Shale to play a big role

The US accounted for the entire net increase in oil output over the past three years - excluding Opec members and former Soviet states - as its large shale reserves begin to reshape the global energy market. The US increased daily production of crude oil and other liquid hydrocarbons by 1.1m barrels from 2008-2011, while other non-Opec countries lost a net 200,000 b/d, according to the new BP statistical review - a standard industry reference - published on Wednesday. Opec ministers are meeting in Vienna on Wednesday to set the oil group’s production limits, amid disagreements over how to respond to the 22 per cent fall in the price of crude since March. The surge in US oil production and increased output by Opec members such as Saudi Arabia and Libya have added to the downward pressure on prices, which have also been held down by projections of weaker demand in Europe and China. The US remains the world’s largest oil importer, but the proportion of its oil demand met by imports has fallen from 60 per cent in 2005 to 45 per cent last year. Though production is rising strongly, it is still a long way below its 1971 peak. Edward Morse, head of commodities research for Citi, said: “Imports of light sweet crude into the US are dropping rapidly. West African exporters, faced by those disappearing markets and the problems in Europe, are having to seek out Asian markets.” Advances in the techniques of horizontal drilling and hydraulic fracturing, first applied to shale gas reserves, are now making it possible to develop US oilfields in shale and similar rocks that were not previously commercially viable. The result has been a dramatic increase in production. North Dakota, the heart of the new oil rush, this year overtook Alaska and California to have the second-highest oil output in the US, behind Texas. US production is continuing to race ahead this year, rising 700,000 b/d from 2011 levels according to new figures from the International Energy Agency, the rich countries’ oil watchdog. The rise in American oil supplies was the shadow that fell over every discussion at Opec headquarters in Vienna on Wednesday. The prospect of sustained growth in US oil output, along with a few other non-Opec countries such as Canada and Brazil, is increasing the chance that the group’s influence over the price could be undermined. In Vienna, Ryan Lance, chief executive of ConocoPhillips, the third-largest US oil group by production, set out a scenario of a global shale-oil revolution to chill the blood of the watching Opec ministers. The US was seeing its first meaningful growth in oil production for 20 years, he said, and Conoco expects US shale liquids production to grow 150 per cent by 2020. “Thanks to both shale and the Canadian oil sands, North America could become self-sufficient in oil ... by 2025, and even a net exporter,” he said. In a gesture to Ali Naimi, Saudi Arabia’s oil minister who was chairing the session, Lance added that no one expected a level of US exports close to the kingdom’s 8m barrels a day. However, he added, there was also potential to produce shale worldwide. Conoco and many other companies were pursuing shale opportunities in countries including Canada, Australia and Poland. “For too long, we’ve faced inaccurate perceptions in consuming nations of resource scarcity,” he said. “[Now] both governments and consumers are becoming more aware of the greater abundance of oil and natural gas.” Outwardly, Opec ministers and officials are sceptical that their share of world oil markets will be eroded. Rafael Ramirez, Venezuela’s oil minister, said consuming countries were under a delusion that shale would “come to their rescue”. Abdalla El-Badri, Opec’s secretary-general, acknowledged that shale oil and gas were changing the energy landscape. But he said there were unanswered questions around fracking, particularly its impact on groundwater. Privately, though, Opec member states are worried. Paul Stevens, senior research fellow at Chatham House and a veteran Opec observer, said expectations had always been that the increase in oil demand over the next 15-20 years would be met by Opec. But the equation was changing. “With the technology moving beyond the US, you could foresee a situation where the increase in supply might not be coming from Opec,” he said. “That is bound to concern them.” Stevens points out that the high oil price sought by Opec’s members is a double-edged sword. On the one hand, they need it to balance their budgets. On the other, it prompts investments in unconventional oil reserves, such as the US shales.from gulfnews.com