No Oil Producing and Exporting Cartels (NOPEC) Act of 2019

No Oil Producing and Exporting Cartels (NOPEC) Act of 2019

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Updated July 3, 2019
No Oil Producing and Exporting Cartels (NOPEC) Act of 2019
Since the beginning of the oil industry, there have been
NOPEC Overview
multiple periods when a supply manager has influenced
The NOPEC Act of 2019 (H.R. 948 and S. 370) would
production and price levels. Generally, a supply manager
modify the Sherman Antitrust Act (15 U.S.C. 1 et seq.)—an
has the capacity to adjust production rapidly in order to
act that led to the dissolution of the Standard Oil Trust in
respond to changing market conditions. The limited ability
1911 and prohibits U.S. oil companies from engaging in
of oil production and consumption to adjust in the short
collective market management—to criminalize actions by a
term, coupled with long development cycles for most oil
foreign state, collectively or in combination with other
production assets, a desire for price stability, and volatile
foreign states or persons, that limit the production or
price movements when the market is imbalanced by as little
distribution, maintain the price, or restrain trade of oil,
as 1% to 2% are some stated justifications for supply
natural gas, or petroleum products (e.g., gasoline) in a way
management. In the past, the Standard Oil Company, the
that affects markets and prices for these commodities. The
Texas Railroad Commission, and international oil
bill would also eliminate sovereign immunity and Act of
companies have functioned as supply managers. Today, the
State doctrines for countries found to be in violation.
14-member Organization of the Petroleum Exporting
Countries (OPEC)—representing approximately 40% of the
Potential Countries Affected
nearly 100 million barrels per day (mbpd) of world liquid
The current DoC production agreement includes 21 of 24
fuels supply (see Figure 1)—makes crude oil production
countries in the collective group (OPEC members Libya,
decisions that can affect global petroleum prices.
Iran, and Venezuela are exempted). OPEC and non-OPEC
countries currently engaged in supply management include:
Figure 1. World Oil Production
1965-2018
OPEC Countries: Algeria, Angola, Congo, Ecuador,
Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya,
Nigeria, Saudi Arabia, United Arab Emirates (UAE), and
Venezuela. Qatar, an OPEC member since 1961, withdrew
from OPEC effective January 2019.
Non-OPEC Countries: Azerbaijan, Bahrain, Brunei,
Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan,
South Sudan.
Combined petroleum production of OPEC and non-OPEC

