An African Perspective: No Good Will Come From NOPEC

Throughout the years I spent as an undergraduate and law school student in the U.S., one of the things I truly admired was American ingenuity. I loved following news stories about U.S. startups that scraped together enough money to go overseas, explored for oil – and despite overwhelming odds, achieved success.

These companies were creating opportunities both for Americans and the people in their host countries.

It was the American Dream playing out before my eyes. There is no doubt in my mind that those stories inspired my career trajectory in Africa where I have had a chance to advise many African governments on oil matters and improving relations with one another.

Needless to say, it is disheartening to see a country like the United States that is simultaneously responsible for innovation while proposing legislation that undermines innovation in places overseas.

And that is just one of the unintended consequences the proposed No Oil Producing and Exporting Cartels Act (NOPEC) could have. In the end, the US House of Representatives bill could likely produce the opposite result of the business ventures that inspired me as a student: it will lead to fewer opportunities for Americans and for the countries they partner with.

At this year’s Africa Oil & Power conference in Cape Town, South Africa from September 5 to 7, 2018, the NOPEC bill and the wider ranging impact on US investment in the African continent will be hot topics of discussion.

The Legislation

NOPEC seizes on American anti-OPEC (Organization of Petroleum Exporting Countries) sentiment and creates the appearance that Congress is taking steps to lower US gasoline prices before midterm elections this November.

The bill would make it illegal for foreign states to limit production of oil and gas, fix prices or restrain trade in those products. US courts consider sovereign foreign governments immune from US law. NOPEC would erase that immunity for OPEC and its member countries and allow the US Attorney General to bring antitrust lawsuits against them, potentially for billions of dollars in reparations.

NOPEC is not new legislation. Congress has tried to pass it more than a dozen times since it was first introduced in 2000, but it has never been able to overcome veto threats by Presidents George W. Bush and Barack Obama. Of course, now there is a new sheriff in town – one who has already expressed anti-OPEC sentiments.

When U.S. Rep. Steve Chabot R-Ohio introduced a recycled version of NOPEC in May, he and his fellow Congress members knew the legislation has a very real possibility of being signed by President Donald Trump. Not only has the president Tweeted unfavorably about OPEC this summer, he has blasted the organization in his 2011 book, Time to Get Tough: Making America #1 Again!

The bill already has cleared an early hurdle. The House Judiciary Committee approved it in June, and it could go for a vote before the full House of Representatives within the next couple of months.

Meanwhile, a bipartisan group has introduced a companion bill in the Senate with similar objectives.

Despite popular support for legalizing law suits against OPEC, these bills are not good for America, or for the global economy.

The Downsides

American frustration with OPEC is understandable. Because it has historically controlled as much of 80 percent of the world’s oil production, OPEC has been able to influence supply—and prices—by limiting or increasing output. And for decades, the U.S. has been forced to live with the consequences.

But attempting to take OPEC down with punishing lawsuits is not in America’s best interests. In 2007, when a nearly identical version of NOPEC was under consideration, the U.S. Office of Management and Budget warned that legal action against OPEC and its members could result in oil supply disruptions, and instead of lowering gasoline prices, the lawsuits likely would cause prices to surge upward. Treasury Secretary Henry Paulson said that the mere passage of NOPEC would threaten foreign investment in the US: OPEC nations might withdraw assets to prevent them from being seized.

Those weren’t unreasonable claims, and the same risks hold today.

In fact, between an intensifying trade war and rising tensions among the U.S. and its NATO allies, the stakes are even higher.

Earlier this year, Saudi Aramco announced commercial partnerships worth more than $10 billion with 14 American companies. Saudi Arabia is the largest producer in OPEC. With the threat of lawsuits looming, partnerships like that could be a thing of the past.

NOPEC would put foreign investments in the U.S. oil and gas sector, from exploration projects to infrastructure at risk, too.

For example, earlier this month UAE-based Gulftainer received the U.S. government’s go-ahead to operate the Port of Wilmington in Delaware, a fully serviced deepwater port and marine terminal, for the next 50 years. Gulftainer already has announced plans to develop the port’s cargo terminal capabilities and enhance its overall productivity. How likely are more deals like this after NOPEC?

America’s lost partnership and investment opportunities could extend beyond OPEC members. Non-OPEC members may wonder if the precedent set by NOPEC puts them in legal jeopardy, especially in a litigious country like the U.S. Other countries may think twice before partnering or investing in U.S. O&G projects to protect their own relationships with OPEC nations.

