Joining the club

Author Toby Shelley

So what’s with Equatorial Guinea applying to join Opec? It’s hard to see commercial logic, or even multilateral scheming. Why pay the membership fee and be tied into current and future production agreements when you can gain kudos from voluntary cuts — as Malabo is now with its 12,000 b/d cut pledge as part of the Opec-Non-Opec collaboration?

So what’s with Equatorial Guinea applying to join Opec? It’s hard to see commercial logic, or even multilateral scheming. Why pay the membership fee and be tied into current and future production agreements when you can gain kudos from voluntary cuts — as Malabo is now with its 12,000 b/d cut pledge as part of the Opec-Non-Opec collaboration?

With crude production of around 250,000 b/d, at best, going forward the country is an LNG story, not an oil story. For at least a chunk of 2016, production at the existing LNG venture exceeded nameplate capacity and another major project is due for FID this year and start up in 2020. So why join an oil exporters’ grouping?

Opec has traditionally been a club for the big players, even if the likes of Algeria and Libya joined and stayed for reasons as much political as economic. For smaller producers, it has always made more commercial sense to ride on the coat tails of Opec members, let them take the strain of market intervention and swing production. Yet, Equatorial Guinea is not the only smaller producer to seek membership in recent years. Ecuador rejoined in 2007 after a 15 year absence. Gabon came back last year after more than two decades. And Indonesia — bizarrely — rejoined in 2015 despite still being a net importer, the reason for which it left seven years earlier, and the reason for which it left again in November 2016 when the cuts regime was introduced.

If Equatorial Guinea does join, the ranks of the 1mn b/d-ish or less producers in Opec will reach six of 14: Algeria, Ecuador, Equatorial Guinea, Gabon, Libya (for now), and Qatar. Do they have enough in common to form a lobby within Opec that would affect policy formation? If low and falling or fragile production equates to a prioritisation of short-term price over long-term market share, then maybe there is enough, especially with a potentially sympathetic hearing from cash-strapped Venezuela and Nigeria. But while this might make internal debate more lively, it would probably not shift the balance of power. Opec decisions are not made by majority vote of members countries but according to the number of barrels each minister can muster.

Is there a sub-Saharan Africa angle? This would take the number of west African members up to four — Nigeria, Angola, Gabon, and Equatorial Guinea — and at a time when the recently appointed secretary general is Nigerian. For all the wider rhetoric of African unity, there is actually little common interest to bind these four competing producers.

So, why did Malabo’s oil minister fly to Vienna last week to submit a membership application? The most likely reason — and it’s one I’ve fed by writing this — is that it is a marketing initiative. As the media circus of its conferences illustrates, Opec is a place to be if you want a bit of exposure, although Mr Obiang with his 250,000 b/d is not going to rival Khalid al-Falih for attention at the pre-meeting feeding frenzy. Membership would enhance Equatorial Guinea’s projection of itself as sub-Saharan Africa’s third largest oil and gas producer with a major ongoing licensing round and a very respectable exploration drilling success rate. And Malabo has just highlighted its regional role by facilitating the departure of former Gambian president Yahya Jammeh to a cosy exile. A seat in Vienna close to west Africa heavyweights Nigeria and Angola would further burnish an image that has often looked in need of buffing.

For Opec, it’s a case of the more the merrier. It’s not a club that’s known for turning down new (or returning) members. But there may be some sniffiness at the wording of the Equatorial Guinean statement on its application in which it refers to Opec as a ‘cartel’ – ouch!

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