Investment downturn drains OPEC output capacity

Sopuruchi Onwuka

Falling investments in petroleum development and production accounts for inability of key oil producing nations to respond calls from the market for increased supply volumes amidst the prevailing global supply crisis.

The Organization of Petroleum Exporting Countries (OPEC) and its allies in the 2016 Declaration of Cooperation (DoC) which pledged to unleash restrained output from this year has proved unable to meet its supply projections since second quarter of the year when the pledged volume of increase became significant.

OPEC’s 14 member countries and its 10 non-member allies have been unable to meet output commitments to the market as some members fell below their production quotas since early this year.

According to secondary reports, the group of world oil producers involved in the DoC was unable to respond to calls from industrialized nations whose economies hurt under the prevailing high energy prices to hike output and soften prices.

The Secretary General of OPEC, Dr Mohammed Barkindo, had in a chat with The Oracle Today, expressed concerns about the slow production recovery among member countries who had in 2020 withdrew nearly 10 million barrels per day to save the oil market from demand destruction inflicted by the global coronavirus pandemic.

OPEC and its allies in the DoC has consistent failed to meet expected output in the past three months as the producers’ bloc resolved to restore more oil to the market as the global vaccine rollout enabled the economies of the world recover from the coronavirus pandemic.

The group’s production was 15% lower than planned in September; it fell short by 16% in August; and recorded a 9% deficit in July, according to several market intelligence reports.

The cuts were steep in the production volumes from Angola, Nigeria and Azerbaijan; and total supply deficit according to the group’s quotas amounted to about 747,000 barrels per day in September. And the production deficits are bound to worsen already predicted 700,000 shortfall for the year.

The IEA explained in its global energy outlook that the mounting demand for gas in Europe and Asia has spilled into about 500,000 barrels a day additional demand for oil in the next six months. The agency predicts that supply deficit of about 700,000 barrels a day would still haunt the market for the rest of this year in spite of the planned supply boost by OPEC.

The grim supply outlook by IEA exacerbates the existing supply deficit brought on declines in some OPEC countries.

OPEC led in production by Saudi Arabia and its allies led by Russia have been under pressure from major consumers to pump more oil into the market as the prevailing energy crisis continues to propel stronger prices of all range of fuel commodities including coal.

The high energy prices which has translated to inflationary trends across the world and threaten manufacturers with acute demand fall.

Survey of market reports shows that the prices for other energy commodities including oil and coal have also escalated with benchmark Brent crude grade heading towards $85 or some 67 % from January. The U.S. benchmark West Texas Intermediate or WTI has also followed the bullish trends at over $80 per barrel.

The inability of some members to meet their production quotas are attributed to falling capacity due to low exploration and development investments.

The Oracle Today reports that rising concerns about climate change and the drive by the world for energy transition have led to the demonization of the petroleum and coal industries. And the rich industrial economies have also pressured global governments, lending institutions, investors and environmental activists to drain incentives from fossil fuel development and flow resources towards green energy evolution.

Secretary General of the Organization of Petroleum Exporting Countries (OPEC), Dr. Mohammad Barkindo, declared at a summit in Moscow that the global energy prices were responding to market forces and other evolutionary factors.

Russia which leads a group of 10 oil producing nations in the DoC with OPEC predicts even higher prices for oil. President Vladimir Putin stated that prices of oil could reach $100 per barrel as demand for all energy commodities grows amidst tight supply.

On the contrary, the IEA stated in its World Energy Outlook 2021 that the current global volatility in the energy market and stronger prices would continue without a major boost in clean energy investment.

The agency also reported that the prevailing energy crisis has led to a sharp rebound in coal and oil usage, putting the world on course for the second-largest annual increase in carbon emissions in history this year. It added that the situation demands triple investment in clean energy and infrastructure over the next decade to meet net-zero targets for carbon emissions in 2050.

Executive Director, Faith Birol, stated that robust financing is required to develop sources of new energy that would dilute the influence of coal and petroleum in the global energy market. He warned of a looming risk of greater turbulence and uncertainties for global energy markets if energy sources are not diversified from fossil fuels.

He said, “Some 70 per cent of that additional spending needs to happen in emerging and developing economies, where financing is scarce and capital remains up to seven times more expensive than in advanced economies.”

The IEA also estimates that oil demand would not peak until the mid-2030s without further action. It advanced propositions that would commit governments to incentivize manufacturing of wind turbines, solar panels, lithium-ion batteries, electrolysers, and fuel cells.

The agency also marketed the renewable energy services industry as promising trillion-dollar opportunities for investors by 2050.