Qatar quits OPEC to focus on gas

Qatar’s decision to withdraw from OPEC sent ripples through some markets, coming ahead of the OPEC meeting in Vienna on the 6 December 2018.

The tiny Gulf state’s decision to quit on 1 January 2019 puts an end to 57-years’ membership in the producers’ cartel. Admittedly, Qatar is one of OPEC’s smallest oil producers, but it is the largest exporter of LNG globally.

OPEC was founded in 1960 by Saudi Arabia, Iraq, Iran, Kuwait and Venezuela. Qatar joined a year later. Since then, the group has expanded to 15 members, producing about 33mn b/d of oil.

Wood Mackenzie Analyst Lynn Morris-Akinyemi insists: ‘The news should not come as a huge surprise. Qatar is OPEC’s smallest Middle East oil producer, with oil output of about 600,000 b/d, less than 2% of OPEC’s oil output.’

WoodMac Vice President, Macro-Oils Ann-Louise Hittle adds: ‘Qatar has minimal spare capacity so its exit won’t affect the volume of oil supply in the market during 2019 or risk OPEC’s goal of reducing output next year. However, it does come at a time when OPEC needs to hammer out a deal in the face of market scepticism in the cartel’s ability to control production… Rather than being a reaction to the 18-month blockade against it, Qatar’s withdrawal is more likely a result of its effort to focus as one of the world’s leading gas producers. The smaller nations of OPEC have a relatively quiet role in the group’s decision making, and Qatar may also see that it has less to gain from its membership now that it is not involved in the GCC.’

She continues: ‘Since lifting the 12-year ban on development of the North Field in April 2017, Qatar has unveiled plans to increase its LNG capacity from 77mn t/y to 110mn t/y. This will be achieved via a new four mega-train LNG development, due onstream in 2023.’ In fact, ‘Qatar’s OPEC exit underlines the country’s aim to maintain its place in the global LNG market,’ she says.

Whereas Ashley Kelty, Oil and Gas Research Analyst at Cantor Fitzgerald Europe, maintains that: ‘The decision by Qatar to quit OPEC is certainly a surprise, although it is more the timing of the announcement rather than the actual impact on OPEC supply that bears significance.’

Kelty believes ‘the longstanding Saudi-led economic and political boycott is bound to have played a large part in the decision. We don’t think it makes much of a difference to the ability of OPEC to influence global supply (and ergo prices), as it is only the support of Russia that allows the cartel to maintain its current relevance. The exit of Qatar is suggestive of growing dissatisfaction among OPEC nations with the Saudi’s leadership. We suspect that many of the members are wary of how much influence the US has over Saudi Arabia, and whether this leads to decisions that are not necessarily in the best interests of OPEC.’

The analyst is of the view that Qatar’s decision will have little short-term impact on OPEC, ‘but the Saudis are certainly going to have to work harder to maintain agreement between the group on production cuts. Though it should not impact any [OPEC] decision to make production cuts this week, the real issue will be the scale of any cuts, along with the timeframe and baseline against which production will be produced.’

With Brent crude currently around $61/b, 30% down on early October 2018, the analysts believe OPEC will agree an output cut at Thursday’s meeting. Qatar said it will attend the meeting before leaving the cartel in January.

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