Does Barkindo have the Midas touch?
After previous failed attempts at reaching crude oil output freeze agreement, Barkindo’s experience may be proving invaluable in the quest to stabilize oil prices writes ISAAC ANYAOGU.
Since he was appointed Secretary General of the Organisation of Petroleum Exporting Country (OPEC) on August 1, this year, Nigeria’s Mohammed Barkindo has adapted to the job as a duck takes to water.
OPEC in the past has been accused of reaching the sort of deal disgruntled dissidents reach with a national government where an accord signed in the morning is broken before lunch is served.
However, under Barkindo, the members seem to be achieving consensus in a cartel where for much of this year, the agreements reached have been only about a meeting’s venue and time.
During the tenure of Abdalla Salem El-Badri, former Secretary General from Libya, from 2007 to 2016, Iran, Saudi Arabia and some other members huffed like delinquent children who have no qualms burning down the house just to express their own point of view.
After the United States and other countries agreed in January to lift a four-year economic embargo imposed to curb Iran’s nuclear program, the country began an aggressive campaign to drown the world with oil in a quest to regain market share. Saudi Arabia, in a classic case of stamping out wildfires by adding more fuel turned on the taps. The price of oil already facing south took a tumbling dive.
But that was just part of the problem. The International Energy Agency’s oil market report released in April predicted that growth in global oil demand will ease to around 1.2 million barrels per day in 2016 below the 1.8 million barrels per day expansion last year due largely to fallen production in Nigeria, United Arab Emirates and Iraq. Supply growth from Non-OPEC members especially the United States and Russia cemented a perfect mess. Russia alone produced nearly 10.9 million barrels a day in the February, a post-Soviet record!
An April 17 summit in Doha to strike a production freeze deal to check dipping crude prices ended without an agreement. Other overtures to curb production by both OPEC and non OPEC members failed as oil producers prioritise short-term relevance to long-term stability.
Enter Barkindo with shuttle diplomacy
Barely two months in office, Barkindo’s OPEC has successfully negotiated a modest, preliminary agreement on output freeze for members. The measure of how important this deal is can be understood placed in the context of its elusiveness since the beginning of 2016.
Several factors were aligned against any agreement on supply ceiling, chief of which are divergent and competing interests of members. While Saudi Arabia was pushing for a deal that will give it official stamp to maintain current production of around 10 million barrels per day, it was nudging Iran to accept a target below 4 million bpd, when Iran aimed to take back the market share it has before the sanctions hence is ambivalent about supply glut and impact on prices.
Prior to the sanctions, Iran was responsible for about 12 percent of OPEC supply and at current production levels of 3.7 million bpd, it will need to increase production to 4.2 million bpd.
Also Algeria, whose hydrocarbon sector accounts for 97 percent of the country’s export receipts and 58 percent of its total fiscal revenues according to an International Monetary Fund estimate, is pushing for a 796,000 bpd supply freeze to help shore up prices and help it meet its bourgeoning budget deficit.
The African nation is in a similar position as its neighbour Nigeria where fall in crude oil prices have hurt budget projections compounded by the militancy that wiped over an average of 700,000 bpd production since January.
Analysts said a deal was unlikely a day before agreement was reached on September 28. Their assertion was on the back of a rise in shale oil production from US and Russia’s surging oil production of above 10 million bpd which was threatening to push the decision of a supply ceiling above the absolute control of the oil club.
However, OPEC agreed to reduce output to a range of 32.5-33.0 million barrels per day from a current output estimated at 33.24 million bpd.
“OPEC made an exceptional decision today. After two and a half years, OPEC reached consensus to manage the market,” said Bijan Zanganeh, Iran’s Oil Minister, when Iran signed the agreement.
Under Barkindo’s leadership, not only was a modest supply freeze agreed, Nigeria was able to negotiate exemption from production cuts. After militancy and vandalism has limited Nigeria’s production capacity, Ibe Kachikwu, minister of state for Petroleum Resources argued that Nigeria was struggling to achieve 1.7million bpd production hence a supply cut would be unnecessary.
“Frankly, given what we are faced with in Nigeria in the last 11 to 12 months, we have lost literally between 500,000 and 700, 000 barrels per day on an average. It is very unrealistic to expect Nigeria to make more sacrifices. We will expect to be one of those people to be granted an exemption.”
At the weekend, Venezuelan President Nicolas Maduro said the countries that do not belong to OPEC are ready to join the agreement on freezing oil production following a meeting with Ilham Aliyev, president of Azerbaijan.
“The president of Azerbaijan and I have discussed the agreement of the countries that do not belong to OPEC. We are very close to signing this agreement. It will be done to form a real oil price,” Maduro said, as quoted by Aliyev’s press office.
If this deal comes to fruition, Barkindo’s OPEC would help to stabilize oil prices by ending a global supply glut. Already, the modest gain achieved by the preliminary supply cut deal in September has seen oil prices rise to a 2016 high, near $54 a barrel.
“I am optimistic we will have a decision,” Barkindo told journalists on sidelines of a recent OPEC meeting early this month.
The sore point heading to talks this week is how much each of the 14 OPEC members will produce, a decision that has been left to the High Level Committee that will meet in Vienna on October 28-29 and to which non-OPEC representatives are also invited.
A thorough professional, Barkindo has been around oil for most of his adult life. Between2009 to 2010, he was Group Managing Director of the Nigerian National Petroleum Corporation (NNPC). Prior to that, he served as Deputy Managing Director of Nigerian Liquefied Natural Gas, a joint venture between NNPC, Shell, Total and Eni. He has also served in various capacities at OPEC.
He has bachelor’s degree in political science from Ahmadu Bello University in Zaria, postgraduate diploma in petroleum economics and management from the College of Petroleum Studies at Oxford University and a master’s degree in business administration from Southeastern University in Washington, DC. He is a fellow member of various international petroleum institutions such as the Institute of Petroleum, London.
An OPEC statement on his appointment stated, “An accomplished oil technocrat and veteran of OPEC, Mr Barkindo brings with him a wealth of experience in the oil and gas industry, both in Nigeria and internationally,” experience that is proving to make the difference.
ISAAC ANYAOGU