When the Iraq Ministry of Oil Spokesman Issam Jihad declared that Iraq would announce this coming Monday, a substantial increase, in its oil reserves, some felt it as the beginning of a new era — of a possible “tug of war” within the producers’ group. The government in Baghdad has said in the past that it believes its actual reserves could be as much as three times the current figure.
Fifty years ago, Baghdad had the honor of hosting Saudi Arabia, Kuwait, Iran and Venezuela to establish, what is now the 12-member Organization of the Petroleum Exporting Countries. Now, stunted by decades of war and sanctions, Iraq is endeavoring to get into full flow. Iraq is currently not restrained by the OPEC quota regimen. OPEC insists that its output quota regimen helps stabilize the markets. It aims to restrain output by binding member countries to pump oil in proportion to their reserves. This helps ensure a “fair market price,” OPEC underlines.
With Iraq indicating that it may come back into the OPEC quota regimen once its production exceeds 4 million bpd; some analysts feel that the anticipated reserve increasing announcement could be a harbinger of the way things are to come — of the desire and the struggle to have a higher output quota within the OPEC. The producers group allocates quotas on the basis of the proven reserves of the member. Western pundits often accuse the Middle Eastern oil producing countries of enhancing their estimates, “without any independent audit and even basis in the 80s” to obtain higher output allocation within the OPEC output regimen as it allowed the member countries export quota on the basis of its proven reserves.
Iraq’s crude reserves are currently estimated to be 115 billion barrels, the world’s third biggest, but production lags. The government has recently signed a series of deals with major oil producers to ramp up output capacity to about 12 million barrels per day from about 2.5 million bpd currently. Companies such as US giant ExxonMobil, Britain’s BP, Royal Dutch Shell, Russia’s Lukoil, Eni of Italy and China’s CNPC have signed on to develop Iraq’s oilfields.
In the meantime, the new Nigerian Oil Minister Diezani Alison-Madueke, often termed as the “first lady of the OPEC” announced last week that she would take up the case of her country within OPEC to increase its output quota. Diezani Alison-Madueke will take her seat as the first female oil minister in OPEC when the group meets in Vienna later this month.
“I would hope that we would get specific improvements in terms of our quota,” Alison-Madueke, told reporters at a Houston energy conference. “I would imagine it will be looked at within the context of oil production throughout the OPEC member countries.” Justifying the call to increase Nigeria’s quota, she said production has increased with the decline of attacks on oil infrastructure in the Nigerian Delta. A program offering amnesty for militants in the delta, which Nigeria started in 2009 has resulted in a falling rate in attacks, she said.
“I’m sure we’ll be able to work out the issue of a quota with them,” Alison-Madueke said.
Some reports indicate that Iran and UAE also do not seem satisfied with their current output quotas and want them to be revised upward. Industry reports hint at that these countries, especially Iran, too may take up this issue seriously with the OPEC Secretariat.
OPEC at this moment seems well in control. It is denying that any member has asked it to review and revise their output quota. OPEC Secretary General Abdalla El-Badri in a press conference earlier the week has underlined that no OPEC member has officially asked the producer group’s secretariat for an increase in its oil output quota. He was responding to the question if Angola, Nigeria and Iran were pushing for larger quotas.
OPEC’s current composure, however, could unravel in response to events such as a war in Iran or Iraq’s re-entry into OPEC’s quota system that would require other members retreating on output to make room for increased Iraqi production, the London based Center for Global Energy Studies (CGES) said.
CGES said OPEC lead producer Saudi Arabia has the ability to keep prices in the current range for the foreseeable future by handling the price of its exports relative to benchmark grades.
However, “things could change dramatically over the coming years,” warned the CGES. “At some point Iraq will have to be brought back into OPEC’s quota system, as its production capacity increases, a process that could be fraught with difficulties, if it is even partially successful at realizing its expansion plans.
“Other members will not concede market share easily, while Iraq and its foreign investors will both want a return on the billions of dollars poured into the country,” CGES said.
Added to those pressures, growth in the OECD economies is expected to slow in the second half of this year, especially as government budget cuts come increasingly into play.
China’s economic expansion is also slowing slightly as the government seeks to ward off inflationary pressures, CGES said.
Quota adherence within OPEC is definitely slipping. OPEC Compliance with output quota is currently running at 53 percent and this is cause of some concern. New issues seem to be raising head within producers’ camp. And it is time they are taken care of — before they start hurting their interests, one could definitely stress without fear or favor.
