The Opec oil cartel is hardly known for its nimble decision making. Its country members are so entrenched in their ways that they still use a long-out-of-date set of production capacity numbers to decide how the group’s quota is divided among its members. But that may be about to change.
Opec has for years avoided discussing changing the system, fearing that agreement on new quota levels would be almost impossible to reach. That is because countries such as Venezuela and Iran, whose capacity has shrunk, are unlikely to be willing to reduce their quota level to give countries such as Libya and Algeria, which argue that they have raised their capacity, a higher limit. The group even managed to skate around the quota rationing issue when Angola joined. But Opec may not be able to continue procrastinating for much longer. That is because Iraq, one of its founding members, has just finished signing a raft of huge oil field development projects that could boost its production to 12m barrels of oil a day from 2.3m b/d today.
Iraq is the only one of Opec’s 12 members that has no quota. This is because politics and war have for so long conspired to limit its production. But that will have to change as its industry recovers, ministers acknowledge.
In total, Opec members are planning 140 oil projects over the next five years Abdalla El- Badri, its secretary-general, said today, but later clarified that this did not include Iraq’s raft of ambitions, which he believes will take “a long time” to yield 12m b/d.
“The current investment is going to be enough to satisfy demand and provide a cushion of spare capacity of 6 million barrels by 2013,” he said.
If Iraq only makes some headway during the coming years, that cushion of spare capacity will fatten considerably. That is uncomfortable for Opec, given that its members already believe today’s stockpiles, which are large enough to cover 16 days of demand, are too big.
But when will Opec begin tackling the issue? Mr El-Badri reckons the group will have to begin discussions in two years. But he sets an unambitious pace, expecting any change in policy to come at best five years from today.