Then there’s the matter of U.S. O&G companies that operate overseas. Foreign countries may begin restricting their access or ordering them to leave altogether. Not only would these lost opportunities affect E&P multinationals like ExxonMobil, Vaalco Energy, Chevron, Murphy, Anadarko Petroleum Corporation, Apache Corporation, Marathon Oil, Occidental Petroleum, Noble Energy, Kosmos Energy, oilfield services providers like Halliburton, Schlumberger, Stewart & Stevenson, McDermott International, MODEC, Nalco Champion, National Oilwell Varco, Oceaneering International Inc, Precision Drilling, Weatherford International and Baker Hughes could be hurt.

Any of these scenarios could damage the U.S. economy in the form of fewer jobs, reduced oil supplies and higher gasoline prices.

It’s Complicated

As always NOPEC is being fueled by politicians’ fears that voters will express frustration over increasing gas prices at the polls during this November’s midterm elections. But OPEC production quotas are not to blame for the rising gasoline prices American consumers have been seeing this summer. (The average cost of gasoline in the U.S. was $2.865 per gallon as of July 16, according to the U.S Energy Information Administration, an increase of $.0587 from last year.)

If OPEC producers are playing a role in decreased production, it is not by choice. Venezuela, in the midst of economic and political turmoil, has seen its crude oil production plummet to its lowest monthly production levels (below 1.3 million barrels a day in June) in decades. Conflict has been interfering with production in Libya, and Iran’s production has been hampered by concerns over renewed US sanctions.

And that is only part of the problem. The plunge in oil prices that began in 2014 forced numerous U.S. multinationals to put exploration projects on hold. Activity is picking up gradually, but less exploration logically leads to reduced production.

There are other factors, too, and they stem from challenges in North America. They include severe drops in inventories (4.7 million barrels as of late June) in Cushing, Okla. and an outage in western Canada affecting 300,000 barrels a day.

Don’t Overlook Africa

Of course, I cannot help but consider NOPEC’s potential to harm my home continent. America’s renewed interest in anti-OPEC legislation comes at a time when African involvement and influence in OPEC is at an all-time high.

Equatorial Guinea and Gabon became members of OPEC in 2016 and 2017, respectively. When the Republic of Congo joined OPEC in June, it increased the number of African nations in OPEC to seven –compared to six from the Middle East – and gave the African continent unprecedented dominance in the organization, at least in terms of membership.

This shift could be seismic in terms of African growth and stability.

For too many years, the presence of oil in African nations has been more of a curse than a blessing, contributing to the wealth of foreign investors while indigenous populations endure socioeconomic hardship and political unrest.

Today, a new generation of Africans is stepping forward in countries throughout the continent. They are looking to themselves to make positive change in their communities through entrepreneurship and technological innovations with their American partners. Those efforts to create a stronger, more stable continent must include the strategic capitalization of natural resources like oil. And the opportunity tap into the resources and influence of a major organization like OPEC and the African Energy Chamber —as a large, united voice—could be just the boost African producers need.

But if NOPEC were to pass, a moment of opportunity would be replaced with further instability in Africa as much needed American investment dries up. While Africa is on the verge of a bright new future, African nations and cities easily could swing in the direction of greater crime and bloody conflicts: scenarios that could even result in American troops and dollars being called in to fix them.

Much of Africa is changing for the better. Policy that pushes Africa toward civil unrest flies in the face of American ideals.

More Harm Than Good

America needs OPEC countries in Africa and the Middle-East to assist on Arab Israeli peace process, fighting Boko haram, Al Shabab rebels, and promoting American values. Litigating against these countries will make trial lawyers like me very rich but put American national security and economic interest on collision course.

America has a legacy of creating opportunity. Criminalizing OPEC won’t get at the root causes of increased American gasoline prices, and instead, will only inflict economic harm domestically and internationally.

 

NJ Ayuk

NJ Ayuk JD/MBA is a leading energy lawyer and a strong advocate for African entrepreneurs. He is recognized as one of the foremost figures in African business today, a Global Shaper with the World Economic Forum, one of Forbes’ Top 10 Most Influential Men in Africa in 2015, and a well-known dealmaker in the petroleum and power sectors. The co-author of Big Barrels: African Oil and Gas and the Quest for Prosperity, Ayuk also is the founder and CEO of Centurion Law Group and the Africa Energy Chamber of Commerce.