Former member Gabon re-joins OPEC following a 21 year absence
Oil rich Gabon in central Africa re-joined OPEC (Organisation of the Petroleum Export Countries) at the beginning of July 2016, with a view to boost its oil production and alleviate the pressure it faces from, amongst other factors, the decline in oil prices. Gabon originally joined OPEC in 1975 as its smallest member by oil production. However, due to OPEC’s high membership fees and Gabon’s comparatively low oil production, the country decided to end its membership in 1995.
With oil production accounting for 45% of the Gabonese government’s revenue and 85% of its exports in 2014, the revenues of the African nation have been significantly impacted by the decline in oil prices, the loss of the USA as Gabon’s main export market following the shale oil boom and the growth of other non-OPEC giants such as Norway and Russia.
Further, Gabon is facing a decline in its output capacity, currently producing approximately 240,000 barrels of oil per day, when compared to almost 400,000 barrels per day in the 1990’s. To offset this, the Ministry of Petroleum and Hydrocarbons of Gabon has launched an offshore licensing round for the right to explore and produce any hydrocarbons discovered within the highly prospective region of the South Gabon Salt Basin. This bid’s submission deadline was extended to the end of May 2016.
Gabon’s decision to re-join OPEC was said to be fuelled by the attempts of key OPEC members and some of the world’s biggest oil producers to freeze output to January 2016 levels, when pricing hit a 13-year low at below USD 30 a barrel due to oversupply. The preliminary aim of the freeze would be to assist the economies of those nations, such as Gabon, which are under the most pressure following the drop in oil prices. However, the draft agreement suggested that a global deal to freeze production would only take place provided that all OPEC countries and major exporting nations unanimously agreed to it. The plan fell apart in April 2016 when Iran refused to join the freeze, intending to increase its output to rebuild its economy following years of western sanctions (and has, since the beginning of this year, increased its productions by almost a third).
At an OPEC meeting in Algeria in September 2016, an agreement in principle (including, notwithstanding the above, an agreement with Iran) was reached whereby OPEC would cut its output by about 800,000 barrels per day (limiting production to between 32.5 million and 33 million barrels). This led to an increase in oil prices overnight to around USD 49. However, the details in respect of the execution of this provisional deal between OPEC members and the quantities by which each OPEC member is to reduce its production are yet to be revealed and will be discussed at the next OPEC meeting taking place in Vienna at the end of November 2016. If implemented, it is anticipated that the proposal will add as much as USD 10 a barrel to the price of oil. Since the meeting in Algeria, many non-OPEC countries that were willing to join the April 2016 output freeze have shown willingness to support OPEC’s production cut in an attempt to maintain and further increase oil prices.
Following its re-admission to OPEC effective from 1st July 2016, Gabon is hoping that its membership will strengthen ties with other OPEC members and help protect its market as low oil prices continue to hurt its economy.