Page 8 - AsianOil Week 40 2021

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OPEC+ maintains production policy

POLICY THE OPEC+ group announced this week that to varying extents in recent months, though Iraq
it will stick with its planned addition of 400,000 and the UAE in particular have regularly been
barrels per day (bpd) of oil up to the end of guilty of overproduction in recent years.
November, causing price increases amid buoy- The statement noted that “compensation
ant demand as economies recover from the coro- plans should be submitted in accordance with
navirus (COVID-19) pandemic. the statement of the 15th OPEC and non-OPEC
In a press release to accompany the Ministerial Meeting”.
announcement, OPEC said that the group Meanwhile, there is scepticism that several
“reaffirmed the decision of the 10th OPEC member states will not even be able manage
and non-OPEC Ministerial Meeting on 12 their part in the 400,000 bpd uptick. One source
April, 2020 and further endorsed in subse- involved in the meeting told S&P Global Platts:
quent meetings including the 19th OPEC “To be honest, the group is not bringing back
and non-OPEC Ministerial Meeting on the 400,000 bpd a month. Many producers can’t
18 July, 2021.” meet their targets.”
It added that during the October 4 meeting, However, another source was quoted by Reu-
OPEC had “reiterated the critical importance ters as saying that despite the calls for a higher
of adhering to full conformity and to the com- production increase, OPEC+ did not want to
pensation mechanism, taking advantage of the make any significant moves, noting: “we are
extension of the compensation period until the scared of the fourth wave of corona”.
end of December 2021.” With Brent crude rising to more than $81 per
This marks the latest effort to bring into line barrel on the news, prices have now surged by
producers that have failed to comply with output 50% to a three-year high.
quotas. Russia, Iraq, the UAE, Bahrain, Gabon The next meeting is scheduled to take place
and South Sudan have all exceeded their quotas on November 4.™

GECF: Crisis vindicates long-term

gas contracts, oil-indexed pricing

POLICY THE Gas Exporting Countries Forum (GECF) “Colder-than-average temperatures could trig-
has said the recent surge in spot gas prices has ger extreme volatility for natural gas prices in the
vindicated the use of oil-indexed and long-term upcoming winter in Europe. Any further hike in
contracts, which provide both buyers and sup- price will feed into utility costs, which are already
pliers with greater price stability. weighing heavily on European consumers facing
Following years of mostly low spot prices, multiple pandemic-related challenges, as gas is
buyers have increasingly pushed for spot market broadly used for home heating and cooking as
gas prices, particularly in the LNG sector, while well as electric power generation.”
shifting away from long-term supply contracts The GECF said it “unreservedly supports the
and pricing based on oil indexation, which offer fundamental role of long-term gas contracts as
greater stability. But the risks inherent in relying well as the gas pricing based on oil/oil products
too much on spot supplies have been drawn into indexation, to ensure stable investments in the
sharp focus over the past year. development of natural gas resources.”
A cold snap at the start of the year caused LNG “Such a principle provides a solid base for,
import prices to soar, and in recent months prices most importantly, natural gas buyers as well as
across the world have reached unprecedented supplying protection against price volatility,”
heights, owing to a sharp recovery in demand, it said, noting Qatar, a leading member of the
colder weather and supply constraints. The price forum, used long-term contracts to cover around
for the October future contract at the Dutch TTF 60% of its natural gas exports. Algeria, Russia
hub surpassed $1,000 for 1,000 cubic metres in and other GECF members have also continued
late September for the first time on record. Oil-in- to favour long-term and oil-indexed pricing.
dexed prices and prices under long-term contracts “That is certainly one way to ensure unabated sup-
are currently up to two thirds lower than spot rates. ply of gas to all parts of the world and avoid a future gas
“Global markets are simmering with crisis,” the forum said. The GECF also said the current
concerns about winter natural gas prices crisis demonstrated the need for “a balanced approach
surging,” the GECF said on September 29. to managing the energy transition.”™

P8 www. NEWSBASE .com Week 40 07•October•2021