What does the election of Donald Trump to the Presidency of the United States of America mean for the oil & gas sector? An end to OPEC perhaps?
There has been much speculation as to what the election of Trump to the hugely powerful role of US President will mean for the oil & gas sector.
It appears from his campaign promises that he is likely to remove regulatory obstacles to the building of new pipelines, open up federal land for drilling, and undo some of the environmental regulations introduced by President Obama for oil, gas and coal.
He also apparently plans to end US participation in global climate change agreements, like the Paris Accord, and to scrap the Obama administration’s Clean Power Plan, intended to curb carbon dioxide emissions from electricity generation. The potential boost to the oil, gas and coal sectors sent these stocks soaring while renewables companies saw their shares fall sharply.
A new oil boom in the US could extend the current glut of supply and result in continued lower prices, which will put added pressure on OPEC members meeting in Vienna at the end of November to try to formalise the proposal made in late September to curb member production.
Something else the OPEC members might have on their minds is a rather more frontal attack from President Trump.
In 2011, in his book “Time to Get Tough: Making America #1 Again”, Trump suggested that the US should sue OPEC under antitrust rules.
He wrote: “We can start by suing OPEC for violating antitrust laws. Currently, bringing a lawsuit against OPEC is difficult… The way to fix this is to make sure that Congress passes and the president signs the ‘No Oil Producing and Exporting Cartels Act’ (NOPEC) (S.394), which will amend the Sherman Antitrust Act and make it illegal for any foreign governments to act collectively to limit production or set prices. If we get it passed, the bill would clear the way for the United States to sue member nations of OPEC for price-fixing and anti-competitive behaviour…Imagine how much money the average American would save if we busted the OPEC cartel?”
The Organisation of the Petroleum Exporting Countries (OPEC) is an inter-governmental organisation of 14 nations (Algeria, Angola, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela), which last year accounted for around 43% of global oil production and 73% of proven oil reserves.
Its purpose is “to coordinate and unify the petroleum policies of its member countries and ensure the stabilisation of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry”.
However, if it can be described as a cartel, OPEC is not a terribly successful one. There are sufficient non-OPEC energy suppliers to maintain a substantial degree of worldwide competition and frequent “cheating” by members exceeding production quotas means that its ability to influence prices is somewhat limited, particularly now that the US is itself capable of supplying practically all its own oil needs through exploitation of shale.
Antitrust law refers to national laws introduced in many countries around the world designed to ensure that businesses operate on a level playing field and do not collude or abuse monopoly positions to the detriment of the consumer.
In the UK, we refer to it as competition law.
Governments, when acting in their capacity as states, are generally not subject to the domestic laws of other countries, although government-owned businesses that act in a commercial capacity may be so bound.
A US District Court decision in 1979 confirmed that OPEC’s decisions are acts of state covered by the principle of sovereign immunity rather than “commercial acts”, and are therefore beyond the legal reach of US antitrust law.
What if the US were to pass legislation purporting to limit the organisation’s sovereign immunity, such as the NOPEC Act, and a court in the US were to issue a judgment for damages against OPEC?
In theory only, but food for thought: the US could then seek to seize assets of OPEC members such as money in US banks. However, when NOPEC was originally proposed, then President Bush made clear that he would veto it out of concern as to the international repercussions of such action.
In 1973, OPEC imposed an oil embargo on the United States due to its support of Israel during the Yom Kippur War, with the result that oil prices in the US rose sharply.
The fear of such retaliation is a further reason why the US and other countries hesitate to take action against OPEC, although President Trump might feel more liberated to act given that the US has become practically self-sufficient in oil due to the shale oil boom. The fact that the United Nations recognises the validity of OPEC’s mission is another. Countries with natural resources have legitimate reasons for wanting to maximise the value of those resources, as the resulting revenue is what sustains government spending, at least some of which goes on public services for the populations of those countries.
What is certain is that any attack by the US legislature or the US courts on OPEC would provoke a serious diplomatic incident. Let’s wait and see if the “Aberdeenshire businessman’s” views have changed since 2011.
Penelope Warne is the senior partner at international law firm CMS Cameron McKenna
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