Shell decommissioning of the Brent Platform – haven’t we been here before?

In February 2017 Shell lodged plans to the Department for Business, Energy and Industrial Strategy (DBEIS) to undertake the decommissioning of offshore petroleum installations in the Brent Field, located in the North Sea, north east of the Shetland Islands. The Brent field is an iconic field, having commenced production in 1976, producing a sweet light crude oil that has been used as a benchmark crude, serving as a reference price against which other crudes are measured. However, given the decline of production from the Brent field, the Brent benchmark crude now comprises a mix of crudes from the Brent, Forties, Oseberg and Ekofisk Fields in the North Sea.

The Brent field is a giant field with installations to match: the topside of the 4 platforms being removed range between 16,000 and 31,000 tonnes. Three of the Brent installations (Bravo, Charlie and Delta) comprise concrete legs, known as ‘Gravity Based Structures’ (GBSs) (also known as Condeep Structures), which vary between 290,000 and 340,000 tonnes. In its detailed decommissioning plan that has been lodged with DBEIS, Shell recommends that the three GBSs remain in place, since they cannot be refloated or dismantled in one piece. This is seen as the best option based on technical, safety and cost grounds. Shell proposes to remove the top of the installations and seal the GBSs with concrete caps, and fit navigation aids. The decision to leave the GBSs in place has not been taken lightly. In its Decommissioning Plan, Shell outlines the reasons for leaving these structures in place. In particular, Shell stresses that these supports are made from very thick concrete with steel bars and solid ballast, and were anchored down during installation by flooding the legs with water. The GBSs were not intended to be removed once they had been placed on the seabed, and at the time these platforms were designed and installed, there was no requirement to remove such structures. These GBSs have been extensively used in the North Sea (both in the UK and Norwegian Sectors) as they provide the best stability in the rough North Sea, and have the added advantage of enabling oil to be stored in them if required.

It is Shell’s recommendation to leave the Brent GBSs in place that have united environmental groups to oppose the plan. This is not the first time that Shell, or the decommissioning of Brent Field installations, has come to the international attention. In 1995, after three years of evaluation of options, Shell was authorised by the UK Government and the OSPAR Convention (the Convention for the Protection of the Marine Environment of the North-East Atlantic) to dispose of the Brent Spar, an oil storage and tanker-loading buoy from the Brent Field, on the North Feni ridge, in over 7,000 feet of water. What followed was international outrage, with Greenpeace playing a lead role. At the heart of the opposition was the contention by Greenpeace that over 5,500 tons of oil remained in the Brent Spar, a figure countered by Shell who said only 50-100 tonnes remained. After a series of protests and boycotts in Germany and Northern Europe, Shell withdrew their plan to scuttle the Brent Spar in deepwater, with the Spar instead dismantled by Det Norsk Veritas in a Norwegian fjord. Soon after the withdrawal of the plan to scuttle the Brent Spar, the UK Energy Minister called the Greenpeace campaign ‘completely misleading’, leading to a public apology by Greenpeace for its mistake in the estimation of the amount of oil remaining in the Spar.

In the latest controversy to affect the Brent Field, environmental groups claim that the proposed decommissioning plan may be in breach of international law. The two main international law instruments related to the decommissioning and disposal of disused installations is the United Nations Convention of the Law of the Sea (UNCLOS) and the OSPAR Convention. Under UNCLOS, there are a number of general duties to protect the marine environment, particularly Articles 191 and 192. The primary law relating to the OSPAR convention is the decision of the OSPAR Commission after the Brent Spar incident, known as OSPAR Decision 98/3 on the Disposal of Disused Offshore Installations. Under this decision, the dumping or leaving in place (wholly or partly) of disused offshore petroleum installations is prohibited within the OSPAR maritime area (which covers the Brent Field). There are, however, exceptions to this prohibition, including:

  • steel installations weighing more than ten thousand tonnes in air;
  • gravity based concrete installations;
  • floating concrete installations;
  • any concrete anchor-base which results, or is likely to result, in interference with other legitimate uses of the sea.

