x Abu Dhabi, UAEFriday 21 July 2017

Opec's steady hand on the well matters still

Opec has reason to celebrate its 50 year anniversary, but if it is to avoid losing its relevance the group of oil exporting nations cannot become complacent.

To celebrate its 50th anniversary, Opec selected an unusual way to commemorate the event; the group of 12 oil-producing nations issued a postage stamp. Communication is not the only thing that technology has transformed since Opec's birth. Oil-producers can't insulate themselves from these changes.

"We are masters of our own commodity," the then-Saudi oil minister Ahmed Zaki Yamani declared years after Opec's birth. But as oil becomes harder to find and more difficult to extract, bringing it to market involves a growing number of technological challenges. Here, it is independent oil companies from nations outside of Opec who are the masters.

The Brazilian energy giant Petrobras, for instance, has developed new ways to make deep water oil fields accessible. Private firms like Chevron, Occidental, and Shell have invented methods to extract oil from shale. Oil-producing nations must develop and incubate more of these technologies if they wish to remain masters over their commodity.

There are also new players on the scene. Opec has doubled its membership over its history but it cannot ignore several emerging energy powers. Brazil, for one, has gone from being the world's 15th largest oil producer to claim a spot in the top 10 in less than a decade. Only now is Brazil considering an invitation to join Opec. Other nations such as Ghana, which began pumping oil just two months ago but could become a major oil producer, could also be brought into the fold sooner than later.

Opec's original mission, to manage an over-supply of oil, was quickly transformed with the global growth of the 1960s and the dearth of new oil discoveries. Opec provided an institutional framework for oil-producers to meet these changes together. Today, as oil reserves diminish and demand increases, Opec's forum and its steadying influence on prices and production will be in greater need.

Opec is often charged with functioning as a cartel, a criticism that belies its role in the global economy. Oil is not just a commodity; for better and for worse, it has been the life-blood of global industry and growth. And Opec has not just helped to conserve oil reserves by maintaining the value of oil and limiting demand, it has also protected the global economy from many swings in the price of oil that would have destabilised markets.

Opec's founding 50 years ago was also a marker of a transformation that is ongoing; a group of nations in the developing world declared their importance and the end to a colonial order. Indeed, many of Opec's challenges today require it to respond to shifts in global power that it helped to create.