In advance of this week’s meeting of the OPEC nations, Qatar announced it will leave the oil producing nations’ cartel after almost 60 years.
The city of Doha, Qatar, at night. This natural gas rich country is leaving OPEC in January to focus on becoming an even more dominant player in the LNG market.
Qatar Petroleum, the country’s state-owned oil company, early December 3 issued a statement on Twitter that the country of Qatar will be “withdrawing from the Organization of Petroleum Exporting Countries “OPEC” effective 1 January 2019”. The announcement was made in a press conference in Doha by H.E. Mr. Saad Sherida Al-Kaabi, the Minister of State for Energy Affairs.
According to Al-Kaabi, “the withdrawal decision reflects Qatar’s desire to focus its efforts on plans to develop and increase its natural gas production from 77 million tons per year to 110 million tons in the coming years.” He cited the major goal for the country “to maintain and strengthen Qatar’s position as the leading natural gas producer”.
For Qatar, the move to focus on natural gas versus oil makes complete sense. The country currently provides about 30% of world demand for natural gas, and it already dominates the world market for that fuel in the form of liquefied natural gas. As an oil producer, it ranks 11th out of 15 among other OPEC members. It produces only 600,000 barrels a day of oil versus 27 million for the entire OPEC community.
The top four OPEC-producing nations are Saudi Arabia with 11 million barrels per day, followed by Iraq with over 4 million, Iran with over 3 and the United Arab Emirates with just slightly less than Iran.
Qatar’s departure from OPEC is happening also after a political fight with other Arab states which has lasted almost 18 months. With the accusation that Qatar’s government was a sponsor of terrorism, Saudi Arabia led a group of Arab Gulf states to break off relations with Qatar in June 2017.
During his news conference announcing the decision to pull out of OPEC, Qatari Energy Minister Saad Al-Kaabi denied the political issues between it and other Arab countries had nothing to do with his country leaving OPEC. Instead he emphasized only that the country needed to focus on its natural gas positioning. He also noted during his announcements that the country would be increasing natural gas production by over 40% within a few years. According to Qatar Petroleum’s Twitter posts on December 3, that will push the country’s natural gas output from 77 million tons per year to over 110 million.
As Al-Kaabi said in his announcement, “I think it’s inefficient to focus on something that is not your core business and something that is not going to benefit you in the long term.” He went on to say that, “For me to put effort and resources and time in an organization where I am a very small player, and don’t have real say in what happens in that organization, practically does not work.”
As a business strategy, moving to a much stronger natural asset such as natural gas makes a great deal of sense. It is a fuel that will remain in strong demand even as other fossil fuels begin to see less demand as pressure for cleaner energy sources grows around the world.
Within the OPEC cartel, despite how small Qatar’s contribution to that group’s production is compared to the whole, the departure of one of its founding members is considered a major blow. With OPEC controlling production of 44% of the world’s oil, every member’s part in managing production to affect pricing was considered critical. With the organization now under pressure like never before from the United States, which soon will become the world’s largest exporter of oil, OPEC losing even a small portion of its power with a country like Qatar pulling out is a big problem.
Qatar may be the smallest part of OPEC, but in the face of soaring U.S. oil production, Iranian sanctions which could restrict its contribution to the organization’s total output, Saudi Arabia’s growing international political problems made worse by the Jamal Khashoggi murder, and a global shift to cleaner, renewable energy sources, this could be just the first of many countries to decided now is the time to get out from under the thumb of both Saudi Arabia and OPEC.