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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Saudi Oil Minister Tired Of Shale Hype

Khalid Al-Falih

“I was not disputing the amazing revolution of shale . . .[but] in the overall global supply demand picture it’s not going to wreck the train,” al-Falih said, charging that the IEA is overstating the role of shale in a global market. “We should not be scared,” he added. “That’s the core job of the IEA, not to take it out of context.”

Al-Falih has clearly become annoyed at all the pestering from reporters and market analysts about the prospect of U.S. shale spoiling OPEC’s plans this year. He put on a brave face and dismissed questions about OPEC losing market share as U.S. drillers continue to ramp up.

His testy response won’t kill rumors about discord growing from within OPEC. At a panel event at the World Economic Forum in Davos, Switzerland, al-Falih said that the IEA is overhyping the impact of U.S. shale.

The comments come a week after the IEA published its January Oil Market Report, in which it said that “explosive” shale growth, combined with production gains in Canada and Brazil, would “far outweigh” any declines from Venezuela and Mexico. The conclusion was the basis for the IEA predicting non-OPEC supply growth of 1.7 million barrels per day (mb/d) in 2018, a figure that exceeds demand growth of 1.3 mb/d. In other words, the IEA says the oil market will once again be oversupplied, largely because of U.S. shale.

But in Davos, al-Falih was exasperated with those claims. He argued that natural depletion, plus strong demand growth meant that there was plenty of room for new supply, and that shale drillers wouldn’t crash the market. He criticized the IEA for an “oversized focus” on U.S. shale.

With some unfortunate timing for him, the EIA published production figures for the week ending on January 19, which showed a massive jump in output to 9.878, an increase of 128,000 bpd from a week earlier. That puts U.S. production at another record high, although it should be noted that these weekly estimates are subject to revision. Nevertheless, the EIA sees U.S. oil production passing 10 mb/d in February, scaling up to 11 mb/d by the end of 2019. Related: Saudis Unmoved By Oil Price Surge

Still, al-Falih expressed resolve, stating that it would be “very unlikely” that the OPEC/non-OPEC coalition would abandon their production cuts at their upcoming meeting in June. Earlier in the week, al-Falih said that Saudi-Russian cooperation in the oil market would last for “decades and generations,” and that he wanted to work out a more permanent framework for OPEC coordination beyond 2018.

The comments from al-Falih were quickly met with pushback from the IEA’s top officials. IEA executive director tweeted on Thursday a not-so-subtle dig at al-Falih: “Delighted to participate in this stimulating discussion about the future of energy markets. @IEA analysis has been consistent for many years about the shale oil and gas revolution in the United States and its impact on global markets.”

The IEA’s head of oil division, Neil Atkinson, also rejected al-Falih’s characterization that the IEA has overhyped shale. “U.S. shale in the past decade is one of the biggest game changers in oil production history and it's leading 1.7 mb/d of non-OPEC growth in 2018. Other countries e.g. Brazil and Canada are growing fast too,” he said in a tweet on Thursday.

By Nick Cunningham of Oilprice.com

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  • James on January 25 2018 said:
    But in reality... Shale is overhyped, and the IEA will be very disappointed when their production estimates for shale is once again inaccurate like it’s always been.
  • JustMeNS on January 26 2018 said:
    If you can believe the EIA numbers on production, Great. But any numbers that include a fudge number called adjustment is suspect. Did production increase? Who knows. The EIA's published numbers are an estimate. There is toooooo much emphasis put on these weekly numbers without the actual followup monthly numbers given the same emphasis. Lots of hype. I know, hype sells better than reality.
  • Mamdouh G Salameh on January 26 2018 said:
    He is not the only one. For years I have been saying that the EIA, the IEA, BP through its annual statistical Review of World Energy and their mouthpiece, the Financial Times, are in cahoots over hyping about US shale oil production. Their objective, pure and clear, is to undermine the rise of oil prices.

    Every time the oil prices surged, either the EIA or LEA came up with claims about increases in shale oil production or rises in US oil inventories. Then BP contributes to the hype by announcing increases in global proven reserves or publishing figures to show how fast US shale oil production is growing. The worst offender is the IEA which repeats claims by the EIA verbatim while pretending that these claims are the results of objective research. And all these claims are echoed faithfully by the Financial Times.

    In 2015 BP statistical review of World Energy claimed that the United States had overtaken Saudi Arabia and Russia to become the world’s largest crude oil producer but it turned to be a huge lie. A few days ago a similar claim that the United States could overtake Saudi Arabia and Russia in 2019 was made. It will again prove untrue. The global oil market has seen through these claims with the oil price surge.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Citizen Oil on January 26 2018 said:
    What ever happened to the trend that the USA E&P's were going to return some profit back to the shareholders ? Where are the reports of activist shareholders threatening to pull the plug if they become greedy again ? Quality of balance sheet versus quantity of production ? We hear every week how smart these oil and gas owners are and yet they seem to always want to jump in front of a train. if they destroy the commodity price again, they deserve everything they get.
  • Terry on January 26 2018 said:
    Dr Salameh,

    How come no ever mentions that the cost of shale is going to increase in Canada and the US with the rise in Oil prices due to the service companies are starting to raise their rates. It is already happening its not just the frackers but cementers directional drilling companies and drilling rig contractors. Last 3 yrs the cost savings have been on the backs of the service companies not the shrewd thinking of the CEO's. Just 100's of thousands of men and women losing their jobs and wages. Lots have left the industry in Canada and will not becoming back.
  • oilbull on January 26 2018 said:
    "the IEA predicting non-OPEC supply growth of 1.7 million barrels per day (mb/d) in 2018, a figure that exceeds demand growth of 1.3 mb/d. In other words, the IEA says the oil market will once again be oversupplied, largely because of U.S. shale."

