[People.com.cn] Cui Shoujun: What impacts will Qatar’s withdrawal from OPEC bring about?

The Organization of the Petroleum Exporting Countries (OPEC) is going to hold a meeting on December 6, with oil production cuts and multinational talk as its main agenda. On December 3, Qatar suddenly announced plans to officially withdraw from OPEC as of January 1, 2019, only several days before the meeting. Upon the news, the international oil price declined subsequently, sparking much attention worldwide.

Exit is linked to overall consideration

“It has been 57 years since Qatar joined OPEC, so it is not an easy decision to pull out of it,” Qatar’s Energy Minister Saad al-Kaabi said at a news conference in Doha.

“We don’t have great potential on (oil), and we are very practical. Our potential lies in natural gas.” Saad said through this move that Qatar hopes to focus on the natural gas exploitation and LNG production and re-examine the country’s position and contribution in the global energy structure, plans to adjust its long-term strategy in energy development, and focuses its efforts on reinforcing Qatar’s leadership in natural gas producers.

The country's energy minister explained that the move represents a technical and strategic change as well as a strategic decision, adding that the decision was reported to OPEC previously, Reuters reported.

The sudden decision by Qatar to withdraw from OPEC does not come as a surprise, and except for focusing on natural gas, the main reason is in relation to OPEC’s quota, Cui Shoujun, Researcher of the National Academy of Development and Strategy, Remin University of China.

OPEC is a Saudi-led cartel which gives the quota to each member state, but now Saudi Arabia starts to increase its oil production, which would lead to the decline of the international oil price, and further affect Qatar’s fiscal revenue. After the exit, the country will not be influenced by this quota.

Oil prices are not affected as a whole

OPEC members and other oil producers, including Russia, are due to meet in Vienna, Austria on December 6 and 7 to discuss issues on possible output cuts. Qatar said it would attend the meeting and continue to perform its duty as an OPEC member before its formal withdrawal on January 1, 2019.

Qatar joined OPEC in 1961 and now ranks the 11th place in the organization by crude oil output, maintaining at around 610,000 barrels per day, which represents 1.95% in OPEC and 0.64% worldwide. Qatar has played an important role in the history of OPEC.

Realistically, Qatar’s decision will not have a great impact on OPEC’s production cut extension deal, said Cui. The international oil price may temporarily fluctuate, as Qatar’s crude oil output only accounts for a small share in the global market. Qatar’s withdrawal from OPEC will not significantly affect the international oil price and OPEC’s production cut plan.

Qatar’s withdrawal move is more of symbolic significance, as it is not a large oil producer and only played an important role in OPEC’s history, Reuters reported, citing a source at OPEC.

International public opinions believe that Qatar's exit means that OPEC, the world’s largest oil organization, starts to crack.

In response to it, Cui said that at the psychological level, Qatar is the first Middle Eastern country who formally announced plans to exit OPEC in 57 years since its establishment, which will significantly reduce the cohesion of OPEC to some extent, and influence the solidarity of the member states. In this sense, its demonstration effect should not be underestimated.

Energy structure may reshuffle

An industry insider said that Qatar’s withdrawal may lead to a reshuffle in the international energy market.

As a matter of fact, OPEC has been marginalized in recent years, and the crucial decision-making power of the international oil market has been dominated by several international oil-producing giants. OPEC’s discourse power in oil, especially its pricing power, will further decline.

Amid the slowdown of global economy and the increase of the oil supply from the U.S., OPEC members and non-OPEC oil producers represented by Russia have not totally reached consensus on policy conciliation, Reuters reported.

Cui said that the international crude oil market has been increasingly impacted over the past few years. First, OPEC-controlled international oil production quota is less than 40% at present, and the development of shale gas and new energy in the U.S. has a huge impact on Saudi Arabia’s oil. Second, the cost of solar PV power generation has fallen by 60% between 2009 and 2016, and solar power is a competing product of oil to some degree, especially in the power generation sector. The reduction of PV equipment costs has lowered the scarcity of oil to some extent and increased its substitutability. Third, a total of 194 countries have joined the Paris Agreement to address climate change issues, pledging to reduce the consumption of fossil energy. For environmental reasons, these countries have reached consensus that the emissions of fossil energy are the main reason resulting in the global warming, and fossil energy should be less used and consumed, so new energy will gradually take a higher proportion in the energy consumption structure of respective countries.

Cui said that these factors will influence the supply-demand relationship of the international energy market, and further put downward pressure on oil prices. OPEC’s oil rights are in a decline trajectory, and this tendency is irreversible, he added.

Cui Shoujun, Research Fellow of National Academy of Development and Strategy, RUC

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