BRAINSTORMING

A new of Azerbaijan's co-operation with OPEC unexpectedly emerged right after the June visit of the cartel's Secretary General Haitham Al-Ghais to Baku.

During the 8th OPEC international seminar held on July 5-6 in Vienna, it was reported that Azerbaijan was offered to become a member of the cartel. Mass media made the news public instantly. However, Azerbaijan's Energy Minister Parviz Shahbazov assured that Azerbaijan was not considering an OPEC membership currently.

Al-Ghais said that there was no official invitation, but the cartel welcomes expansion and is currently working on the issue.

Meanwhile, there are more urging issues than joining the OPEC, such as the perspectives of the industry and measures to stabilise oil prices. In Vienna, OPEC+ member countries called on other countries to join the existing deal to reduce oil production.

Comfort zone

The OPEC Seminar is a major event in the international energy calendar, aimed at changing the future of the global energy industry, ensuring its equitable transition to sustainability and addressing the impacts of climate change.

This year's event took place amid increasing global geopolitical events, global economic uncertainty and rising energy demand.

OPEC seminars have been organised since 1969. This time, ministers of OPEC member countries, representatives of other oil producers, heads of international organisations and top managers of the world's largest energy companies came together in the brainstorming session entitled Towards a Sustainable and Inclusive Energy Transition.

The meeting discussed key issues and challenges of the oil and energy industry, including energy transition, energy security, climate change policy, investment, technology and innovation.

In his keynote address at the seminar, Haitham Al-Ghais reiterated the decline in investment in the oil and gas sector, which he believes is due to a misconception about energy efficiency and renewable energy development. "We should do our best to reduce emissions, not to reduce energy. There is a misconception about reducing production and reducing investment in oil and gas, we don't agree with that view. We believe that all sources of energy, including renewable energy, will be needed in the future. There is no single energy source that can do it all by itself," the OPEC Secretary General stated.

According to him, the energy transition must be orderly, inclusive and respond to demands for security for all. "It is important for parties involved in climate negotiations to pause for a moment and look at the big picture," the OPEC secretary general said. He also called for increased investment in oil production to meet future global needs and for the climate agenda to be made "more balanced and fairer".

Saudi Energy Minister, Prince Abdulaziz bin Salman, advised oil market participants not to step out of their "comfort zone", assuring that OPEC+ will continue to address energy issues and challenges, the organisation's actions will become more effective and transparent. "I am very optimistic that OPEC+ will be more efficient and open. I think people should live in their comfort zone; this market will not be abandoned because we are very focused on our work," minister assured.

Azerbaijani Energy Minister Parviz Shahbazov also touched on the issue of investment in the oil and gas sector, noting that in 2021 it was only $300b compared to $900b annually at the peak. "We should think about the future of the organisation and the future of the industry, given the issues of declining investment in the industry. We need a broader discussion," Shahbazov said.

UAE Energy Minister Suheil Al-Mazroui added that demand for hydrocarbons is increasing. The demand plateau is still a long way off amid growing shortages and diminishing investment.

Al-Mazroui invited other countries to join OPEC+ in order to become useful to the global oil market. He believes that we can be "cautiously optimistic" about oil now, as the demand for hydrocarbons is increasing, but there is not enough investment in the industry.

The minister assured that the OPEC+ measures to reduce production will soon be visible in the market. "Sometimes you have to wait a bit before the results are visible," he said, expressing confidence that the organisation took the appropriate steps.

There were no sensational decisions at the end of the seminar. OPEC energy and oil ministers once again agreed to continue consultations with their counterparts outside the organisation to maintain balance in the oil market. In principle, no new decisions were expected. Apparently,  all member states will focus on the implementation of promises made at the last OPEC+ ministerial meeting to cut oil production on a mandatory and voluntary basis.

By the way, two days before the international seminar, Saudi Arabia announced its intention to extend the voluntary oil cut of 1mbd till August. Thus, in August, Saudi Arabia's oil production volume will remain at around 9mbd.

