NOPEC Bill. Punishment or collaboration?

24/5/22, 11:27

NOPEC Bill. Punishment or collaboration? | LinkedIn

NOPEC Bill.

Punishment or collaboration?

Published on May 12, 2022 Edit article View stats

Luis Cubria Falla Director CA&Asociados | Strategy consultant | IESE MBA 23 articles

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24/5/22, 11:27

NOPEC Bill. Punishment or collaboration? | LinkedIn

May 25, 2022

It is clear that the current strategy of energy transition, looking for renewable sources, is correct, but I do not have the same opinion about its tactics.

In fact, what should be a smooth transition, (with an increasing global cost for consuming countries parallel to the development of alternative sources of income for the exporting ones), is on the way to become a rough road with spasmodic price changes and real threats of lack of supply.

The oil industry has several differences respect to other raw materials sectors. The first one is a wide government control and propriety of the local oil industry (through its national oil companies -NOC- in many cases), and the second one is the organization of various of the main producers in the OPEC - Organization of the Petroleum Exporting Countries-, to establish a market control via quotas.

This oil market regulation has offered some stability and at the same time good margins to the producers. In fact, contrary to common raw material markets (like coal or iron ore), who price the products as a surplus over the production cost, the oil price is clearly separate from its lifting cost.

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24/5/22, 11:27

NOPEC Bill. Punishment or collaboration? | LinkedIn

This market contingency is sometimes discussed by purchasing countries, but in general no relevant measures have been taken against it. Perhaps one of the reason is that the main independent oil companies -IOC-, as Exxon, Shell or BP, are also profited of high oil prices.

A logical approach to counter OPEC power would have been to create an OPIC, the Organization of the Petroleum Importing Countries. This has been talked in Asia, but not very seriously :-)

And the last attempt to change the behavior of OPEC is the NOPEC Bill - S.977, -No Oil Producing and Exporting Cartels Act- a USA initiative who wants to include the Oil Producing Cartels into the Sherman Act perimeter.

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24/5/22, 11:27

NOPEC Bill. Punishment or collaboration? | LinkedIn

This would eventually allow USA to impose sanctions to some countries that in cooperation:

Limit the production or distribution of oil, natural gas, or any other petroleum product.

Set or maintain the price of oil, natural gas, or any petroleum product.

Take any action in restraint of trade for oil, natural gas, or any petroleum product.

The Bill is consequence of the high gasoline prices and inflation in the USA, although the causes of both cannot be attributed to OPEC, in my opinion. The Russian invasion of Ukraine is apparently other incentive to try to reduce the oil prices, as the public budget o Russia is extremely dependent of oil and gas exports.

It is highly debatable whether the bill will be approved. It is also very difficult to achieve the extraterritoriality of its application, as has been demonstrated in the Helms-Burton Act.

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24/5/22, 11:27

NOPEC Bill. Punishment or collaboration? | LinkedIn

Anyway, it would be a much better approach a common effort in this transition period.

Unfortunately in Europe we are discovering that our excellent and highly trained politicians act as amateurs in the management of effective operations. For some reason, the USA has a wonderful track of success in their internal affairs, and a disastrous experience managing external conflicts. We hope, however, that the cure does not turn out to be worse than the illness.

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