12 Fuel Watch Opec’s role as robust oil market force comes to pass David Gregory Going into the informal gathering of Opec ministers on September 28, on the sidelines of the International Energy Forum in Algiers, there was little chance of squaring the circle that is global oversupply of crude oil. As TEI Times went to press there was every indication that Opec ministers, whose countries are producing crude oil flat out, would be inclined to cut production and risk market share in the face of Nigeria and Libya boosting production and stories that US shale oil producers are rounding up drilling rigs to put back in action. Opec – or at least Saudi Arabia – once adhered to a production quota system that is unlikely to ever be in place again. Despite the cheap price of producing crude on the Arabian Peninsula, technological advances in drilling and extraction are a force to be reckoned with as long as prices don’t fall below the $40-$50/b range. How prices would ever see $60/b or $70/b or exceed that at this point is a thing in the unknown. Some say only a catastrophe could ever put prices back where they were two years ago and if that should become the case, North American frackers would be out in force. While the mostly single commodity economies of many Opec members rely on crude oil to survive – despite having been warned for years to diversify their economies – other parts of the world are examining the options and some are acting on them. Despite the fact that hydrocarbons are seen as the primary energy source for a long time to come, investment in the oil and gas upstream are for the moment slipping, according to the Paris-based International Energy Agency (IEA). In a report released mid-September, it said global energy investment fell by 8 per cent in 2015, with a drop in oil and gas upstream spending outweighing continued robust investment in renewables, electricity networks and energy efficiency. The new annual World Energy Investment 2016 “shows that the energy system is undergoing a broad reorientation toward low-carbon energy and efficiency,” a statement released by the agency said. Low oil prices played a significant role in reduced investments in hydrocarbon projects. Continuing low oil prices can be expected to impact investment in oil and gas prices in the short term, but even if the fundamentals return to a demand/supply balance, the days of $100/b oil (with the exception of a catastrophe) are gone. The oil glut is estimated at 3 million b/d. Without output reductions that accommodate every producer, that glut could be there for a while. While Saudi Arabia and non-Opec Russia agreed this summer to consider the condition of the oil market, both are producing oil flat out. Russian officials announced in mid-September that the country is producing more than 11 million b/d. Saudi output is 10.6 million b/d. One of the options for action that Opec was set to consider in Algiers was a freeze of oil production at current levels. How a freeze at high production levels – Iran is around 3.8 million b/d and Iraq is producing around 4.3 million b/d – would work to remove the glut and balance the market doesn’t really jibe. With the Algiers meeting unlikely to come to a solid consensus on anything, $115.00 $110.00 $105.00 $100.00 $95.00 $90.00 $85.00 $80.00 $75.00 $70.00 $65.00 $60.00 $55.00 $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 THE ENERGY INDUSTRY TIMES - OCTOBER 2016 the enigma that Opec must unravel will be carted further down the road to the next official ministerial meeting in Vienna in November. Not only is Opec and Russian production contributing to oversupply and low prices, but non-Opec countries are seen as boosting production by several hundred thousand barrels per day in the coming year. In its September Oil Market Report, the IEA pointed out that in the current situation with low prices, it would be expected that supplies would contract and demand would grow. But the opposite is happening, it said. Furthermore, oil stocks in OECD countries have grown to 3.1 billion barrels. The agency forecast that the supply/demand dynamic would see no significant change for some time and that the market’s “return to balance” would require a longer wait. In the meantime, oil market watchers can expect to hear more news of an imminent agreement among oil producers. Such comments from Opec figures have bumped up prices in the markets for hours and even days over the year, but observers have reached the point where such comments can no longer be taken seriously since Opec is no longer serious itself. Oil n Opec set to cut production n Market’s “return to balance” will require a longer wait Crude Oil Prices - 2016 2014 Settlement Prices For Benchmark Crudes ($/B) Nymex WTI ICE Brent DME Oman ICE Dubai OPEC Basket Price/Barrel Date 19 Sept 2016 13 Sept 2016 9 Sept 2016 6 Sept 2016 1 Sept 206 30 Aug 2016 26 Aug 2016 19 Aug 2016 23 Aug 2016 SOMETIMES LESS IS MORE VENSYS – Gearless Wind Turbines: – Fewer Components – Less Maintenance – Less Downtime + More Effi ciency + More Power + More Energy … … for our future! www.vensys.de Visit us: RenewableUK 2016 12–13 October, stand 87, Liverpool VEN-AZ_249x160mm_LessIsMore_16-07-14.indd 1 14.07.16 11:46
Energy Industry Times October 2016
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