The Organization of the Petroleum Exporting Countries is heading into meetings in Vienna today facing one of the greatest threats of the organization’s existence — the revival and potential passage of US legislation that would open up OPEC to anti-trust lawsuits. OPEC’s legal team is already consulting with law firms on a strategy, according to Bloomberg.
The legislation is supported by U.S. President Donald Trump, who has been raging against OPEC for months. Both Trump and members of US Congress contend the OPEC-led production cuts are hitting consumers at the pumps with higher prices and are bad for the economy.
But this limited view from pumps leaves out the big reason OPEC strives to keep prices stable — global energy stability for decades to come.
With several years of delayed and cancelled projects already in the books following the 2014 price crash, a stable energy supply is already at risk. Prices of $30 per barrel — which Trump has repeatedly called for — are not high enough to support investment in the oil and gas sector. In fact, Deloitte estimates that $620 billion in projects were cancelled or delayed through 2020 as a result of the most recent crash.
“OPEC and its non-OPEC partners are focused on contributing to sustainable oil market stability and this inherent logic underpins the ‘Declaration of Cooperation.’ One of the advantages of oil market stability is that it provides investors and companies with a degree of predictability in order to make informed decisions,” said OPEC Secretary General H.E. Mohammed Barkindo in an interview with AOP in June. “Currently, investment levels are lagging behind the improved conditions for market fundamentals. However, we are hopeful that with sustained stability in the oil market, this situation will improve. Investments are the lifeblood of our industry. It is vital, for both producers and consumers, that the necessary investments are made.”
Industry experts certainly share similar concerns.
Deloitte’s John England asks key questions following the 2014 crash and slew of cancelled projects: “Where will supply come from in 2020 and beyond? Are there enough short cycle projects to fill the supply gap?”
OPEC’s World Oil Outlook predicts that $10.5 trillion will need to be invested between now and 2040 to avoid an oil shortfall in the future.
Revival of NOPEC
Despite the global concerns for stability in the market, the bill has solid support in the US.
The No Oil Producing and Exporting Cartels Act, known as NOPEC, has been introduced several times since 2000 and enjoys bi-partisan support in US Congress but has never before cleared the White House, with former presidents George W. Bush and Barack Obama promising a veto if the bill made it to their desks.
But Trump, an avid critic of OPEC for decades, seems much more likely to pass the bill. He has repeatedly called the OPEC-led production cuts illegal.
“The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s. This must be a two way street. REDUCE PRICING NOW!” Trump tweeted in one of several warnings to OPEC.
And the proposed legislation certainly has friends on both sides of the aisle in U.S. Congress, especially as petrol prices rise at the pump just before mid-term elections are set to take place in November. The House Judiciary Committee approved the NOPEC Act in June.
“In another time of rising gas prices, it is vital to American consumers and our economy that we do all we can to make sure that oil prices are not artificially inflated. High oil prices have a particular impact in rural states like Vermont, whether it is home heating oil, fuel for tractors or just driving to work,” said Senator Patrick Leahy, a co-sponsor of NOPEC.
The act “would seek to prohibit foreign states from working collectively to limit the production, set the price, or otherwise restrain the trading of petroleum and natural gas when such actions affect U.S. markets.”
To do so, it authorizes the U.S. Department of Justice to file antitrust legislation in federal courts, and foreign nations would not be immune from the judgment of U.S. courts. If the act passes, this will likely see pushback from the U.S. judicial system, which has consistently ruled that U.S. courts cannot rule on the legality of the acts of a sovereign state.
The Center for Strategic & International Studies determined in 2011 (the last time this bill was revived in Congress) that NOPEC would have “little positive effect on gas prices” and instead would have a “variety of unintended and adverse consequences.”
Those consequences, according to the authors, could include: jeopardizing foreign investment in U.S. refineries and upstream facilities; divestment of foreign oil companies from the US energy sector; collapse of joint ventures that would restrain domestic oil and gas supply; retaliatory action against US commercial and political interests; and damage of U.S. relations with OPEC members.
“It is impossible to see how such an action would reduce energy prices for U.S. consumers; in all likelihood, it would result in higher prices as markets and trade routes globally would struggle to adjust,” the authors state.
And, if the act were successful in targeting OPEC-led stabilization of the oil prices, the global oil and gas supply could also be at risk. The 2014 crash in oil prices had disastrous consequences throughout the world, including in oil-producing US states like Texas and North Dakota. The anti-OPEC policy is especially damaging to African oil producers and U.S. interests in African countries.
The list of US-based oil companies investing in Africa’s oil and gas sector is long and diverse, including international oil companies like ExxonMobil and Chevron and independents like Kosmos Energy and Anadarko. ExxonMobil alone has investments in 21 African countries. With the rising oil prices, ExxonMobil has predicted its spending should increase to about $25 billion by the end of the decade.
Quite simply, an attack on OPEC and the very successful OPEC-led production cuts puts energy stability at risk for decades to come.