Breakingviews - Peak oil is another reason to shun OPEC club - Reuters

NEW YORK, June 26 (Reuters Breakingviews) - Guyana is the Groucho Marx of oil producers. The comedian famously didn’t want to belong to any club that would accept him as a member. The tiny South American nation is similarly resisting overtures to join the Organization of the Petroleum Exporting Countries, the Wall Street Journal reported on Monday, preferring to pump the black stuff while it can. Cartels are hard to maintain at the best of times. But when future demand is finite, there’s even less incentive to cooperate.

The group known as OPEC+, which includes the organization’s 13 oil-producing members as well as allied nations like Russia, produces over 40% of the world’s oil. Consumers have few alternatives to crude. If producers can constrain production, as they recently agreed to do until 2024, prices should rise.

Guyana’s economic fortunes are heavily linked to the oil price. Its GDP grew 62% last year thanks to booming production. A consortium led by Exxon Mobil (XOM.N), for example, aims to triple offshore production to more than 1 million barrels per day by 2027. Guyana’s recoverable reserves of around 11 billion barrels in that field alone make it an obvious candidate to join OPEC.

However, oil’s future is dimming. The International Energy Agency said earlier this month that growth in global demand is set to nearly halt by 2028. It will then probably start to decline. Hence Guyana’s desire to sell as much oil as possible now.

It’s not the only one thinking this way. Non-OPEC oil nations, such as the United States, Brazil and Canada, are growing production. Even OPEC+ members aren’t united in their desire to prioritize price over production. Some of the recent agreement to limit output comes from the likes of Nigeria, which can’t fill its quota. The United Arab Emirates got a blessing to pump more.

Cooperation will get even harder as demand wanes. If the parties know they will be working together for decades, it’s easier for nations to see the long-term rewards from keeping prices high. Moreover, Saudi Arabia has some ability to punish all players if production rises too fast.

With oil’s days numbered, the incentives change. Members may increasingly think sacrifice is for suckers. After all, tomorrow’s profit – and today’s punishment – may never appear.

Follow @rob_cyran on Twitter

CONTEXT NEWS

Saudi Energy Minister Abdulaziz bin Salman and Haitham al-Ghais, secretary general of the Organization of the Petroleum Exporting Countries, both invited Guyana to join the cartel in recent months, the Wall Street Journal reported on June 26, citing two OPEC delegates. However, the country declined.

“Right now, the idea is to get as much of these resources out of the ground as quickly as possible given that we are not sure of the window we have in the future,” Guyana Vice President Bharrat Jagdeo told the Wall Street Journal.

Exxon Mobil and partners Hess and CNOOC produce about 375,000 barrels per day of oil from an offshore field in Guyana. The group aims to triple output by 2027. Exxon estimates recoverable reserves in the Stabroek Block to be around 11 billion oil-equivalent barrels.

OPEC+, which comprises the cartel’s 13 oil-producing states and ten other allied nations such as Russia, represents over 40% of the world’s oil production.

Editing by Peter Thal Larsen and Oliver Taslic

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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