OIL AND CHEESE. A rare inside look at the OPEC + and the G20 meeting
How exactly were organised the negotiations between the states, which decided to work out a formula on reducing oil production in the name of price stabilisation at the time of coronavirus pandemic? They’d said a lot of nasty things about each other before. Can we call them friends again? This short piece is a look from the inside at these negotiations. On the night of Friday to Saturday, Minister of Energy of the Russian federation Alexander Novak welcomed me in his office as a television journalist and as a President of the Global Energy Association. The conversation took place in his office’s reception aerea, where gifts and souvenirs from overseas colleagues are usually kept. And now a gigantic screen is mounted there, it displays video signals from the negotiating countries (due to the coronavirus, face-to-face meetings are impossible for now). This conversation was partially shown in my weekly TV show. But only the Global Energy Prize website publishes the details that were not on the air.
BRILEV: Minister, it’s actually pretty funny. You have a video conference and all the windows on the screen are electronically signed, and yet you’ve got in front of you a carton sign with your name in Russian and English. What’s that for?
NOVAK: When you ask to speak, you should put it upright, like at usual conference, so everybody can see.
BRILEV: Who are the other parties for you now? Are they friends again?
NOVAK: They are my colleagues, ministers of energy. We know most of them for a long time, we communicate with them on the regular basis, therefore, despite the many controversial points that sometimes arise ...
BRILEV: Well, a lot of things have been said during these days…
NOVAK: While we are trying to find a consensus, we’ve come to the decision that is positive and allows us to solve assigned tasks.
Brilev: So, there was OPEC, then OPEC+. Now they are talking about OPEC++. As I know, on Thursday night you had negotiations in OPEC+ until 4 a.m.
NOVAK: Our online-meeting with OPEC+ lasted for more than 10 hours. In addition to 23 OPEC members another 9 ministers from other countries took part in it.
BRILEV: Then the ministers of G20 were added. Can we call it a kind of an oil truce, like the ones that happen during droughts in the jungle between tigers and antelopes at the spots where they drink water side by side without attacking and fearing?
NOVAK: The situation related to the impact of the spread of the coronavirus pandemic on the economy is such that all of us agree that we are talking about an unprecedented reduction in demand for energy resources. And vice versa: the economy is falling, and this, in turn, has a very strong effect on reducing the demand. And even those G20 countries, which are not oil producers, admit that measures have to be taken to stabilise situation at the market.
BRILEV: This is very important. It was said before, that desirably the Americans should participate in these agreements. The Americans have their own anti-cartel legislation, which outlaws their participation in the reduction. But in fact, the United States will also cut production, right?
NOVAK: I already had a few very positive phone conversations with Dan Brouillette, U.S. Secretary of Energy. Our colleagues are also committed to the need for action. It is clear that they have the federal legislation that does not allow them to participate in agreements such as OPEC+. But it is also clear that at the level of states, for example, in Texas, they have regulators who are able to make, and formalise a decision to limit production for their companies.
BRILEV: So, Russia and Saudi Arabia have come to an agreement, even if it’s not official yet. Are the United States also joining?
NOVAK: If we are talking about formalisation, we have discussed the agreement with OPEC + and 23 countries and have come to the consent. Except Mexico..
BRILEV: Are you talking about the fact that Mexico was asked to reduce 400,000 barrels of production. They said that they were ready only for 100.000, and the rest should be compensated by the USA.
BRILEV: Well, I’ll try to make a few assumptions on this matter. First of all, even such a small Latin American country as Guatemala has raised its voice at the United States, it requires that even if the Americans do deport illegal Guatemalans, then they put no more than 60 of them on the plane, otherwise they’re all going to infect each other. And the United States are already transporting thousands of deported to the border with Mexico. I think, President of Mexico López Obrador is trying to change the position of Trump through oil. Secondly, ethnic Mexicans who have already received US citizenship in the oil states like California and Texas, have also got right to vote. López Obrador knows this very well and puts pressure on Trump through this as well.