Given the weight and nature of the structures, it is well within the OSPAR convention exceptions to leave the structures in place, in line with the ability to remove the GBSs, and whether it is safe to do so.

Indeed, it is important to realize that there are instances where the removal of a structure may well pose a greater threat than leaving it in place. Such a threat can be to the environment itself (such as the debate surrounding the rigs to reef program) and safety to those undertaking the removal of the installation. Indeed, in the 2000s the MCP-01 concrete platform, located in the North Sea, was decommissioned. The MCP-01 was also a GBS, containing 386,000 tonnes of ballast. After a consideration of all possibilities for removal, the decision was made to leave the subsea GBS structure in place, with as much of the equipment and materials as practicable removed from the concrete substructure and reused/recycled. The primary reason for this decision was the risk to workers, particularly those involved in demolition, marine operations and offshore diving operations.

Whatever decision the UK government makes regarding the decommissioning plan for the Brent Field, it is essential that considerations beyond environmental groups’ interest be considered. Such a decision on whether to leave the GBSs in place need to also consider the safety of those undertaking the removal and recycling, and whether more environmental harm will be caused by removing a 300,000 tonne structure that has been in place for over 40 years. Whatever happens, the ensuing debate regarding this issue is sure to be interesting.

Blog by Professor Tina Hunter

 

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Australia’s aversion to compulsory settlement for maritime boundary disputes comes back to bite it

This is a guest post by Professor Andrew Serdy of the The Institute of Maritime Law at the University of Southampton. It builds on a guest lecture he gave to the Aberdeen University Centre for Energy Law. Robert Veal, Senior Research Assistant at the Institute of Maritime Law, contributed to this post. A longer version of this post is available at the Institute of Maritime Law’s website.

The background

The long-running saga over the maritime boundaries between Australia and Timor-Leste has been keeping lawyers for both sides busy. There have been no fewer than four separate legal proceedings in recent years related directly or indirectly to the issue.

One of these is the subject of this post: the invocation by Timor-Leste of compulsory conciliation under Article 298 of the United Nations Convention on the Law of the Sea (UNCLOS) and Annex V to UNCLOS as a means of settling permanently their outstanding boundaries, despite a clause in the 2006 Treaty between Australia and the Democratic Republic of Timor-Leste on Certain Maritime Arrangements in the Timor Sea (CMATS) by which the parties agreed not to invoke such proceedings against each other for 50 years, with particular reference to the ruling by the conciliation commission to reject Australia’s challenge to its competence, delivered on 19 September 2016.  Also tangentially relevant to the conciliation is another of the four proceedings, an arbitration under the 2002 Timor Sea Treaty, in which Timor-Leste seeks a declaration of the invalidity of CMATS on the ground that its conclusion was tainted by the alleged planting of listening devices in 2004 by the Australian Secret Intelligence Service in Timor-Leste’s cabinet room.

Much has been written over the years about the substance of the dispute as to where the maritime boundaries between Australia and Timor-Leste should lie, and the conciliation commission (the Commission) will come up with its own recommendations now that it has rejected the Australian challenge to its competence.  Readers unfamiliar with the arguments on both sides will find them conveniently illustrated by the Timor-Leste and Australian slideshows from the public opening session of the conciliation hearing on 29 August 2016 (which, along with the transcript of that session and the Commission’s preliminary ruling, are the only publicly available documents at the time of writing; in particular, the written pleadings have not been released), but this post is confined to the procedural aspects of the conciliation, which are novel enough in themselves.  Indeed this was the first-ever compulsory conciliation under UNCLOS (or at least the first that has entered the public domain – it cannot be excluded that parties to earlier disputes have settled or attempted to settle them by conciliations which they have agreed not to disclose).

Conciliation as a method of settling disputes

Conciliation has been defined as a procedure in which the disputant parties establish a commission or other body to help resolve their dispute, whose chief task is to examine the dispute impartially and attempt to define the terms of a settlement it thinks likely to be acceptable to the parties. UNCLOS provides for both voluntary (see Article 284) and compulsory conciliation.  The latter is an unusual combination of compulsory procedure with a non-binding outcome, but is occasionally encountered elsewhere, for example the Vienna Convention on the Law of Treaties provides for compulsory conciliation for a small class of disputes arising under it (though again none is known to have actually occurred).

