Oil giants take US shale in stride
“For the US to gain or succeed some of its market share in a much bigger market doesn’t necessarily create a threat to other producers,” said Khalid Al Falih, the Minister of Energy, Industry and Mining of Saudi Arabia.
During our hour-long debate, I put up a chart from the International Energy Agency on the big screen that showed US production could hit 10 and a half million barrels a day this year and continuing a march to 14 million barrels by 2021.
“I don’t think we should worry; the oil market is very sensitive to inventories and if we don’t keep our eyes on the inventories we could go out of balance,” Al Falih said, “But in the long term it is a very healthy market and we can accommodate the kind of numbers that are coming out of the US, even if they are as bullish as the chart shows.”
Al Falih, also the Chairman of Saudi Aramco the state run energy giant, is convinced demand for crude will continue to expand at a healthy clip of one and a half million barrels a day this year taking daily it over 100 million barrels for the first time.
“I am thinking that in the next 25 years or so we are going to see another 20 million barrels of demand, we are going to hit 120 million barrels of daily demand,” he added.
America’s shale output is surging but there are not any signs of panic in the world’s two largest oil producers, Russia and Saudi Arabia.
Saudi Arabia and Russia orchestrated a hard-fought battle to instil discipline within the club of OPEC and Non-OPEC producers for the very first time. More than 20 producers agreed to trim output by 1.8 million barrels to accelerate a re-balancing in crude supplies.
By all accounts that has worked and it is the primary reason oil has been hovering just below $70 a barrel and $40 above where we were two years ago at the Davos meeting.
Al Falih’s counterpart in Russia, Alexander Novak is equally as sanguine about the prospects in the near term.
“We should not be afraid of US shale oil production in the general energy mix and supply in the market. We have 100 million barrels a day; this is the real market demand”.
At this juncture, the two ministers, who many suggest are enjoying a “bromance” of sorts due to their tight bond, are focussing on the near term rebalancing of excess supplies. Most estimates point to a normalized market by July. Chief executives of Russian oil companies have not hid their unhappiness about the current arrangement, giving up market share for the sake of higher prices, but so far at least, President Vladimir Putin has instructed those players to stand back and let the process evolve.
“Every deal will have to run its course and end at some point and we will have to go back to a market situation. So we also believe that in the balance of supply and demand,” said Novak.
The roundtable was unusual because all three major producers were represented, plus the fast growing oil importer India. US energy secretary Rick Perry, in a nod to his Saudi and Russian counterparts, concurred that demand should remain robust and US crude won’t kill off the rally in prices.
“I don’t particularly think it is going to be a spoiler, the American shale production,” said Perry, the former governor of the energy producing state of Texas.
Perry sited robust economic reforms in India, Mexico and Saudi Arabia as the primary reason to expect further gains in oil and gas demand for the next decade.
But this is a tricky period due to the rise of solar and wind energy coming on stream at lower prices and the real drive to roll out electric vehicles over the next two decades. Expectations vary wildly on the impact on oil, but experts suggest say it is too early to call for “peak oil” when demand for crude will level off.
“So when there is a peak or plateau at least based on what we see today, it is not tomorrow, next week or the next decade. said Dan Yergin, Vice Chairman of consultancy IHS Markit and author of the seminal energy book, “The Prize”.
“Maybe it is around 2035 or 2040 and its going to be at a higher level than where we are today,” he added.
John Defterios is CNN’s Emerging Markets Editor and anchor of Global Exchange, CNN’s prime time business show focused on the emerging and BRIC markets. He has also been the anchor of ‘CNN Marketplace Middle East’, since 2007.
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