NOVAK: Sergey, you know better how things work in Latin America. From my side I will say that, nevertheless, in general, all countries agreed on the main parameters. As for the other countries, such as the USA, Norway, Brazil, Colombia, Argentina, they, while participating in our telephone conversations, including the G20 one, have confirmed that they are ready to join the reduction, including by market methods. Well, for example, the United States of America, through their minister, said on Friday, that their cuts had already reached 600,000 barrels, and the whole amount would reach about 2-3 million barrels per day. We believe that during May-June, the total reduction will be about 15 million barrels per day.
BRILEV: Not even 10, as it was discussed before with a reference to OPEC+, but 15?
NOVAK: Yes, 15. The contribution of OPEC+ countries will be 10 million barrels per day and the contribution of countries outside the OPEC+ about 5 million. By the way, we have discussed with our colleagues the possibility, so to speak, to name this cooperation between all OPEC countries and not OPEC, as a kind of a forum for oil exporting countries. The total production volume of the countries that have joined the market balancing measures in one way or another is about 70 million barrels. This is 70 percent of global production. That never happened before.
BRILEV: Do apologise me, but this conversation reminds me of the course of… World War I. On the one hand, you can analyse everything according to the movement of the fronts, but on the other hand you can also see that the forerunner of the ceasefire was the Spanish Flu pandemic. Will the current truce turn into a lasting peace?
NOVAK: I think so. We are all going through a hard period. We live in the circumstances, where 4 billions of people are actually living under quarantine or self-isolation. Mobility of citizens, air and ground traffic are limited. That never happened before: when world demand for oil falls by 10-15 million barrels per day.
BRILEV: There are people with a good memory. They are looking now at how the current agreement was reached and they are recalling the meeting in Vienna when OPEC+ has collapsed – just recently. But what happened just within a month that an agreement which was not possible in Vienna has suddenly turned into the agreement not just of the OPEC+, but also with the accession of the Americans and the G20?
NOVAK: I think the answer is simple. A month ago, it was impossible to imagine how the coronavirus pandemic will develop around the world, and what measures the governments will take. Due to the reduction of the air traffic, kerosene consumption decreased by 50 percent. Sales at petrol stations decreased from 30 to 70 percent. And, of course, this is such an unprecedented situation that requires special attention, special measures, and unconventional solutions. The unconventional solution lies in the fact that all countries have to make efforts to save the situation in different industries. This applies not only to the oil industry. By way of example, let me give you the fact that recently cheesemakers in France have been sitting at a meeting for 5 days.
NOVAK: Yes, the cheesemakers. They also had a crisis due to the shutdown of restaurants. And they gathered to discuss how to evenly reduce the production. I think this is probably happening in many types of economic activity today, because it is necessary to coordinate actions in order to save the industry.
BRILEV: So, we understand that the prices of cheese will rise. And what about the oil?
NOVAK: Well, oil prices, as you know, are cyclical. They constantly fluctuate up and down. I think that we will survive a period of low prices, and then prices will stabilise. And they will satisfy both the producer and the consumer.
BRILEV: That’s very diplomatic. A couple of your colleagues have publicly presumed that the prices will be at US$ 40-45, and even US$ 60 per barrel, by the end of the year.
NOVAK: It’s hard to predict if we do not fully know the forecast for the removal of quarantine measures around the world. And this will have the most influence. But we hope that if demand begins to recover soon, the economy begins to recover as well, and we will see more stable prices.
BRILEV: The last thing I have time to ask about before the break is over. We still don’t know what exactly the Saudis did. Did they increase the production or they threw into the market what they had in store. I see here among souvenirs a gift from the Saudis in the form of a sandglass. What does it symbolise?
NOVAK: That they extract their oil in the desert, obviously.
BRILEV: Is it much cheaper to produce oil in the sands compared to Siberia?
NOVAK: I think that from the point of view of operating, investment costs, and climate conditions it is cheaper, but it all depends on the technology.
BRILEV: Will Russia come to the point of necessity to shut down some well and lose them forever, while reducing production?
NOVAK: I think the companies will not let this happen.
BRILEV: Thank you very much! I can hear the signal sounds from the screen meaning that the break is over. You have to work again in the night. Good luck, Minister!