As provided for by Article 3 of Annex V, a five-member conciliation commission was constituted.  Pursuant to Article 3, the party initiating the proceedings appoints two conciliators and the other party does the same.  The four chosen conciliators together in turn nominate a fifth who becomes the chairman.  It comprises HE Ambassador Peter Taksøe-Jensen (Chairman, a former UN Assistant Secretary General for Legal Affairs – I am grateful to a member of the audience at the initial presentation of these thoughts at the Faculty of Law of the Victoria University of Wellington a few weeks ago for pointing this out), Dr Rosalie Balkin (a former Director of the Legal Division and Assistant Secretary-General of the International Maritime Organization, a specialised agency of the United Nations, appointed by Australia), Judge Abdul G. Koroma of the International Court of Justice, appointed by Timor-Leste), Professor Donald McRae (a member of the International Law Commission, a body of experts reporting to the Sixth Committee of the UN General Assembly, appointed by Australia) and Judge Rüdiger Wolfrum of the International Tribunal for the Law of the Sea (ITLOS) established by UNCLOS, appointed by Timor-Leste).  Its decision to uphold its own competence of 19 September 2016 despite the objections put forward by Australia was taken unanimously and will, I suspect, have taken many observers by surprise, myself included, though this is not to say that it is wrong in law.

The relevant law

Australia’s analysis, like my own before the event, took as its starting point Article 4 of CMATS, which remains in force until and unless the Timorese attack on its validity succeeds.  This provision is headed “Moratorium” and provides in pertinent part:

  1. Neither Australia nor Timor-Leste shall assert, pursue or further by any means in relation to the other Party its claims to sovereign rights and jurisdiction and maritime boundaries for the period of this Treaty.

[…]

  1. Notwithstanding any other bilateral or multilateral agreement binding on the Parties, […] neither Party shall commence or pursue any proceedings against the other Party before any court, tribunal or other dispute settlement mechanism that would raise or result in, either directly or indirectly, issues or findings of relevance to maritime boundaries or delimitation in the Timor Sea.
  2. Any court, tribunal or other dispute settlement body hearing proceedings involving the Parties shall not consider, make comment on, nor make findings that would raise or result in, either directly or indirectly, issues or findings of relevance to maritime boundaries or delimitation in the Timor Sea. Any such comment or finding shall be of no effect, and shall not be relied upon, or cited, by the Parties at any time.

[…]

  1. The Parties shall not be under an obligation to negotiate permanent maritime boundaries for the period of this Treaty.

By Article 12 of CMATS the “period” of this Treaty” referred to above is 50 years from its entry into force, which took place in 2007.  On its face, therefore, there has been a clear breach of Article 4 by Timor-Leste in calling these conciliation proceedings into being.  Nothing in the words of Article 4 suggests that the fact that the proceedings do not have a binding outcome makes any difference in that regard.  Of course, if the Timorese claim in case (1) succeeds, CMATS will have been void ab initio and thus there will have been no breach of it by Timor-Leste after all, but it would be risky for it to rely on that outcome, since that condition has not yet been satisfied, and may never be.

The Commission, however, rejected this approach and instead based its analysis on the dispute settlement provisions within UNCLOS, grouped in Part XV (Articles 279 to 299), since it was to UNCLOS that it owed its own existence.  It said that, having been created under UNCLOS and not under CMATS or the Timor Sea Treaty, it had no authority to decide any secondary claim that there had been a breach of CMATS by Timor-Leste in bringing the primary claim.  Instead, it began with Article 280 of UNCLOS: “Nothing in this Part impairs the right of any States Parties to agree at any time to settle a dispute between them concerning the interpretation or application of this Convention by any peaceful means of their own choice.”  This makes clear that the UNCLOS compulsory mechanism for settling disputes is a default one and can be displaced by agreement of the parties to a dispute, even if what they put in its place is non-compulsory or leads to a non-binding outcome, or both.

