OPEC and Africa – A Marriage of Convenience

OPEC’s grip on the global oil and gas market is slipping. At least, that’s what industry experts were arguing last year, before the Organization of the Petroleum Exporting Countries successfully navigated one of the most dramatic price declines oil markets have yet experienced. By brokering a landmark deal committing members and 11 non-member countries to supply cuts of 1.8 million barrels of oil per day, OPEC returned stability to the industry.

In the last year, OPEC has demonstrated that it can still steer global oil markets — with Brent reaching its highest level in more than two years after the OPEC-led oil production cuts were implemented in January 2017. The recovery of the oil price comes just months after some analysts declared OPEC was “dead.”

At the same time, OPEC’s absolute dominance in the oil market has certainly waned, with the bloc having to rely on non-member states for the successful drawdown of inventories. The OPEC-brokered deal on oil production cuts marked a historic shift in OPEC’s place in the world — re-establishing its role as a global leader in the oil industry, but also exposing its dependence on outside cooperation to achieve its mission. For African oil and gas producers, this new era of cooperation has remarkable potential.

A New Era of Dialogue

Nigeria’s Mohammed Sanusi Barkindo took over as Secretary General of OPEC in August 2016. Barkindo came into the office with a reputation for cooperation and a deep understanding of oil and gas markets, having previously served as Nigeria’s National Representative for OPEC and the Managing Director of Nigeria’s national oil company.

While OPEC initially trumpeted Barkindo’s leadership as a continuation of OPEC tradition, his tenure as Secretary General has been marked by the organization’s most historic deal yet: The Declaration of Cooperation, with OPEC countries agreeing to reduce daily oil production by 1.2 million barrels per day and 11 non-OPEC countries agreeing to reduce output by an additional 600,000 barrels per day. That deal, initially valid through the end of 2017, was extended last week until the end of 2018.

Barkindo has taken an active role promoting OPEC’s strategies around the world and outside OPEC: sharing a panel with Russian President Vladimir Putin at Russian Energy Week; travelling to New Delhi for the first-ever India Energy Forum and even beginning a dialogue with the United States, which has maintained a notoriously competitive and at times hostile relationship with OPEC.

Still, despite the increased competition for OPEC, Barkindo consistently advocates for international cooperation.

“Through our dialogues and cooperation, we can lessen the hills and valleys of high volatility which create instability in the market and risks for future investment,” Barkindo said after the Russian Energy Week. “While some ups and downs are endemic to the oil industry, we can certainly lessen their impact by sharing information and moving towards a common goal.”

In an OPEC press release, he urged the United States to join “a new era of collaboration and dialogue so that we can work together towards our mutually beneficial goal of ensuring stability in the world energy markets.”

Coordination, Barkindo argues, is vital to achieving market stability — a key mission for OPEC. And, most likely, it is a mission OPEC can no longer achieve on its own.

Africa Gains a Voice

This focus on coordination, in contrast to OPEC’s previous reputation as an exclusive, self-sustaining cartel, creates a place at the table for Africa’s producers — large and small, and even those not yet producing crude.

Following the deal on oil production cuts at the end of 2016, Gabon rejoined OPEC and Equatorial Guinea, the third-largest oil and gas producer in Sub-Saharan Africa, joined the group for the first time. Now, one third of OPEC members are African countries. At the 173rd meeting last week, non-member states like Uganda, Chad, Congo-Brazzaville, Ghana, Egypt, Sudan and South Sudan all participated in the meeting. Non-member states South Sudan and Sudan are taking part in the production cuts. Uganda, which hasn’t even started oil production, is already talking about OPEC membership.

For OPEC, Africa represents an opportunity to secure alliances with new producers. For Africa, OPEC represents an opportunity to have a voice on the global stage.

Africa is one of the world’s oil and gas frontiers, with operators consistently making big discoveries and bringing them to development. OPEC is seizing on this trend, even as production in the Middle East declines. And despite Africa’s growing prominence, the continent has had an unreliable impact on global oil and gas markets.

Efforts to unify the African producers and create a coordinated platform — like the African Petroleum Producers’ Organization (APPO) — have fallen short. For decades, the only voice from Africa in OPEC was from long-time oil producers Algeria, Libya and Nigeria. But even then, the three producers were vastly outnumbered, and their combined output was limited compared to OPEC heavy-hitters like Saudi Arabia, Iraq and Iran.

Africa’s importance on the global stage also seemed to be in jeopardy with the rise of US shale production and domestic energy policies taking a dramatic shift as America ramped up oil production and shifted from being an oil importer, especially from Africa, to an exporter.

But the continent is quickly rebounding, and finding new markets for its exports. Countries from Africa are increasingly looking to OPEC as an alternative to Western-focused policies and for coordination and investment in the energy sector. APPO participated in OPEC for the first time last week.

When Equatorial Guinea pursued OPEC membership this year, H.E. Gabriel Mbaga Obiang Lima, Minister of Mines and Hydrocarbons, said the country would use OPEC as a “platform to advance the interests of all African oil and gas explorers and producers and all OPEC members.”

As African countries like Mozambique, Uganda, Kenya, Senegal and Mauritania join the oil economy – and as OPEC’s role on the global stage continues to evolve, OPEC and Africa have a unique opportunity to come together to create a stronger, more stable oil and gas industry.

Will it last?

Before OPEC began its overtures to Africa, it was an elite and exclusive club of oil producers. That changed last year when OPEC ended the requirement for all members to produce at least 500,000 barrels per day, opening the door for countries like Gabon and Equatorial Guinea to join the group. That decision that was met with skepticism from some of OPEC’s legacy members, but the accession of new countries and production cut agreements with non-OPEC partners have been vital to stabilizing oil prices.

As oil prices stabilized, OPEC sent a powerful signal to the markets that unity and coordination between members and non-members would continue, and the production cuts would hold until the end of next year. It will be in African producers’ interest to make sure the OPEC-Africa alliance continues beyond the expiry of production cuts. When prices rise once again, the resilience of the new union will likely be tested.