The Organisation of Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, have implemented a new system for oil production quotas. This change, approved over the weekend, is expected to spur increased investment among member countries, particularly benefiting low-cost producers in the Gulf region. In contrast, nations like Nigeria, which rely on more expensive offshore and geological production methods, may face significant challenges in expanding their output capacity.
OPEC+ approved a mechanism to evaluate the maximum production capacity of its members, which will serve as a basis for setting output limitations starting in 2027. This assessment will take place from January to September and will involve a thorough review of each member’s oilfields and infrastructure by a reputable U.S. auditor. The aim is to determine how much oil can be brought to market within a 90-day period and sustained for one year.
Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, stated that the new system aims to stabilise global oil markets while rewarding those members who invest in their production capabilities. OPEC+ currently represents nearly half of the world’s oil supply, estimated to reach 106 million barrels per day by 2025, according to the International Energy Agency.
Investment Opportunities and Challenges
The upcoming November meeting will see OPEC+ members approve individual production capacities and agree on the output quotas for 2027. These quotas will reflect an equal percentage of capacity for each member, and the Maximum Sustainable Capacity (MSC) will undergo annual reviews thereafter. While the new system could drive investments among member states eager to boost their production and revenue, it inherently favours wealthier nations with lower development costs, such as Saudi Arabia, the United Arab Emirates, and Kuwait.
For instance, the UAE plans to increase its production capacity to 5 million barrels per day by 2027, up from its current 4.85 million barrels per day. The Abu Dhabi National Oil Company (ADNOC) announced an ambitious investment of $150 billion over the next five years to expand operations. Saudi Arabia, as the world’s leading oil exporter, boasts a production capacity of 12 million barrels per day and holds a significant spare capacity of 2.2 million barrels per day as of October, representing 60 percent of the total OPEC+ spare capacity.
Conversely, nations like Nigeria and Kazakhstan, whose production is heavily reliant on costlier methods, could struggle to increase their output. The challenges are compounded for countries such as Russia, Venezuela, and Iran, which face international sanctions restricting access to critical drilling equipment and Western technologies.
Future Market Dynamics
The anticipated surge in investments aligns with OPEC’s long-term goal of regaining market share, especially after witnessing declines due to rising production in the United States, Brazil, Canada, and other regions. Additionally, these investments may alleviate concerns about a potential supply crunch as the decade progresses, stemming from reduced global spending and declining production in U.S. shale regions.
Nigeria currently holds an OPEC quota of 1.5 million barrels per day and has expressed intentions to seek an increased production level. However, the nation has encountered substantial obstacles in raising output in recent years, as noted by Emmanuel Addeh.
As OPEC+ navigates this transition, the impacts on member nations will vary widely, with low-cost producers likely emerging as the primary beneficiaries of the new quota system while higher-cost producers may face extended pathways to growth.