    The world was in a 0.5 m/d deficit in 2017, so even if these rosy forecasts of non OPEC supply growth by the IEA are correct, the world would still be in a 0.1 m/d deficit in 2018
  • the masked avenger on January 26 2018 said:
    Oil prices have nothing to do with supply, demand, where it's coming from or wars. It is simply about how much money can flow into the hands of oil execs, oil specutalors and gas station owners. Mahmoud and his high and mighty degree is humourous at best. Ready his swill and seeing him wrong daily is entertaining.
    Here is the real world, raise oil and gas, watch the economy crash like it did from 2008 to 2014. The crash was because oil (always short-sighted) was way to high and boosted battery development, solar development and viable electric cars. Raise oil and gas and watch a repeat performance. Alternatives are here and arent magically going to disappear. There are even development of electric freight tractors once you get past the first generation, they are here to stay.
    Basic economics will always correct the market. Oil will rise, the economy will crash. Developing countries that are starting to drive will slow and drop when gas and oil hit 80 bucks a barrel and 3 bucks a gallon. For all your hype, you are all to greedy and short-sighted to learn from history. Like most people your dreams are unrealistic and unattainable. Watch, learn, burn.
  • russianjew on January 26 2018 said:
    "@IEA analysis has been consistent for many years about the shale oil and gas revolution in the United States and its impact on global markets.” - talking about overhype ...
  • John Brown on January 26 2018 said:
    The IEA has consistently underestimated U.S. shale oil and gas production. The Saudis shouldn't be irritated by the IEA, but by the facts that with WTI at $66 and Brent over $70, there is no reason in the world that U.S production won't shoot for the moon. That is unless industry in the USA decides to participate unofficially of course with OPEC/Russia in restricting supply. Unofficially, of course, because that would because colluding in a cartel to restrict supply artificially with the intent of pushing prices higher like OPEC/Russia does by idling millions of barrels of production, would be very illegal in the USA.
    The fact is there is no reason, supply and demand reason, for oil to be trading above $40 a barrel, even though OPEC/Russia have idled millions of barrels of readily available oil capacity to drive up prices. Even though there is still a glut of oil sloshing around, millions of barrels of capacity idled, U.S. production hitting records, and renewable energy still slowly increasing market share weakening oil demand, the price of oil has continue to go up. Interesting how that can happen? The oil industry and everybody involved with it is so greedy and determined to artificially push oil prices higher that they are truly setting things up for a crash. You'd think they'd keep oil in the low $50s, which is still artificially high, but greed will out every time.
  • Bill Simpson on January 26 2018 said:
    He had better hope the Canadians never get their shale oil act together. Google, "Canadian shale deposits map'. That is a BIG area of potential shale oil and gas.
  • Dirty Lens on January 28 2018 said:
    Americans lead the global oil industry with number of gas safety flares because America drill so many holes in order to grow production as opposed to OPEC where far fewer holes are required to produce so much oil and gas safety flares.. Russians lead the global oil industry with most wasted gas up the flare pipes... We will look back and realize what a bunch of idiots we were for wasting precious gas up the flare gas simply because it is not profitable to bottle the gas .. What it mean is that natural gas prices are too low to justify bottling the "flare" gas. So off we go , wastin'...... like idiots!
  • Liberty88 on January 29 2018 said:
    Hey I got an idea ---- maybe Saudi Arabia should worry about its internal problems and whether or not they're running out of easily recoverable oil before complaining about shale. After all - if we can recover it and stay in the green at $45 a barrel?
    why isn't Saudi able to stay in the green at $10?
    The royal family has had lots of corruption, fraud, sex trafficking, in the recent past and as I understand have had major family feuds..... Work on that.
    It certainly doesn't help that they pay the population to be idle and then importing the workforce from other nations.

    Of course you're exporting your wealth doing that.
  • david on January 30 2018 said:
    I dont blame him. When you realize that Shale production will not cap oil prices with current or increasing demand, and US companies are using a more discipline approach to drilling, it does get old.
  • Timmie Tee on February 01 2018 said:
    All you have to look at is the depletion rate of shale, upwards of 70% after two years, to see, it's not a sustainable source of oil. Not to mention the environmental impact and exorbitant upfront costs. The Permian and Eagle-Ford plays are already declining, look at the rising gas/oil mix coming out of there.
  • steve on February 01 2018 said:
    Its just basic petroleum engineering. if global oil production is 100 million B per day, and oil well reservoir depletion rates are +5% per year. Depletion eventually shows up as a production decline, since reservoirs can't be hard pumped forever. So, obviously, another million barrels per day of US shale oil isn't going to replace the production decline of 5 million barrels per year
  • steve on February 01 2018 said:
    Shale production is only a big factor when the market is over supplied, like after the big oil price spike. Thats not the case going forward, because of the massive under investment in new production over rtes last few years, depletion rates are much greater, now

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