Article 280 is one of three relevant provisions in Part XV of UNCLOS for this conciliation.  The effect of making an alternative choice under Article 280 is governed by Article 281, headed “Procedure where no settlement has been reached by the parties”, which is in the following terms:

  1. If the States Parties which are parties to a dispute concerning the interpretation or application of this Convention have agreed to seek settlement of the dispute by a peaceful means of their own choice, the procedures provided for in this Part apply only where no settlement has been reached by recourse to such means and the agreement between the parties does not exclude any further procedure.
  2. If the parties have also agreed on a time-limit, paragraph 1 applies only upon the expiration of that time-limit.

This is another way of saying that the compulsory procedures of Part XV can still be applied to a dispute if the alternative methods of the parties’ own choice under Article 280 have not led to its settlement, unless the original agreement to contract out of Part XV precludes this.  Article 281 was critical to the result in the Southern Bluefin Tuna arbitration where an arbitral tribunal formed under Annex VII to UNCLOS found by majority that it lacked jurisdiction because the 1993 Convention for the Conservation of Southern Bluefin Tuna procedurally displaced UNCLOS through its optional dispute settlement provision, from which it inferred the exclusion of any further procedure within the meaning of Article 281(1) of UNCLOS, even though the relevant provision of the 1993 Convention was completely silent on the matter.  Sir Ken Keith dissented: his view was that a clear indication of intent to displace UNCLOS would have been needed in the 1993 Convention but was absent there.  This decision has in the main been heavily criticised and has very few supporters, so it was not unexpected when in 2015 a differently composed Annex VII tribunal in the South China Sea arbitration accepted the Philippines’ invitation to depart from the reasoning of the Southern Bluefin Tuna tribunal, deciding that the non-compulsory procedures of the 1992 Convention on Biological Diversity, to which the Philippines and China were both parties,  could not displace Part XV jurisdiction as argued informally by China in a position paper.

The last relevant provision of Part XV of UNCLOS is Article 298.  This creates, in the words of its heading, a series of “[o]ptional exceptions to [the] applicability of section 2”, in other words to Articles 286 to 296 which is where the compulsory procedures are found.  One of the limited number of opt-outs it offers is for maritime boundary disputes:

  1. When signing, ratifying or acceding to this Convention or at any time thereafter, a State may…declare in writing that it does not accept any one or more of the procedures provided for in section 2 with respect to one or more of the following categories of disputes:
  • (i) disputes concerning the interpretation or application of articles 15, 74 and 83 relating to sea boundary delimitations, […] provided that a State having made such a declaration shall, when such a dispute arises subsequent to the entry into force of this Convention and […] no agreement within a reasonable period of time is reached in negotiations between the parties, at the request of any party to the dispute, accept submission of the matter to conciliation under Annex V, section 2; […];

Australia had made such a declaration in 2002, shortly before Timor-Leste’s independence.  Unlike the other opt-outs in the remaining subsubparagraphs, for a subset of excluded disputes this is not the end of the road: no further procedure is available for pre-existing disputes, but for those arising once UNCLOS is in force, compulsory conciliation of the kind represented by these proceedings is contemplated.

The unsuccessful Australian objections

The foregoing provisions collectively enabled the Commission to dismiss each of Australia’s objections made on six distinct grounds, which I paraphrase in the underlined text before commenting on each:

