Following Angola’s admittance to OPEC in 2007, the lurking question becomes: why is Egypt reluctant to join OPEC as a full-time member?
Natural Gas is Egypt’s rising resource for energy as it has become less reliant on its declining oil resources in the past years. After an absence of 14 years, Egypt joined the Organization of Petroleum Exporting Countries (OPEC) as an observer. There has been a continuous debate to whether Egypt should be a member or not, whilst other African countries expanding their output oil production are seeking to join as full-time members.
According to the US Energy Agency for the year 2005, Angola, Egypt and Sudan ranked as the top 10 African oil producing countries. Angola ranked fourth, with a production of 1,250,000 barrels per day (bpd), Egypt ranked fifth with a production of 579,000 bpd and Sudan ranked sixth with a production of 363,000 bpd.
Starting from January 1 2007, Angola will be the twelfth full-right member of OPEC and Sudan is lined up to join the organization as well. The other current members include: Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, The United Arab Emirates and Venezuela. Countries were ranked and admitted into OPEC based on their oil production.
Angola isn’t the only African country aspiring to become a full-time OPEC member. A Sudanese Oil Ministry official said that his country was “considering joining OPEC and an application was under consideration by the president.”
Angola has become an OPEC member since 2007; it is expected that its oil production will double by 2008. The three African countries that precede Angola are: Nigeria which ranked first with a production of 2,600,000 bpd, Algeria which ranked second with a production of 2,080,000 bpd and Libya ranked third with a production of 1,600,000 bpd.
Sudan’s oil production has been hampered due to the long years of civil war. China National Petroleum Corporation (CNPC) is the lead investor in the Great Nile project that produces 90% of Sudan’s oil production.
Egypt has an abundance of resources; petroleum, natural gas, phosphates, and iron ore are Egypt’s natural resources. Egypt’s oil production is located mostly in the Gulf of Suez, as well as oil fields in the Western Desert, with oil and gas accounting for approximately 12% of GDP. There has been an evident decline from 1995 to 2006 in crude oil production, decreasing from 920,000 barrels in 1995 to less than 662,000 barrels in April 2006. This makes Egypt’s economy more reliant on natural gas production and less on oil revenues.
Although Egypt ranks higher than Sudan and closer in statistical ranking to Angola’s oil production, both Angola and Sudan have taken the initiative to apply for OPEC membership, whilst the debate on Egypt’s admission prolongs. Egypt resumed attending OPEC meetings as an observer six years ago, on September 26 2001, after fourteen years of absence as an observer from OPEC meetings. Three months later, Egypt held the first OPEC meeting in January 2001.
There are different categories of membership in OPEC: full members, founder members and associate members. Members have the authority to state changes according to their analysis of the current market situation and petroleum demand and supply, whereas observers attend the conferences without imposing any regulations. Oil producing countries are recognized by OPEC as observers. In 2001, OPEC granted Egypt, Sudan and Equatorial Guinea the status of observers.
Membership to OPEC could be attractive to oil producing countries for several reasons. “Membership is open to any country with substantial net exports of crude petroleum, which has fundamentally similar interests to those of member countries,” as stated in the OPEC Desk Diary. OPEC members have to abide by set policies in order to stabilize international oil prices and avoid destabilizing the market. Members of OPEC also have to comply to strict policies even if it has to do with restraining their oil production. This comes in hopes of stabilizing the market.
A recent agreement among OPEC members has been reached to cut off crude oil production to maintain high oil prices in the market. The first cut was active on November 1 following a conference held in Qatar in mid October 2006. The decision in the conference was made to reduce production by 1.2 mb/d from a current production of about 27.5 mb/d to 26.3 mb/d. The second cut will be effective in 2007. According to OPEC’s most recent conference on December 14 2006, convened in Abuja, the Federal Republic of Nigeria, the committee was concerned to take strict measures that would ensure the balance between supply and demand in the international market. The committee decided to reduce OPEC production by 500,000 bpd, effective February 1 2007. The months till the next OPEC meeting to be held on March 15 2007, in Vienna Austria, will require extreme vigilance to control hovering oil prices.
Accordingly, being a member would require from Egypt to primarily pay fees and abide to certain financial obligations. Ibrahim says that most of the OPEC members export 75 % of what they produce, which increases their oil export revenues. “Even though Egypt produces 600,000 barrels of crude oil per day, its oil export revenues are low,” says Adel Ibrahim, an economist with Al-Ahram Center for Political and Strategic Studies. This stems back from the fact that most of what is produced is consumed by the masses. These are some of the reasons why Egypt is reluctant to apply for membership.
Egypt’s significance as an observer rises from its early discovery of oil fields in the region as well as the investment of 50 international petroleum companies. He added that Egypt has an important role as an observer to attend meetings and coordinate with the organization to stabilize the international market for both the producers and consumers; both of which Egypt is very keen on doing.
Nevertheless, these reasons should not hinder Egypt’s decision to join OPEC, as its benefits overwhelmingly exceed the costs. Could there be a more tangible motivation behind the lack of enthusiasm to join OPEC?
SP Libyan AJ
United Arab Emirates
By Nagham OsmanDownload