UAE supports OPEC+ easing cuts through Dec, but current baseline production ‘unfair’
The UAE supports easing OPEC+ collective production cuts between August and December, but wants the proposed current agreement extension to the end of next year to be discussed at a separate occasion because the current production baseline on which quotas are based is unfair, the energy ministry said July 4.
The OPEC+ coalition was set to agree last week to boost collective crude output by 400,000 b/d each month from August to December and extend their supply management agreement through the end of 2022. But the UAE has stymied the agreement by insisting its baseline production level from which its quota is determined should be raised, which other countries have said is unfair, delegates told S&P Global Platts on the condition of anonymity.
“The UAE believes that the market needs an increase in production and supports an increase from August,” the ministry said in a statement posted on state-run WAM news agency.
“The Joint Ministerial Monitoring Committee (JMMC) unfortunately only put one option forward, to increase production on the condition of an extension to the current agreement, which would prolong the UAE’s unfair reference production baseline until December 2022, from the existing agreement end date of April 2022.”
The nine-country JMMC is co-chaired by Saudi Arabia and Russia, the leaders of the OPEC+ coalition which wanted a twin agreement on easing of quotas and extension of the agreement, according to delegates.
“There is plenty of time to review terms for its extension and we see no need for such a condition to be included at this time,” the UAE energy ministry said.
The UAE suggested that the extension decision be postponed to another meeting to allow “an immediate unconditional decision on increasing production from August to progress.”
The UAE’s baseline under the current pact, determined by its October 2018 production level, is 3.168 million b/d, but the country now claims a capacity closer to 4 million b/d.
Using a figure closer to that as its new baseline would allow the country to pump significantly more crude while remaining compliant with a higher quota, and also give it a leg up if Iran gains US sanctions relief.
The UAE wants a higher baseline because its oil production capacity is expected to rise this decade. Abu Dhabi National Oil Co is spending $122 billion between 2021 and 2025 on growth projects, including boosting its production capacity to 5 million b/d by 2030 from around 4 million b/d now.
“The UAE and its international partners have invested significantly in growing its production capacity and believes that, if/when the agreement is extended, the baseline reference figures should reflect its actual production capacity, rather than the outdated October 2018 production reference,” the UAE energy ministry said.
The UAE has been “a reliable partner in the current OPEC+ agreement, delivering compliance of 103% throughout its two-year term,” the ministry added.
OPEC+ ministers adjourned their online proceedings late July 2, agreeing to take the weekend to regroup and reconvene July 5 at 3 pm Vienna time (1300 GMT).