Saudi Arabia, one of the founders of OPEC, is sounding the group’s death knell.
The world’s biggest crude exporter has already undermined OPEC’s traditional role of managing supply, instead choosing to boost output to snatch market share from higher-cost producers, particularly US shale drillers, and crashing prices in the process.
Now, under the economic plan known as Vision 2030 promoted by the king’s powerful son, Deputy Crown Prince Mohammed bin Salman, the government is signaling it wants to wean the kingdom’s economy off oil revenue, lessening the need to manage prices.
In addition, the planned privatization of Saudi Arabian Oil Co would make the nation the only OPEC member without full ownership of its national oil company.
“The main take-away from Saudi Vision 2030 is that there’s just no role for OPEC,” said Seth Kleinman, head of European energy research at Citigroup Inc. “Or, you can have an OPEC without Saudi Arabia, which just isn’t much of an OPEC.”
The first change of oil ministers in more than 20 years might also recast the country’s relationship with OPEC. The group’s 13 members, which contribute about 40 percent of the world’s supply, gather in Vienna on Thursday next week.
King Salman on May 7 replaced then-Saudi Arabian minister of Petroleum and Mineral Resources Ali bin Ibrahim al-Naimi, the most influential voice in OPEC and the architect of current Saudi oil policy. While there is likely to be considerable continuity, his replacement, Khalid Al-Falih, is an ally of Prince Mohammed, who scuppered a plan al-Naimi had supported for capping production.
When producers considered freezing output to curb a global glut last month, the young royal’s view that no deal was possible without Iran prevailed and talks collapsed.
“We don’t care about oil prices,” Prince Mohammed said in an April 25 interview in Riyadh. “US$30 or US$70, they are all the same to us. We have our own programs that don’t need high oil prices.”
If the prince follows through on his ambitions, it will be a tectonic shift. Since OPEC’s foundation in 1960 to coordinate the policies of the world’s biggest oil exporters, Saudi Arabia has set the pace as the group’s biggest voice in policy making and the leader of adjustments in production to manage global prices.
The government plans to transfer as much as 5 percent of the company into private hands by 2018. The initial public offering will make it look more like the giant oil companies OPEC was created to counteract, with a mandate to maximize profit and develop refining operations around the world.
Instead of following orders from the government, Aramco will set production policy in line with the wishes of a board of directors elected by a general assembly, which will take over from the state-appointed supreme council, according to Prince Mohammed, who heads the council.
“The strategic shifts in Saudi policies mean that Saudis do not need OPEC any more, but OPEC is nothing without Saudi Arabia,” said Anas al-Hajji, an independent analyst and former chief economist at NGP Energy Capital Management LLC in Houston.
However, a lack of detail, plus possible resistance to change within Aramco and elsewhere in Saudi Arabia, could undo the strategy.
“The prince is trying to do an almost impossible task,” said Abdulsamad al-Awadhi, a London-based analyst who served as Kuwait’s representative to OPEC from 1980 to 2001.
Prince Mohammed wants to isolate Aramco’s production policy from the government, but the government will still own 95 percent or more of the company and will participate in appointing the board, al-Awadhi said.
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