Oil & Gas Editorial: Sunshine, Shadows & A Lot Of Oil

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Tim Haïdar

“Keep your face to the sunshine and you cannot see a shadow.” - Helen Keller (1880 – 1968)

Oil prices jumped on the global markets as members of the Organisation of Petroleum Exporting Countries (OPEC) largely kept to their promised production cuts for the first two months of 2016. January’s output from the world’s most powerful energy cartel hit a record 90 per cent compliance with the deal drafted in November 2016.

The production slashing accord was slated to take place until the end of H1 2017, in which time it is projected that brimming world oil storage will drop by 600,000 barrels per day (bpd), equalising a glut that has been building by increments for the past three years.

While OPEC may be making the right noises with regards to redressing the balance in a sector that has seen a quarter of a million lay-offs, record-breaking M&A volumes and the lowest exploration and production levels for 60 years, a rampant US shale market may be waiting in the wings to capitalise.

Whilst the six members of the Gulf Cooperation Council (GCC) start to recoup petrodollars in the current uptick, the oil price depression may have engendered a step change in the energy mind-set of the Arabian Peninsula.  

A recent report into clean energy in the GCC region has found that a shift away from hydrocarbon fuels could save the Gulf States between $55-87 billion from now and 2030, as well as removing a gigaton of carbon from the atmosphere. Saudi Arabia alone is committing to a $50 billion plan to commission 10 gigawatts of renewable energy by 2023 in order to wean itself off of dependency on the Black Gold. As the GCC nations are blessed with as much sun as oil, moving towards solar power is a no-brainer.    

Should the GCC successfully begin to unchain itself from the yoke of crude oil addiction, the region could further extend its dominion over the global oil exporting market. In the process it could geopolitically prod a Russian bear and clip the wings of an American eagle.

While it is always good to look towards the sun, it is prudent to be aware of the shadows….