When reports emerged that India and China are in talks about forming an oil buyers' club, OPEC was probably too busy with its upcoming June 22 meeting to concern itself with that dangerous alliance. Now, it may be time for it to start worrying.
"The timing is right. The boom in U.S. oil and gas production gives us greater leverage against OPEC," the Times of India quoted an Indian official as saying last month after the formal start of said talks. The two countries, after all, account for a combined 17 percent of global oil consumption and they are the ones that would be the hardest hit if prices rise as a result of OPEC's actions.
What's more, they might not be alone in this attempt to curb OPEC's clout on the global oil market. According to Bloomberg's Carl Pope, Europe and Japan, previously reluctant to take part in any anti-OPEC projects, may now join in. The reason they are likely to join in is that unlike in previous oil price cycles, now there are alternatives to fossil fuels. Electrification is where OPEC may have to face off with a future oil buyers' cartel.
India, China, and Europe are all very big on EV adoption. Japan is a leader in battery manufacturing. If they set their minds to it, these four players could upend the oil market and effectively cripple OPEC. Of course, this is a best-case scenario of the kind that rarely unfolds in reality. Related: Why Oil Prices Are Surging
Let's take India, for example. A recent survey suggested that as many as 90 percent of Indian drivers were willing to switch to EVs if the government built the necessary charging infrastructure, reduced road taxes, and increased subsidies. Another survey identified price and range as additional roadblocks towards the mass adoption of EVs in India. Because of these challenges, New Delhi recently amended its ambitious goal of having an all-EV fleet on the roads of the country by 2030 to having 30 percent of the fleet electric.
China, for its part, is the undisputed leader in global EV adoption: the country accounted for more than 50 percent of global EV sales last year in case you were thinking, "Wait, wasn't that Norway?" However, this was in large part made possible by generous government subsidies for EV manufacturing. These subsidies are due to be wound down to 0 by 2020, and carmakers are already beginning to brace for a future without the support of the state. It's safe to say it remains uncertain if the EV boom will continue after 2020.
This precarious situation with EVs is reason enough for China and India to seek more clout on international oil markets dominated by OPEC and would justify the formation of a "buyers' club." Europe, for its part, is, as a whole, a top performer in EV adoption and it is also very big on environmentalism. At the same time, it still imports crude and quite a lot of it, so it cares about oil prices as a large buyer. Related: Stranded BP Cargoes: A Red Flag For Chinese Oil Demand?
China and India are facing challenges in EV adoption. Europe could help and benefit from it. After all, taken together, Europe, China, India, and Japan account for the manufacturing of as much as 65 percent of the world's cars, and a lot of these are manufactured in Europe. These four also consume 35 percent of the world's crude oil and would like to reduce this number.
According to Pope, if they get together, they would be able to negotiate either a more gradual or a faster shift to EVs. It would all depend on whether OPEC would agree to maintain lower prices or not.
A more skeptical view would note the challenges in EV adoption such as subsidies and infrastructure. These would take time to be overcome even if everyone played together. Yet long-term, an oil buyers' alliance could be a force to be reckoned with by the oil producers, and the latter need to start paying attention now.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
The idea of an oil buyer’s club is not new. The International Energy Agency (IEA) acts as one representing the world’s biggest consumers of oil particularly western consumers.Still, it has proven a total failure.
A new oil buyers’ club led by the world’s biggest and third biggest economies (China and India) based on purchasing power parity (PPP), will not threaten OPEC but it will strengthen their hands when negotiating oil deals with OPEC.
If, however, the purpose of an oil buyers’ club to be joined by Japan and Europe is to promote a faster penetration of electric vehicles (EVs) into the world’s transport system, this can only be achieved even without an oil buyers’ club if EVs are as cheap as the current efficient internal combustion engines (ICEs), able to survive completion with ICEs without huge government subsidies , enhancing the global electricity generation to cater for millions of EVs on the roads and the global infrastructure to charge them.
This will not happen in the foreseeable future. My conclusions are, therefore, that there will not be a post-oil era throughout the 21st century and far beyond. Oil will continue to reign supreme throughout the 21st century and far beyond.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Yes, China and India are the 2 most populous countries in the world (accounting for about a third of all humans). If Japan is included, you'll have another highly-populated and strong Asian country in the group.
European members will not include Russia (as it will most likely replace Iran's spot in OPEC), but rather very influential nations such as Germany, France, Norway (a huge percentage of their GDP consists of oil exports), and the United Kingdom. Switzerland will most likely remain out (as a usual "neutral" country), but should also be home to this counter-OPEC group's meetings.
But don't leave out the U.S. and Canada! Not only is the U.S. and Canada large in both size and population, but also account for far enough global consumption of oil, not to mention oil production.
It's high time that we form our own group, as the major oil exchanges are based in New York and London anyway...we need to protect our own interests and stop playing into the hands of particular members of OPEC+ (e.g., Saudi Arabia & Russia) as seen via the recent gimmicks that Trump has requested from the Saudis for oil production. Otherwise, the whole world is vulnerable to the ongoing conflicts within smaller members of OPEC (e.g., Venezuela, Nigeria, Libya, etc.)
In China and India, it's coal, which is worse for the environment.
In Japan, it's natural gas in the form of LNG imports
In Europe, it's coal and natural gas.
He should also call for a rapid build out of infrastructure to make enough pristine clean diesel and jet fuel from our cheap and abundant domestic coal as is needed to fully satisfy the needs of the US military. The Nobel Prize in Chemistry was awarded over a decade ago to a trio of scientists for unfolding a way to greatly enhance the efficiency of that effort. It's high time their work made it from the lab to the manufacturing facility!
We should also break ground on a major nuclear power plant each and every month, until we've doubled our inventory.
Americans are famous for innovation. Why have we cut ourselves off so severely in such an important area?
But those EV's need an awful lot of lithium, which takes time and a lot of money to mine from deep in the earth. Well over 10 years away. We haven't even seen an EV with over 400 mile range, which is what is needed to break into the US market successfully. And any Chinese invasion of Taiwan will stop all imports to the USA and AU from the communist chinese.
Look all this up on YouTube for the rest of the story and some great presentations. We need to remember the central role that the cost of power plays in the wealth of a nation, and there's no cleaner, less polluting and more reliable source than this all-up. Including renewables. Want an all-electric inexpensive economy quickly, and the great goodness it brings. Start here. You know you should rethink when decisions are being driven by anxiety rather than numbers. Where we all want the same thing. Power too cheap to meter. Buy a subscription and your done, like cable TV.