OPEC acknowledges fears of U.S. shale: ‘I am not sure how we are going to live together’

HOUSTON ? The growing tensions between OPEC and non-OPEC producers came to the fore in a global energy conference here Monday. 

OPEC producers fear any cuts in their output could be immediately replaced by nimble U.S. shale oil producers, leaving the group with lower oil revenues with little effect on prices, a panel discussion at the IHS Ceraweek event here heard. The two camps blame each other’s rising production for driving oil prices for their decades-low level.

“I don’t know how we are likely to live together (with shale),” OPEC Secretary General Abdalla Salem El-Badri said, noting any reduction in OPEC production would be immediately substituted with U.S. shale, leaving oil prices low.

“Because of high costs, we had high supply,” Badri said. “In 2013, 2014 and 2015, we see non-OPEC increasing production by five million (barrels per day), while OPEC did not increase C yes we did in 2015, although not in other years.

“At OPEC we are willing with other producers to find a solution.”

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Canadian and U.S. oil production in the last few years has put into the worldwide production glut, with shale oil from the Bakken, Eagle Ford and other North American basins at the forefront.

“I have no idea why america – really wants to export, but at the same time, they would like to import and store it. I’m not how we are we able to tackle it,” Badri said, noting that OPEC has regular discussion with other rivals, except for america.

Oil prices jumped US$1.84 or 6.2 percent Monday to US$31.48, following the International Energy Agency raised hopes of oil prices balancing themselves in 2017, and rising to as much as US$80 per barrel by 2020.

Badri, however, was skeptical that oil could recover inside a year’s time.

“I hope we can solve this issue by 2017, but this cycle is very nasty,” he said, noting he personally had witnessed six boom and bust cycles.

Meanwhile, the International Energy Agency, which represents oil consuming countries, believes OPEC countries, based mostly in the Middle East, will continue to dominate global oil production.

“The Middle East will remain in the centre of global oil markets for years to come,” said Fatih Birol, executive director of the IEA.

However, the most recent downturn will lessen the group’s revenues to US$320 billion this season, compared to US$1.2 trillion in 2012, the IEA estimates.

Meanwhile, non-OPEC producers including Russia and the Usa will see the biggest decline in production within the years to come, the IEA notes.

Canadian production continues to increase over the years to come, and can plateau by 2021, especially if oil prices remain low.

“With non-OPEC output on the right track to say no in 2016, OPEC will increase its share of the market, only briefly,” the IEA said. “As non-OPEC growth resumes from 2018, with little new OPEC capacity scheduled in the future on line, the pendulum swings another way.”

OPEC’s proposal to freeze oil production between key members and Russia have also not yielded any results yet, however the Secretary General said hello was the first step that could be expanded to incorporate other countries.

“Iran and Iraq at this time, they listened, and they will come back later,” Badri said.

The senior oil executive said OPEC continues to remain relevant in these tough market conditions. “We aren’t dead,” he said. “We’re alive and alive and alive.”

yhussain@nationalpost.com

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