  1. Article 4 of the CMATS Treaty precludes either party from initiating compulsory conciliation under Article 298 of UNCLOS and from engaging in the substantive matters in dispute in such proceedings. As noted above, the Commission took the view that it had no authority to give effect to a treaty other than UNCLOS except where UNCLOS itself dictated this, adopting a narrow reading of Article 293(1), which prescribes the sources of law that a Part XV forum should apply as follows: “A court or tribunal having jurisdiction under this section shall apply this Convention and other rules of international law not incompatible with this Convention.”
  2. The CMATS Treaty falls within the category of “provisional arrangement[s] of a practical nature” specifically contemplated by Articles 74 and 83 of UNCLOS for the situation when a boundary delimiting the parties’ exclusive economic zones and continental shelves respectively remains outstanding, hence the moratorium in CMATS was not displaced by the later entry into force of UNCLOS between the parties, which occurred in 2013 when Timor-Leste acceded to UNCLOS (Australia having been an original party to it since 1994). To the extent that this argument also depended on direct application of CMATS, the Commission declined to give effect to it for the same reason as the first ground.
  1. In 2003 the parties agreed on a mechanism for resolving their boundary dispute, i.e. negotiation. The CMATS Treaty built on that agreement, confirmed negotiation as the method of dispute resolution, and added a time stipulation, namely that the negotiation was not to occur for 50 years.  Accordingly, the Commission’s competence is precluded by UNCLOS Article 281, which recognises the CMATS Treaty as a relevant choice by the parties as to how their dispute is to be settled.  Although this argument is more in tune with Commission’s approach of needing a gateway within Part XV of UNCLOS itself through which the previsions of another treaty can enter into its considerations, the Commission interpreted both Articles 280 and 281 and CMATS strictly: Part XV would in principle yield to any agreement to settle the dispute by some other means, but the moratorium in Article 4 of CMATS was something different: in fact it amounted to an agreement not to settle the dispute for 50 years.  Thus the gate remained shut, and Article 281 proved to be of no use to Australia.
  1. The parties’ dispute over maritime boundaries dates from 2002, before UNCLOS entered into force as between them, so the first condition of Article 298, that the dispute must have arisen “subsequent to the entry into force of this Convention”, was not met. Had this objection succeeded, the failure of the prior ones would not have mattered, since any one objection on its own would have had the desired effect for Australia of putting an end to the conciliation.  But it too failed, in this instance because the Commission interpreted against Australia the ambiguity in the quoted phrase: does it refer to the entry into force of UNCLOS generally, which occurred in 1994, or as between the particular disputants, which did not happen until 2013?  The objection would succeed only under the latter interpretation, but the Commission preferred the former.
  1. Because both Parties have observed the CMATS Treaty, there have not been negotiations on the maritime boundary, which Article 298 requires before resort to its provisions. Accordingly, the second condition of Article 298 is not met.  In this instance the Commission took a broader view of what was encompassed by the term “negotiations” – there clearly had been negotiations on the dispute as a whole, if not, at Australia’s insistence, on the boundary itself.
  1. The dispute is “inadmissible” because Timor-Leste was seeking to seise the Commission in breach of its treaty commitments to Australia, or at the least the Commission should stay the conciliation proceedings until the Tribunal constituted to hear the related arbitration concerning the validity of the CMATS Treaty has reached its decision on that point. The first half of this contention logically would have to suffer the same fate as the first two objections, but under other circumstances – i.e. if the Commission had decided those points differently – there would certainly have been an argument that it would make sense for the conciliation to wait until the fate of CMATS on which Australia was relying had become apparent through the outcome of case (1).

Next steps

So where to from here?  One important consequence of the Commission’s disinclination to apply CMATS is that Australia’s (and my own) contention that Timor-Leste’s initiation of the conciliation was in violation of the Article 4 moratorium remains undetermined, thus leaving Australia free to pursue that claim in whatever ways are open to it.  The obvious solution would be to bring a case of its own against Timor-Leste under CMATS alleging its violation, and to seek by way of remedy an order compelling Timor-Leste to discontinue the UNCLOS proceedings, a kind of international equivalent of an anti-suit injunction.  This, though, is easier said than done.  Although there is a provision of CMATS dealing with dispute settlement, Article 11, all it says, reflecting Australia’s negative attitude towards compulsory settlement of maritime boundary disputes, is: “Any disputes about the interpretation or application of this Treaty shall be settled by consultation or negotiation.”  So, ironically, Australia would need Timor-Leste’s consent to bring a claim against it to seek such an order, which is clearly not going to happen.

