Think Twice Before Joining Opec

As Namibia anticipates its emergence as a potential player in the global oil and gas markets, discussions about joining the Organisation of Petroleum Exporting Countries (Opec) have surfaced.

However, a decision of this magnitude requires a cautious and well-considered approach.

NAMIBIA’S OIL AND GAS POTENTIAL

Over the last three years, Namibia has made significant strides in oil exploration, with notable oil and gas discoveries by companies such as TotalEnergies, Shell and Galp Energia.

Wood Mackenzie had earlier this year estimated the Venus discovery by TotalEnergies to hold three billion barrels of oil, with the Graff-Jonker discovery by Shell estimated at 1,35 billion barrels and the Mopane discovery by Galp Energia estimated to hold another three billion barrels.

However, it is crucial to note that Namibia has yet to produce a single drop of oil commercially.

Moreover, the nation does not have precise knowledge of its actual oil reserves.

OPEC

Opec is an intergovernmental organisation comprising major oil-exporting nations, aiming to coordinate and unify petroleum policies among its members to stabilise oil markets. The organisation currently includes 13 member countries: Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates and Venezuela.

In 2022, Opec produced an estimated 28,7 million barrel per day (bpd) of crude oil, accounting for 38% of total world oil production.

In recent years, Opec has collaborated with non-Opec oil-producing countries, forming Opec+.

Members of Opec+ include Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan and South Sudan.

The main objective of Opec is to safeguard the interests of its member countries by preventing steep declines in the price of crude oil on the international market.

According to the United States Energy Information Administration (EIA), Opec and Opec+ countries produced about 59% of total global oil output in 2022, amounting to 48 million bpd.

From time to time, Opec+ imposes production cuts and allocates them to individual member’s production capacities.

Opec+ members are currently cutting production by almost six million barrels per day to strengthen flagging oil prices.

When the Opec+ production was extended on 2 June, UBS analyst Giovanni Staunovo said negotiations about production quotas of member countries have constantly been a source of discontent in the past, triggering heated debates and even shock departures by some Opec members.

LESSONS FROM OPEC MEMBERS

Ecuador
Ecuador, which sits on 0,5% of global oil reserves was the first country in Opec’s history to leave the organisation in 1992. It, however, rejoined in 2007 and exited again in January 2020.

When Ecuador left Opec on 1 January 2020, its main reason was that it wanted to avoid continuing production cuts imposed by Opec, so it could sell more oil to get out of its financial woes and grow its economy.

Qatar
Qatar left Opec in January 2019 to focus more on its liquefied natural gas (LNG) production, according to reports. Qatar’s departure highlights the limitations Opec membership can impose on countries looking to diversify and expand their energy production capabilities beyond oil. LNG offered Qatar greater economic benefits and growth opportunities.

Angola
Angola, one of Africa’s biggest oil producers, joined Opec in 2007, but left in 2023 due to disagreements over production quotas. Producing about 1,1 million bpd, Angola’s economy heavily relies on oil and gas, which constitute 90% of exports. The obligatory production cuts imposed by Opec had severe economic implications for Angola as its oil revenue was reduced, leading to its departure from the organization.

Indonesia
Indonesia joined Opec in 1962, but suspended its membership in 2009 due to declining production and the need to increase its exports. Indonesia found that Opec’s production quotas restricted its ability to maximise the production and export of oil.

CONSIDERATIONS FOR NAMIBIA

While Opec membership could offer Namibia access to a platform for dialogue and potential influence in global oil markets, there are significant considerations to evaluate.

It’s too early for Namibia to rush into discussions about joining Opec, considering that the oil industry is still at exploration and appraisal stage.

The country still does not have an accurate measure of its oil reserves or the exact production capacity per day.

Without precise data on reserves and production potential, any commitments to Opec would be premature and potentially detrimental to the industry.

Membership to Opec comes with an annual fee of US$2 million which translates to about N$37 million per year.

Namibia’s increasing debt currently stands at N$154,2 billion and the profits from oil would come in handy in reducing that debt.

Joining Opec would mean Namibia will have to adhere to production quotas set by the organisation. These quotas can severelyrestrict a country’s ambition to maximise oil production.

Namibia’s budding oil industry has attracted significant interest from international oil companies (IOCs) such as Total Energies, Shell, Exxon Mobil, Chevron, Qatar Energy and Galp Energia.

These companies bring not only capital investment but also technological expertise and industry knowledge that are essential for developing Namibia’s petroleum industry.

Hence, it is vital for Namibia to maintain the attractive environment.

Opec membership could, however, limit earnings by imposing production quotas that restrict the amount of oil Namibia can export.

While the prospect of joining Opec might seem attractive, Namibia should not be in discussion about joining Opec at this nascent stage of its oil and gas industry.

Namibia should rather prioritise using its oil and gas revenue to pay off its N$154,2 billion national debt.

• Shakwa Nyambe is a Windhoek-based energy and natural resources lawyer and managing partner at SNC Incorporated law firm.