OPEC leaders tend to minimize the U.S. oil and gas shale revolution, but they may have reason to be more attentive after U.S. production eclipsed imports for the first time in 16 years.
U.S. domestic oil production last exceeded imports in the week of Jan. 3, 1997, according to U.S. Energy Information Administration statistics.
OPEC nations such as Angola and Nigeria have seen a precipitous decline of exports to their best customer as shale takes over.
Though OPEC has generally downplayed U.S. shale success, the cartel will begin studying the U.S. shale boom, leaders said at a May 31 meeting in Vienna. Separately, Saudi Aramco said May 8 it is exploring its own unconventional resources.
Still, OPEC has had an almost dismissive tone toward U.S. shale oil and gas. In January, HE Abdalla S. El-Badri, OPEC secretary general, said shale drilling was in the “very early development stages” and “questions remain as to how sustainable this growth will be in the long term,”
On May 31, at OPEC’s Vienna conference, El-Badri said the United States has already seen a slowdown in shale gas drilling and that oil has an associated marginal cost.
“And in addition, we need to be careful in estimating their potential,” he said. “There have been reports that shale wells can drop off by as much as 60-90% within the first year.”
However, following the drop in natural gas prices, a shift to shale oil has been lucrative for many U.S. companies.
The Vienna meeting caught OPEC flat-footed for a robust discussion of the implications of the U.S. unconventional oil production at its Vienna meeting, particularly on OPEC policy and the potential for lost market share, said Jeff Dietert, managing director, head of research, Simmons & Co. International.
But growth in light sweet crude supply has a more direct impact on OPEC countries, such as Angola, Algeria, Libya and Nigeria, with light oil production typically exported to the U.S. market.
“While OPEC oil ministers continue to express comfort with $100 per barrel oil, and with the OPEC basket closing yesterday at $99.77/bbl, OPEC maintained the current quota of 30 million barrels per day – no surprises here,” Dietert said. “That said, the current 30 million barrels per day quota has no teeth because there are no individual country allocations within the quota.”
Since the quota was established in January 2012, supplies are rising in Iraq (500 barrels per day), Libya (440 barrels) and Kuwait (250 barrels).Sanction-impacted Iranian supply is down 800 barrels per day and Saudi supply is down 500 barrels.
“Our view is that all nations, aside from Saudi Arabia, are essentially producing at max capacity anyway,” Dietert said.
Still, it has been widely reported that OPEC is uneasy with the shale boom and will launch a study of it.
“It is a concern,” Nigerian Petroleum Minister Diezani Alison-Madueke was quoted as saying by Bloomberg. The committee will consider the effect of shale oil on the global market for OPEC crude “in the not-too-distant future,” she said.
Alison-Madueke said in May that U.S. shale oil has resulted in declining imports from countries such as Nigeria, according to the Nigerian National Petroleum Corporation.
Angola and Nigeria, among other OPEC countries, hope to make up the slack in U.S. demand by shifting supply to China. Some estimates point to China alone adding 370 million additional vehicles by 2030. Currently, there are about 50 million vehicles in the country.
However, as of March 2013, OPEC countries have supplied the United States with 321,075 barrels of oil, behind the single largest country to supply to the United States: Canada, with 295,000 barrels.
Nigeria will continue to earmark more of its oil exports for Asian destinations after losing its market share in the United States due to U.S. shale production.
Crude oil imports from Nigeria declined by 246,000 barrels per day in February to 194,000, according to the U.S. Energy Information Administration. That was the lowest level of imports from the country since 1985.
Angola, too, is looking to increase its oil production to 2 million barrels a day after oil exports to the United States fell by 34% in 2012. Deliveries amounted to an average of 221,000, down from around 500,000 in 2006.
Angola Minister of Petroleum Eng José Maria Botelho de Vasconcelos said as oil exports to the United States decline, Angola will also increasingly look to boost its oil deliveries to China.
“There is a reduction in petroleum imports to the U.S.,” he said, but “emerging markets like India and China have been growing, and they have absorbed a large part of Angolan exports.”