This leaves the conciliation to run its course, and the Commission has indicated that it will allow it a year to run.  Australia has announced that it will participate fully, a welcome expression of readiness to follow the UNCLOS procedures which were beginning to show signs of fraying at the edges after the respondents in two recent cases, the Arctic Sunrise and South China Sea arbitrations, refused to take part.  One final ambiguity may need to be resolved once the Commission reports back to the parties: UNCLOS Article 298(1)(a)(ii) states that “…after the conciliation commission has presented its report, which shall state the reasons on which it is based, the parties shall negotiate an agreement on the basis of that report; if these negotiations do not result in an agreement, the parties shall, by mutual consent, submit the question to one of the procedures provided for in section 2, unless the parties otherwise agree[.]”

Here it is not clear which of “shall” and “mutual consent” takes precedence: in other words, would the failure of post-conciliation negotiations pave the way to an ordinary compulsory Part XV case to decide the boundary through a putative oxymoronic obligation of the parties to consent to this?  This would suit Timor-Leste, but is the very thing Australia has been at pains to avoid.  Or are the disputants free to give or withhold their consent as they please, such that only if both of them consent “shall” the question ultimately come before a Part XV forum?  Thus it is by no means beyond the bounds of possibility that yet another case would become necessary a year or so from now to decide this point.

A fuller version of this post is available for download at the Institute of Maritime Law’s website.

OPEC’s Decision to Cut Oil Production: Factual and Legal Background

This blog is by Constantinos Yiallourides, a Doctoral Candidate at the University of Aberdeen.  In this blog, he considers the most recent decision of OPEC to cut oil production and its potential implications.

On 30 November 2016 in Vienna, the Organization of the Petroleum Exporting Countries (known as OPEC, or Organization) reached a historic deal to cut-down on their current collective output, leaving behind the pump-at-will policy the Organization had adopted in 2014 at the instigation of Saudi Arabia. They decided, after eight years of continuous negotiations, to reduce production by about 1.2 million barrels a day. The new limit on total OPEC output will be 32.5 million barrel per day.

The agreement follows on from a plan sketched out in the 170th (Extraordinary) Meeting of the OPEC Conference in Algiers on 28 September 2016 where OPEC countries agreed to examine how to set up a production ceiling of between 32.5 Mb/d and 33.0 Mb/d. They also emphasised the need to bring leading non-OPEC producers into the process in an effort to stabilise the oil market and avoid the adverse impacts in the short and medium-term. While certainly significant, the Algiers failed to reach a consensus on how to distribute the cuts amongst its members. Further, OPEC’s push to implement the Algiers deal and boost oil prices shifted focus to major crude suppliers outside of OPEC such as Russia. Despite some positive signs, Russia appeared reluctant to curtail its current production rates, risking scuttling the whole deal.

With the 30 November decision, a more specific implementation framework has now been agreed and the actual cuts of each OPEC country have been determined. OPEC’s Secretary-General Mohammad Barkindo stated that this cooperation will be ‘the first time OPEC [and] non-OPEC will agree to a joint, binding supply-management agreement’ according to the Wall Street Journal. Over the coming 6 months, starting from 1 January 2017, Saudi Arabia shall cut its output by 486,000 barrels a day to 10.058 million a day. Iraq, OPEC’s second-largest producer, shall reduce by 210,000 barrels a day from October levels. The United Arab Emirates and Kuwait will reduce output by 139,000 barrels a day and 131,000 a day, respectively. Most crucially, Russia has agreed to cut output in the first half of 2017 by up to 300,000 barrels per day. As it turns out, this is the first time in 15 years that the non-OPEC oil-producing country Russia is officially participating in an OPEC production cut deal.

Factual and Legal Background

OPEC was created at the Baghdad Conference on September 10-14, 1960. Its current members, with years of membership, include: Algeria (1969-present), Angola (2007-present), Ecuador (1973-1992 and 2007-present), Gabon (1975-1994 and 2016-present), Indonesia (1962-2008 and 2016-present), Iran (1960-present), Iraq (1960-present), Kuwait (1960-present), Libya (1962-present), Nigeria (1971-present), Qatar (1961-present), Saudi Arabia (1960-present), United Arab Emirates (1967-present) and Venezuela (1960-present).

