OPEC+

OPEC+ has agreed to delay a planned December oil output increase by one month, as weak demand notably from China and rising supply outside the group maintain downward pressure on the oil market.

What is OPEC+?

• The Organization of the Petroleum Exporting Countries (OPEC) was established in 1960 by five founding countries: Iraq, Iran, Kuwait, Saudi Arabia, and Venezuela. Since its inception, OPEC has grown to include 13 member countries that together control a significant portion of the world’s oil reserves and production capacity.
• However, in 2016, in response to falling oil prices caused by rising S. shale oil production, OPEC expanded its reach by partnering with additional oil-producing nations that were not part of the original OPEC group. This broader coalition is known as OPEC+, which includes key non-OPEC oil producers like Russia, Mexico, Kazakhstan, and Oman.
• OPEC+ Members
  • OPEC Members: Saudi Arabia, United Arab Emirates (UAE), Kuwait, Iraq, Iran, Algeria, Libya, Nigeria, Congo, Equatorial Guinea, Gabon, and Venezuela.
  • Non-OPEC Members in OPEC+: Russia, Azerbaijan, Kazakhstan, Bahrain, Brunei, Malaysia, Mexico, Oman, South Sudan, and Sudan.
• OPEC+ collectively accounts for a significant portion of global oil production and plays a crucial role in determining oil prices worldwide through production cuts or increases.

OPEC+ Production and Spare Capacity

• OPEC+ has substantial spare capacity in terms of oil production. Spare capacity refers to the ability of oil producers to increase output quickly if necessary, in response to rising demand or disruptions in supply.
• For example:
  • Saudi Arabia has the potential to increase its production by up to 3 million barrels per day (bpd).
  • The United Arab Emirates (UAE) can potentially raise production by 4 million bpd.
• This spare capacity gives OPEC+ a significant role in managing global oil supply and stabilizing prices, especially when there are disruptions in major oil-producing countries, such as Iran.
• OPEC+ and Global Oil Prices: OPEC+ has significant influence over global oil prices. By adjusting production quotas, OPEC+ can influence supply, which in turn affects prices. For instance:
  • Production Cuts: OPEC+ often cuts production to raise oil prices when global demand is sluggish. For example, the group has cut production by 86 million bpd in recent years.
  • Geopolitical Tensions: Conflicts, such as those involving Iran or other major oil producers, can lead to oil price volatility. OPEC+’s spare capacity can help stabilize prices in such situations, but the ability to do so depends on the geopolitical situation.

Global Oil Consumption and India’s Role

• India is the third-largest oil importer and consumer in the world, importing over 80% of its oil needs. India plays an increasingly important role in global oil markets:
• In July 2022, India became the top buyer of Russian oil, surpassing China.
• India is expected to become the largest source of global oil demand growth between now and 2030.
• This growing demand from India has significant implications for global oil prices and trade patterns, especially as the country continues to rely on imports to meet its energy needs.
• India’s Measures to Reduce Oil Imports
  • FDI in Oil and Gas PSUs: In 2021, the government allowed 100% Foreign Direct Investment (FDI) in oil and gas Public Sector Undertakings (PSUs) under the automatic route, encouraging private and foreign investment in India’s energy sector.
  • Coal Bed Methane (CBM): India is exploring Coal Bed Methane as an alternative energy source to reduce its dependence on crude oil. CBM is a natural gas extracted from coal beds, which is seen as a cleaner alternative.
  • Underground Coal Gasification (UCG): The government is using UCG to convert coal into synthetic gas, which can be used for electricity generation and industrial processes. This helps in reducing dependence on imported oil and gas.
  • National Gas Hydrate Programme (NGHP): India is also exploring gas hydrates (frozen methane deposits found under the ocean floor) as a potential energy source. The National Gas Hydrate Programme (NGHP) aims to map these resources and explore their commercial viability.
  • Open Acreage Licensing Policy (OALP): Under the OALP, India has opened up oil and gas exploration to private and foreign companies, allowing them to bid for exploration blocks in unlicensed areas. This aims to boost domestic oil and gas production.