The shale revolution has changed the dynamics of crude oil and petroleum product trade flows and the perception of the geopolitical importance of the Middle East in the global energy system. Future of OPEC as cartel
Since its formal creation in 1960 the members of OPEC, and specifically Saudi Arabia have used excess oil production capacity to influence crude prices. The primary role of OPEC has been to support price stability. OPEC does indeed face a dramatically altered external environment, brought about by three main trends: the fracking revolution and the risk of prolonged low oil prices, tightening climate policies, and cheaper alternatives to oil.
The new geopolitics of energy is characterized by abundance rather than scarcity, even at low prices. In fact, OPEC countries might not be able to burn through all their fossil fuel reserves due to climate change regulation, leaving them with stranded assets. Key trends in efficiency, fuel-switching and market saturation are pointing into the direction of a demand peak for oil instead of a supply peak.Future of Qatari LNG exports
Qatar is the world’s largest exporter of LNG. Its LNG exports only began in December 1996, but they have risen rapidly, growing six-fold in the last 10 years. Because it is located roughly equidistant between the major consuming centers of Asia and Europe, Qatar sells its LNG to markets in both the Atlantic and the Pacific Basins and has held a strategic role as a “swing supplier (Fattouh 2015, p. 6).
New LNG capacity in Australia, North America, and probably also in Russia, Africa, and the Mediterranean, represents a competitive challenge for Qatar after 2015. Qatar has been able to balance the LNG market between the Atlantic and Pacific Basins, selling volumes to Europe when Asian prices are low and directing them eastwards at times of market tightness, but continuing to place LNG cargoes in Europe to support Asian prices. Such behavior is coined as acting as a “discriminating monopolist” where a monopolist (or equally a like-minded oligopoly) has the freedom to distribute its supply between a high priced, low price elasticity market (Asia) and a lower priced, higher price elasticity market (Europe). New supplies from the US conspire to undermine Qatar’s future ability to continue the “discriminating monopolist” role (Fattouh, 2015, p. 34).Future of OPEC oil exports
The growing economies of Asia have been heavily reliant on Middle Eastern suppliers, particularly from the Gulf, through most of the last decade. This is now starting to change and Middle Eastern exporters face much tougher competition in a key market. In order to maintain their market share, Gulf countries will have to compete more aggressively in Asia.
This will not be driven only by competition from outside the region, but also from within. Iraq has been offering competitive official selling prices (OSPs) for its main export in an attempt to capture market share. Iran has used its own vessels to sell crude on a delivered basis, offering discounted freight rates. The impact has been an erosion in Saudi Arabia’s share in some key Asian markets (Fattouh 2014, p. 14)
- Bassam Fattouh, Howard V. Rogers, and Peter Stewart, “The US shale gas revolution and its impact on Qatar’s position in gas markets,” Center on Global Energy Policy, Columbia University, March, 2015.
- Bassam Fattouh, “The US Tight Oil Revolution and Its Impact on the Gulf Cooperation Council Countries,” Oxford Institute for Energy Studies, October 2014.