2.3 - OPEC

Question 1

Why is OPEC so influential?

Answer 1

• Members collectively own more than 2/3 global oil reserves
• Collectively make up more than 40% of global oil production
  
  • allows OPEC to have the ability to control amount of oil and gas entering market
  • this in turn allows for control of oil and gas prices

Question 2

What is OPEC?

Answer 2

• Organisation of Petroleum Exporting Countries
  
  • consists of 12 members
  • own 79% of global proved oil reserves

Question 3

How do TNCs control energy pathways?

Answer 3

• Are in charge of main operations:
  
  • extraction
  • exploration of new oil/gas fields
  • transport
  • refinement
  • production of petrochemicals

Question 4

How do governments play a role in energy pathways?

Answer 4

• More than half TNCs in petrochemical industry are government owned
  
  • thus can act as part of government policies
• Can control exports and imports of energy due to geopolitics
• Can change energy sources for greater energy security

Question 5

What role do energy companies play in energy pathways?

Answer 5

• Convert primary energy to secondary
• are in charge of distribution of energy
  
  • eg. Energy grids, gas network
• have a large amount of influence out of all players in setting prices and tariffs

Question 6

What role do consumers play in energy pathways?

Answer 6

• mostly passive when fixing energy prices
• most influential consumers are transport, industry and domestic users

Question 7

How have the larger countries in OPEC used their ability to control oil price to their advantage?

Answer 7

• in the past Saudi Arabia has increased its production to lower global oil prices
  
  • resulted in unconventional sources (eg. tar sands, shale) becoming uncompetitive and thus eliminate competition
• in 2023, Russia and Saudi Arabia have reduced oil production (- 1.3mb/day) as oil price is high enough to justify cutting production due to changes in supply and demand
  
  • thus earn more money per barrel of oil sold

Question 8

What has happened to global supply and demand recently?

Answer 8

• 2023
• demand decreased as Chinese economy has slowed down
  
  • aftermath of COVID and Chinese zero COVID policy closing down factories
• supply has not changed as Middle East is not unstable enough to affect oil production

Question 9

What is OPEC trying to do to secure its future?

Answer 9

• inviting new countries for membership
  
  • allows existing members to influence new members’ production to manipulate oil prices for their interests
  • makes market more predictable
  • also allows members more foresight in how to manage their economies
  • potentially influencing how investment into renewables and alternate industries works
• increases OPEC’s market share so that is continues to be taken seriously