of negotiations at the next OPEC meeting in Vienna in June — can be clinched.
The current arrangement — dubbed the “Vienna Alliance” by oil experts — has been credited with getting the price of crude back from the doldrums of 2014 and 2015. From a high of more than $100 a barrel after the global financial crisis, the price of a barrel of crude fell below $30 in early 2016.
The agreement on output helped stabilize that price last year, with a sustained recovery coming in the second half of the year as it looked as though the deal was going to hold longer than a few months. Brent crude was trading in New York yesterday close to the $70 a barrel level seen as the “Goldilocks” level — not too cheap and not too expensive — to balance the demands of global producers and consumers.
But the problem is that OPEC is not a cartel that can arbitrarily set the price of oil. It is an organization that has to serve the interests of its members, and the 14 nations — possibly increasing with the inclusion of Russia and other independent producers — that comprise OPEC are subject to the imperatives of their own domestic economic needs as well as the global market.
It has been an achievement — largely credited to Saudi Arabia’s Energy Minister Khalid Al-Falih — to get OPEC and Russian to coordinate supplies over the past 12 months. Maintaining that delicate relationship over decades would be much more difficult.
With global consumption just below 10 million barrels a day, it would only require one member to “go rogue” with a production surge to upset the delicate balance and cause another price collapse.
But perhaps the most serious barrier to any long-term deal is the fact that the global oil market is no longer a two-horse race. American shale producers have turned the international energy market on its head through sophisticated technology that has wrung oil from fields long regarded as impossible to exploit commercially.
The US is now the second largest oil producer, and with the shale industry in full boom, looks certain to overtake Russia and the world’s biggest sometime soon.
This is where the geopolitical challenge emerges. One American energy financier at the Saudi-US CEO Forum in New York explained: “It might be good for Saudi Arabia and the oil price, but it is a strategic play that might not go down well with American producers. It would add a long-term geopolitical element to the oil market that maybe we would not welcome.”
He also pointed to the difficulties of maintaining such a long-term relationship between OPEC and Russia. “There are so many variables. It is not just Saudi Arabia, but all the members of OPEC, which is a mixed bag. Is it in the interests of Venezuela or Iraq to go along with such a deal? And you cannot easily predict how Russia will be thinking in 10 weeks from now, let alone 10 years.”
Yergin said: “We’ve been calling this OPEC and non-OPEC agreement the ‘Vienna Alliance’. Now it looks like an effort to turn it into a lasting alliance.”


Organizers promise ‘exceptional’ Saudi National Day celebrations

Updated 41 min 38 sec ago

Organizers promise ‘exceptional’ Saudi National Day celebrations

  • We are keen to have the largest international events to create an exceptional season, says GEA CEO Amr Banaja

RIYADH: Fireworks, concerts, festivals and international performances will be among the highlights of the 89th Saudi National Day celebrations this year.

The General Entertainment Authority (GEA) has announced a season of record-breaking events for the annual celebration.

At a press conference in Riyadh on Sunday, GEA CEO Amr Banaja said that Saudi citizens and residents can enjoy a number of entertainment activities planned across 13 regions of the Kingdom as part of the National Day season being supervised by the GEA from Sept. 19 to 23.

“The GEA is proud to oversee the Saudi National Day Season activities by launching a unified identity that brings together the society under “Himma Hatta El-Qimmah,” Banaja said, inspired by the words of Crown Prince Mohammed bin Salman: “The Saudis’ strength is like that of the Tuwaiq mountain.”

The GEA was proud to be overseeing the occasion, Banaja said. “We are keen to have the largest international events to create an exceptional season befitting this dear country,” he said.

“This year fireworks celebrations will continue for several days where more than 700,000 shots will be fired at an altitude of up to 300 meters, accompanied by music,” he said.

Celebrations will be held in all regions during the season, and visitors will be able to enjoy a range of activities that reflected the unity of the nation and the cohesion of the people and leadership.

“Distinctive international shows designed especially for the National Day will be held in Riyadh from Sept. 21-23,” he said.

Fireworks will light up Jeddah over Al-Hamra Corniche accompanied by sound and light effects and laser shows.

At the five-day Dhahran Exhibition in Dammam starting on Sept. 19, the world’s largest theatrical producer “Cirque du Soleil” will present a specially designed show for Saudi National Day.

Forty artists will present 14 shows of acrobatics, sports, music, and dance. Eight concerts will also be held in a number of regions where, besides international stars, Saudi and Gulf artists will present patriotic songs.

The concerts will begin on the first day of the season on Sept. 19 at Al-Jouf University Stadium in Sakaka with performances by Khaled Abdulrahman and Nabil Shuail.

The next day, a concert will be held at King Khalid Sport City in Tabuk staged by artists Abdullah Al-Rowaished and Aseel Abu Bakr.

On Sept. 21, Majid Al-Mohandes and Dalia Mubarak will perform at Prince Abdul Aziz Bin Musaed Stadium in Hail.

On Sept. 22, two concerts will be performed at King Abdullah Sports City in Buraidah by artists Rashid Al-Majid and Balqees Fathi; the second at Prince Sultan Cultural Center in Jazan by “The Artist of Arabs” Mohammed Abdo and Turki.

On Saudi National Day (Sept. 23), three concerts will be held in Riyadh, Jeddah and Dammam.

Thousands will gather at King Fahd Cultural Center in Riyadh to listen to singers Hussein Al-Jasmi and Abadi Al-Jawhar.

In Jeddah, Rabeh Saqr and the artist Waad will perform at King Abdullah Sports City, while in Dammam, and in the Green Halls in Riyadh, Kuwaiti singer Nawal and the artist Ayed will entertain the audience.

Five forums will take place in five cities, where a number of speakers will present inspirational events.

Forums will be held in Madinah and Tabuk on Sept. 19, while in Abha and Buraidah the forum will be held on Sept. 21 and in Hail on Sept. 23.

Banaja said that the GEA had created 150 smartphone apps for the National Day celebrations with 40,000 downloaded so far.

He thanked the security authorities for their efforts to make the season a success, and all government, private and nonprofit sectors for their contribution.

The programs were mostly free, he said, though there were some concerts for which tickets could be purchased online.

There will also be a major aero show in Riyadh, Jeddah and the Eastern Province, and a Saudi falcon show will be organized in Riyadh, Jeddah and Alkhobar.