As mentioned above, this additional voluntary reduction is intended to reinforce the precautionary measures taken by OPEC+ to keep oil markets stable and balanced.

OPEC on search?

The news about Azerbaijan's invitation to OPEC can be explained as a misinterpretation of Mr. Haitham Al-Ghais's statement. This was confirmed by the subsequent reaction of the Azerbaijani side. According to Minister Parviz Shahbazov, Azerbaijan is not considering joining OPEC. "Such issues are occasionally raised (!), but we are not considering membership at present," Shahbazov told reporters.

This means that Azerbaijan does not intend to undertake additional obligations within the OPEC+ format. Baku feels comfortable with the current mechanism of co-operation with OPEC, which makes it possible to make decisions on oil cuts taking into account the country's national interests without tangible damage to its economy.

Al-Ghais refuted the speculations about Azerbaijan's invitation to OPEC circulated on his behalf. He nevertheless noted that the cartel would be happy to expand the membership and was open to all.

"I visited Malaysia, Mexico, Brunei, Azerbaijan, but I did not invite them to become OPEC members. OPEC+ is not a formal organisation. It's an alliance about cooperation. Formally, OPEC+ members (Russia, Azerbaijan, Kazakhstan) are not OPEC members. But of course, they've been with us for seven years, since 2016. It seems that they are already OPEC members," Al-Ghais said.

President of the OPEC conference in 2023, Equatorial Guinea's Minister of Mines and Hydrocarbons, Antonio Ondo, believes that increasing the number of OPEC members will add transparency and predictability to the market.

There are currently 13 OPEC members, mainly from the Middle East, North and West Africa and South America. In the last five years, OPEC has not accepted any new members. However, in the history of the cartel, there were cases when countries left the cartel because of disagreements over the distribution of quotas or some other reason, then returned and left again.

For example, Indonesia suspended its membership in OPEC due to non-compliance with the rules: the country has turned from an oil exporter into an oil importer due to dropping local production.

Ecuador and Qatar were the last to leave the cartel (2019-2020). Ecuador left because it had to pay an annual fee of $2 million and disagreements over the production quotas. Qatar wanted to focus on increasing the production of natural and liquefied gas. In both cases, the loss was small for OPEC, as both countries were not the leading players in the cartel given their oil reserves.

While remaining a member of OPEC, Nigeria has repeatedly complained about quotas even though it cannot achieve them.

The OPEC secretary general himself admitted that some countries are cautious about joining the organisation because of the No Oil Producing and Exporting Cartels Act (NOPEC), which allows the US government to sue OPEC members for antitrust violations.

On the eve of the Vienna meeting, The Wall Street Journal cited a group of unnamed OPEC delegates, who allegedly reported that Saudi Energy Minister Prince Abdulaziz bin Salman and OPEC Secretary General Haitham Al-Ghais had suggested Guyana's membership in the cartel.

OPEC analysts call Guyana one of the drivers of global oil production growth among non-OPEC countries. According to the OPEC estimates, by the end of 2023 the average oil production in the country may reach about 400,000bpd, while two years ago this figure was about 100,000bpd.

Meanwhile, the leadership of Guyana denied the report. They said that the country was invited to the OPEC international seminar in July, but there was no official invitation to become a member of OPEC, and "we are not interested in it" anyway.

Guyana's Vice President Bharrat Jagdeo explained that the country, which has become one of the fastest growing crude oil producers in the world since it began commercial oil production in 2019, is looking to ramp up production as quickly as possible and attract new operators. By joining OPEC, however, Guyana would have to contribute to the organisation's efforts to reduce global supply to support oil prices.

All these factors show a good example for Azerbaijan. After all, with a full OPEC membership, Azerbaijan will have to play by the rules that may suit only a certain group of countries. It is much more effective to cooperate with the organisation and even make modest efforts to stabilise oil prices without being subjected to strict requirements and pressure from the largest oil exporting countries.