OPEC’s stated objective is to coordinate the petroleum policies of member countries and to determine the best means of safeguarding their interests. This includes devising ways for ensuring the stabilisation of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations. According to Article 10 of OPEC statute, the Conference is the supreme authority of the Organization. The Conference, which typically meets twice a year, consists of delegations representing all the member countries. A non-member country may be invited to attend a Conference as an observer, only if the Conference so decides. Article 15 of OPEC statute provides that the Conference shall ‘formulate the general policy of the Organization and determine the appropriate ways and means of its implementation’. That said, OPEC’s most recent Conference, after reviewing oil market developments since it last meeting in Algeria as well as the oil market outlook for the remainder of 2016 and 2017, found that it is in the interest of both OPEC and non-OPEC producing countries to bring stock levels down to normal levels in order ‘to accelerate the ongoing drawdown of the stock overhang and bring the oil market rebalancing forward’.

According to OPEC’s press release, its decision to implement a new OPEC-14 production target of 32.5 Mb/d, was based on the report of OPEC’s Secretary General’s, the recommendations made by the High-Level Committee that was set up following the Algiers framework agreement, the report of the Economic Commission Board and OPEC’s Long-Term Strategy (LTS) document. A common observation in all the documents above was that, because of the continuous oil price downfall due to oversupply, global spending on exploration and production investments has also been free-falling since 2014, and a third year of investment falls would be catastrophic. Thus, appropriate responses to bring forward the rebalancing of supply and demand, this returning sustainable stability to the market were deemed urgent.

Current and Future Implications

The recent decision of OPEC to cut production has already had a positive effect on global oil prices. At the time of writing this blog, only five days following OPEC’s decision, global oil prices have surged 15 percent with Brent crude rising from $46 per barrel up to $54.94 per barrel according to Bloomberg. Some commentators suggest that this may mark the beginning of the end of a two-year downfall in the global oil market, during which prices have plunged from $100 per barrel down to $40 and oil producing countries, such as Venezuela, have come close to financial collapse.

However, whether this upward trend is sustained, it will depend on a number of factors. First, the agreement depends on how closely the OPEC and non-OPEC countries, such as Russia, adhere to their promises to pump less, something they have not always done in the past. Indeed, there are still questions about how this deal will be monitored and enforced. For example, it is submitted that traders cannot fully monitor the implementation of Russia’s pledge to cut 300,000 b/d of production since much of its production moves via pipelines as opposed to oil tankers which are easier to monitor based on how many leave port. Thus, getting Russia to stick to this commitment may be a tougher sell than expected, according to energy analysts.

Third, there is the question about the potential implications of the shale energy revolution in the US. Indeed, if anyone is cheering the news of the OPEC deal it is US shale producers. Over the past year, with global oil prices low, the US oil production has been constrained to some extent. A likely rebound in oil prices, if OPEC members cut supplies, combined with a steep slide in drilling costs as a result of technological advances, could lead to a revival in US shale production. This scenario played out similarly in late September 2016 when oil prices increased shortly after the announcement of the Algiers deal. US shale producers swiftly put rigs back in operation sending prices right back down to where they were before the announcement. Undoubtedly, this could pose serious challenges to the Organization’s efforts to boost oil prices.

Finally, as always with oil, there is time and money at stake and the stakes are high: from what refiners, marketers, distributors, and retail station owners gain per gallon, to the future of the global oil market and the world economy as a whole. OPEC, it would appear, still has the power to shake global markets. If the OPEC agreement pushes oil above $60 a barrel in the next few weeks, as some optimistic estimates suggest, it will certainly allow some breathing space to big oil producers who have seen their profits halved since 2014. On the other hand, big oil consumers will have to move swiftly to protect themselves against soaring fuel prices. Airlines, for example, could scramble to hedge against rapidly increasing oil prices.