countries—hereinafter referred to as OPEC+—represents
Source: BP Statistical Review of World Energy, 2019.
approximately 60% of world supply. In July 2019, OPEC+
Notes: Oil production includes crude oil, shale oil, oil sands, and
countries announced efforts to formalize the collective
natural gas liquids. OPEC supply decisions only apply to crude oil.
group through a draft “Charter of Cooperation.”
Following a period of petroleum oversupply and rapidly
Consideration of Possible Oil Market and
declining prices in 2014 and 2015—a situation some
Price Effects
analysts attribute to OPEC not intervening in the market—
Exactly how enactment of the proposed NOPEC legislation
OPEC, led by Saudi Arabia, along with 11 non-OPEC
might affect the oil market is uncertain. The perceived
countries, led by Russia, entered into an agreement (the
potential risk to affected countries of the United States
“Declaration of Cooperation” or DoC) in December 2016 to
imposing Sherman Act penalties, which could be severe,
collectively reduce crude oil production by approximately
would likely determine the extent to which the NOPEC
1.8 mbpd from October 2016 levels. Implementation of the
legislation might affect oil markets and prices. However,
agreement contributed to the benchmark U.S. crude oil
potential impacts would likely be within a spectrum of
price—West Texas Intermediate or WTI—rising from
possible outcomes that might range from marginal to highly
$52/barrel to $76/barrel between January 2017 and October
impactful. The following discussion is focused on market
2018. As prices were increasing, the No Oil Producing and
impacts but does not discuss potentially significant
Exporting Cartels (NOPEC) Act of 2018 was introduced in
retaliatory measures, risks to seizure of U.S. assets abroad,
in the 115th Congress. The DoC expired at the end of 2018
or other potential U.S. foreign policy or military impacts.
and was modified to collectively reduce crude oil
production 1.2 mbpd compared to October 2018 levels—for
most countries. The revised DoC agreement is currently in
effect until March 31, 2020. The NOPEC Act of 2019 was
introduced in February 2019 (116th Congress).
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No Oil Producing and Exporting Cartels (NOPEC) Act of 2019
Marginal Impact: OPEC+ continues supply
spare production capacity that may be needed in the event
management role and U.S. has a negotiating lever
of unplanned outages resulting from a variety of world
At one end of the outcome spectrum is a scenario where
events (e.g., geopolitical unrest or sabotage). Spare
OPEC+ continues its oil market-influencing role. The
production capacity is one of many factors identified by the
NOPEC Act would provide the Department of Justice with
U.S. Energy Information Administration (EIA) that can
sole enforcement authority for any violations. The bills do
influence global oil prices.
not expose foreign countries to broader civil litigation. It
may be possible for affected countries to manage the
An oil market without spare capacity and a supply manager
proposed Sherman Act modification diplomatically, should
would simply respond to price movements. Since the ability
these countries determine that their collective supply
of oil supply and demand to respond to price is limited in
management role is more valuable than the risks associated
the short term, and since a relatively small market
with potential legal actions. If this were the approach
imbalance—either surplus or deficit—can translate into
employed by the affected countries, then OPEC+’s role in
large price movements, the oil market could potentially
the oil market may not substantially change and supply
enter a period of price volatility. Prices could reach high
management would potentially continue. However, the U.S.
levels when the market is undersupplied and prices could be
executive branch could possibly use the NOPEC Act, if
very low when the market is oversupplied. Academic
enacted, as a diplomatic negotiating lever to motivate
research suggests that the presence of a market-intervening
market intervention when oil prices are deemed to be too
supply manager can reduce crude oil price volatility.
high for U.S. consumers, too low for U.S. producers, or to
However, this research also suggests that an oil market
perhaps support broader geopolitical objectives.
without a supply manager could have periods—the trough
portion of price movements—when price levels could
Even if managed diplomatically, enactment of proposed
potentially be lower when compared to an oil market where
NOPEC legislation could potentially affect economic
a supply manager is present. Furthermore, oil price
reform efforts in some OPEC+ countries. For example,
volatility may also affect the fiscal health and political
Saudi Arabia is embarking on several programs to
stability of producing countries, which arguably might
restructure its economy to be less dependent on oil-related
affect broader U.S. interests in certain regions.
revenues. In order to finance some of these efforts, Saudi
Arabia’s leadership is looking to raise capital via the bond
Alternatively, some analysts suggest that a functioning oil
market and possibly through selling shares of Saudi
futures market combined with the price-responsive and
Aramco, the national oil company. If the NOPEC Act were
short-cycle development attributes of U.S. tight oil (also
passed, the potential for the United States to pursue Saudi
referred to as shale oil) production could possibly smooth
Arabia for Sherman Act violations could be viewed as a
volatile price movements and provide supply management
significant risk by the financial community and could
functions. However, when considering the relatively recent
possibly affect the Saudi Aramco valuation and/or result in
development of U.S. tight oil, crude oil quality, and
increased borrowing costs for the country. Saudi Aramco’s
possible infrastructure bottlenecks that can limit the ability
April 2019 bond prospectus lists U.S. antitrust litigation as
of crude oil being transported to global buyers, the potential
a risk factor that could adversely affect Aramco’s business.
for U.S. tight oil to smooth price volatility is uncertain.
High Impact: OPEC+ ceases supply management
Legislative History and Recent Action
role and produces at full capacity potential
NOPEC legislation was first introduced in 2000 and a
At the other end of the outcome spectrum is a potential
version of the bill was introduced in each Congress from
scenario where the NOPEC legislation achieves its intended
the 106th to the 112th. In 2005 (109th Congress), the Senate
objective of eliminating the collective actions of OPEC+
passed a version of the bill in the Energy Policy Act of
countries to influence the world oil market. If the affected
2005, but it was not included in the enacted legislation. In
countries perceive the litigation and financial risks
2007 (110th Congress), the House of Representatives passed
associated with NOPEC to be high, OPEC+ ceasing its
NOPEC legislation (H.R. 2264) by a vote of 345-72. The
supply management activities might be the result.
committee report (H.Rept. 110-160) includes supplemental
views that express concern about potential retaliatory
Under this scenario, OPEC+ countries might choose to
measures from affected countries, including the ability to
produce at their full capacity potential, thereby eliminating
station U.S. troops in the Middle East, an oil embargo, and
the International Energy Agency (IEA)-estimated OPEC
seizing U.S. assets abroad as possible unanticipated
spare production capacity of 3.2 mbpd in June 2019 (IEA
outcomes associated with enacting NOPEC legislation.
does not estimate spare production capacity for non-OPEC
countries). Most of this spare capacity (72%) is in Saudi
Versions of the bill have also been introduced in the 115th
Arabia. Additional oil production entering the market
and 116th Congresses. The House version of the NOPEC
would likely result in downward pressure on oil prices over
Act of 2019 (H.R. 948) was ordered to be reported by a
the short term. Lower prices could benefit U.S. consumers,
Judiciary Committee voice vote in February 2019. In a
but could potentially have a negative impact on U.S. oil
book published in 2011, President Trump indicated support
producers. OPEC representatives have indicated that the
for passage of similar NOPEC legislation. However,
U.S. oil sector will likely be damaged—from an
Secretary of Energy Rick Perry has expressed concerns
oversupplied market and low prices—if the NOPEC Act
about the impact to U.S. oil producers and price volatility
becomes law. Downward price pressures would likely be
that might result from enacting NOPEC legislation.
counter-balanced to some degree by the elimination of
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No Oil Producing and Exporting Cartels (NOPEC) Act of 2019

IF11186
Phillip Brown, Specialist in Energy Policy

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https://crsreports.congress.gov | IF11186 · VERSION 2 · UPDATED