Qatar’s decision to end its nearly 60-year-old membership in OPEC caught many observers by surprise earlier this week.
Explaining the motivation behind the decision, Saad Sherida al-Kaabi, Qatar’s minister of state for energy affairs and president and CEO of Qatar Petroleum, said that Qatar’s exit from OPEC “is not political, it was purely a business decision for Qatar’s future strategy towards the energy sector.”
Given that the decision was taken in the context of the ongoing Saudi-led blockade on Qatar, many commentators interpreted it as a political act and a rebuke of an organisation increasingly seen as a tool of Saudi power projection.
This assessment is too simplistic and does not reflect Qatar’s long-term economic strategy. What defines the country’s energy sector is not its oil production, but its capacity and global presence in the natural gas sector. Qatar’s exit from OPEC should be seen through the lens of its long-term economic vision and its divergence from the oil cartel’s business trajectory.
A future dominated by LNG
Qatar began to strategically cultivate its natural gas sector in 1987 at a time when many in the industry hardly saw any potential in gas. This decision paid dividends many times over: Qatar today has emerged as the world largest exporter of LNG, GTL (Gas-to-Liquids) and helium. The revenue from the natural gas sector has propelled its economy and has given it special importance globally.
Despite its position of leadership on the global LNG market, Qatar is aware that the gas sector is evolving quickly. In fact, a new era in the natural gas sector is on the horizon as three countries are set to emerge as big players who could challenge Qatar’s leadership position: Australia, the United States, and Russia. All three are investing aggressively in LNG infrastructure and production.
Yet Qatar is seeing this development from a positive perspective: as an opportunity to grow the LNG market rather than as a threat to its position. It is with this idea in mind that Qatar decided in September this year to increase its LNG output (currently at 77 million tonnes per year) to 110 million by 2024, despite a parallel growth in global LNG output.
Qatar recognises that it is cleaner fuels like LNG that have a brighter future than oil, given the global trend to moving towards cleaner fuels. There is much more uncertainty about the growth in demand for oil than there is for natural gas.
Thus, Qatar is not only determined to maintain its leadership position in the LNG sector but also to ensure that the global market for LNG grows. The only way it could do that is by cooperating with other LNG producers through targeted investments to encourage long-term growth in demand for natural gas. Such cooperation could also yield access to new markets through swap agreements.
This strategy is very much based on a free-trade approach, something that sits uneasily with membership in a cartel such as OPEC.
The uncertain fortunes of OPEC
In the context of its LNG strategy, Doha saw its membership in OPEC as a legacy of a bygone era, when it did not have a natural gas industry to rely on. In the early 1960s when Qatar joined, oil was the one resource that moved the world, its politics and economy. In the heydays of OPEC, a single decision by its members could plunge the global economy into a recession – as happened in 1973, when an oil embargo was imposed in reaction to US support for Israel in its war with Egypt.
Today, OPEC is but a shadow of its old self. In May 2017, when OPEC decided to extend its output cuts of 1.8 million barrels per day to March 2018, the price of oil slumped by 4 percent.
Despite its declining sway on the global oil market, OPEC has served as a useful forum for states to engage in dialogue and cooperate on areas of mutual interest. For example, despite the hostility between Saudi Arabia and Iran, which is being played out through asymmetric warfare across the Middle East region, the two countries have engaged cooperatively with each other through OPEC. In this sense, maintaining membership presents certain advantages.
But the value of OPEC to some of its members – particularly the smaller producers like Qatar (whose oil output is just 2 percent of that of the organisation) – has been progressively waning for some time; they increasingly feel they have very limited influence over decision-making. OPEC remains essentially a Saudi-led cartel whose global relevance is in significant decline after the so-called “shale revolution“.
The boom in production of shale oil through fracking allowed the US to overtake Saudi Arabia as the world’s largest oil producer. As Riyadh’s ability to manipulate the market through OPEC has weakened, the future of the organisation and the effectiveness of its decisions necessitates Russian support. For example, when US President Trump pressed Saudi Arabia to increase oil output and bring down the price of oil ahead of the US midterms, the Saudi leadership had to seek Russia’s cooperation to do so.
At the same time, both Russia and Saudi Arabia are the subjects of intense scrutiny at the US Congress by both Democrats and Republicans. Apart from criticism over their human rights records and foreign policy decisions, there are also ongoing discussions about an anti-OPEC bill.
The US Congress already tried once to pass such legislation during the administration of President George W Bush. Although the No Oil Producing and Exporting Cartels Act (NOPEC) was never enacted, there are now reports that the Department of Justice is reviewing similar anti-trust legislation.
It is unclear what Trump’s position is on this but it is possible that he would endorse such a bill if it could help his re-election. The passing of NOPEC would certainly drive down oil prices and make him a more popular president; it would also allow him to take action on Saudi Arabia and Russia to appease his Congressional critics, especially the Republicans.
In this sense, Qatar’s exit from OPEC makes sense not only from a business perspective but also from a strategic one. All things considered, it is the right decision made at the right time.
The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance.
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