Wednesday, March 08, 2017

OPEC Nations Learning to Live With US Shale Producers
OPEC members are learning to deal with the idea that the US will be a major source of oil for years to come

The Wall Street Journal
12:00AM March 9, 2017

US shale producers won’t quit pumping oil, and OPEC is learning to deal with that.

That is the message emerging from this year’s CERAWeek ­energy conference, where the mood is markedly different from a year ago, when oil prices had just fallen under $US30 and the Saudi Oil Minister suggested that shale producers and others would have to perish for the ­industry to recover.

The annual meeting, hosted by consulting firm IHS Markit, draws thousands of energy executives and oil ministers from across the world.

While dozens of shale producers did go bankrupt during the slump, many proved resilient, and OPEC in November agreed to temporarily curtail production to help rebalance an oversupplied market. That in turn gave a shot in the arm to shale producers, which have roared back in recent months as prices have stabilised at more than $US50 a barrel.

OPEC nations have been locked in an epic stare-down with American shale companies for more than two years, since the resurgent US producers helped create a global oil glut. But much in the same way that OPEC had to accept the discovery of new supplies from the North Sea in 1970, the group’s members are growing reconciled to the idea that the US will be a major source of oil for years to come, said energy scholar Daniel Yergin, who is vice-chairman of energy research at IHS Markit.

“It’s not so much ‘us-versus-them’ any more, but a watchful but peaceful coexistence,” he said.

Saudi Oil Minister Khalid al-Falih, who helped broker the agreement by OPEC to slash output by 1.2 million barrels a day, told the conference that he welcomed the rebirth of US production as a good sign for the industry as a whole. But he warned that the oil price recovery under way was fragile, and that “Saudi Arabia will not allow itself to be used by others”.

“We see the green shoots of recovery in the industry,” Mr Falih said. He later added: “The green shoots are here in the US. Maybe they’re growing too fast.”

Mr Falih left open the possibility that the production cuts would be extended in May, though he made no commitments.

OPEC secretary-general Moh­ammed Barkindo, who met this week with American shale executives, including the heads of Hess Corp and Chesapeake Energy, told the gathering that US shale drillers hadn’t just ­survived because of better ­technology, but also proved ­resilient thanks to “financial ­engineering” that had propped up the ­industry during more than two years of relatively low oil prices.

He noted that American production had earlier helped offset falling output in Nigeria, Iran, Libya and other hot spots. “We only wish it was done in an ­orderly fashion that did not trigger this severe cycle that we’re still battling to come out of,” he said.

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