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Qatar Divorces OPEC to Focus on Gas

Qatar- OPEC
Qatar’s Minister of State for energy affairs Saad Sherida al-Kaab attends the 175th OPEC Conference of Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria on December 6, 2018. Photo AFP

News that Qatar is pulling out of the Organization of the Petroleum Exporting Countries (OPEC) at the start of 2019 has taken pundits and world leaders alike by surprise.

The bloc is sometimes referred to as a cartel and considered one of the most powerful players in the oil market, responsible for more than a third of the entire world’s supply. But while the bloc currently has 14 members, the Kingdom of Saudi Arabia has dominated OPEC since its inception in 1960. Qatar joined the following year.

With the country blockaded by Saudi Arabia, Egypt, Bahrain and the United Arab Emirates, also known as “the Quartet” in this diplomatic spat, since 2018, many pundits wonder if Qatar’s decision to leave OPEC – the first Middle Eastern country to do so – is politically driven.

Saad Sherida al-Kaabi, Qatar’s Minister of State for Energy Affairs and President and CEO of Qatar Petroleum, insists otherwisen. He said Qatar left OPEC to focus on its natural gas sector yet criticized the organization for being controlled by “a country,” – an apparent reference to Saudi Arabia.

“I suggested to our leadership that we should exit OPEC. I know the media and some people would love to politicize this, and they have politicized it even in my country when you look at some of the media, because they don’t know the facts,” he said.

“Qatar’s exit from OPEC should be seen through the lens of its long-term economic vision and its divergence from the oil cartel’s business trajectory,” added Steven Write, an associate professor at Hamad bin Khalifa University in Qatar who writes for Aljazeera.

Qatar began developing its natural gas sector in 1987. Now, together with Australia, it is one of the largest exporters of liquid to natural gas (LNG) and helium. Qatar wants the LNG market to grow, which would allow it to benefit from the industry in the long term. In the next five years, Qatar aims to increase its LNG output from 77 million tonnes per year to 110 million. Write says Qatar believes that the demand for cleaner fuels like LNG may eventually surpass the demand for oil. Besides maintaining its leadership in LNG production, Qatar also hopes to build alliances with emerging competitors such as Russia, the United States and Australia.

That said, director of the oil markets and downstream team in the London-based ISH Markit, Spencer Welch, told reporters that Qatar’s departure from OPEC is unlikely to damage the bloc, as Qatar’s oil supply is minimal compared to its Gulf counterparts: Qatar produces only 600,000 barrels of oil per day, less than 2 per cent of OPEC’s total production. Saudi Arabia, meanwhile, produces approximately 10 million barrels per day.

“[Qatar] sees little value in continuing to be part of the organization. Maybe relations with Saudi Arabia are strained and the Qataris probably don’t want to be told when they must cut oil production. By dropping out, Qatar can potentially benefit from OPEC without having to cut production,” explains Welch.

Welch may be right, considering some prominent Qatari officials have said that they see no benefit of staying in OPEC. Former prime minister of Qatar Sheikh Hamad bin Jassim even claimed that OPEC was useless and that the bloc harms Qatar’s national interests.

The Economist wrote that the harm primarily emanates from US president Donald Trump, who has blasted OPEC for not lowering oil prices. And with some members of Congress reportedly crafting a bill that would allow for lawsuits against OPEC members, Qatar has ensured its ability to evade the wrath of President Trump, as well as any legal headaches.

It’s clear that Doha believes the organization is outdated. In the 1960s, oil prices had a major impact on the economy and geopolitics. Write, the professor at Hamad bin Khalifa University, states that Qatar didn’t have a gas sector to fall back on, while OPEC had the power to plunge the entire global economy into a recession. This era is different. Qatar’s exit is thus symbolic of OPEC’s decline; the organization appears unable to deal with widening division and has even joined forces with non-member Russia to remain relevant.

Nikos Tsafos, a Senior Fellow at the Center for Strategic Security Studies (CSSS), noted that Qatar’s exit could compel other members to reassess the value of staying in the bloc. An analyst at the online broker ThinkMarkets, Naeem Aslam, adds that Qatar’s departure from OPEC does not bode well for the oil market, regardless of how little oil the tiny emirate produces.

“We would not be surprised if other countries start to follow the same path [as Qatar] and then we have no control over supply or demand, as each individual country could just do what they like,” he told The Guardian, a British Daily.

Yet Johannes Benigni, chairman of JBC Energy Group, doubts that other members will follow Qatar out the door. He claims that each country has a different reason for choosing to remain part of the organization, though he does acknowledge the concentration of power by some members in OPEC.

“Overall, there may be many reasons [to be part of OPEC], whether it’s influencing the price of oil, the supply, the political landscape in your domestic home country, or just to maintain access to research,” he told Aljazeera English.

However, while that may be true, Qatar’s move reveals that there are also many reasons to leave OPEC, from simply escaping Saudi hegemony to pursuing independent interests.

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