Oil & Gas Editorial: OPEC Ducks For Cover As The Shale Gale Returns

Tim Haïdar

A month away from the 172nd Meeting of the Organisation of Petroleum Exporting Countries (OPEC) at their headquarters in Vienna, Austria, the 13-member combine has had to admit short-term defeat.

In January 2017, the (U.S. Energy Information Administration) estimated that oil stocks for the 35-nation Organisation for Economic Cooperation and Development (OECD) were at their highest ever levels. Since a curb on production was agreed and adhered to by the energy cartel, the past three months of lower oil output have failed to make a dent in brimful oil inventories the world over.

While sources close to the kingdom of Saudi Arabia’s government have hinted that OPEC’s May meeting will yield further commitments to reducing pumping rates to re-stabilise oil prices, the linchpin of the Gulf-dominated cooperative will likely be thwarted by external forces.

In the United States, the winds of the shale gale are picking up once again. Since the OPEC production cuts came into affect in January, US shale production has increased prodigiously and could surpass its highest ever production peak of 9.6 million barrels per day (bpd) in July this year.

If that is the case, then it is likely that US shale production could frustrate all moves by OPEC to rebalance the market, completely offsetting all but the most dramatic of measures that the cartel could impose in the course of this calendar year.

In direct contravention to decades of hand-in-glove relations with OPEC’s Gulf state dirigents, the Trump administration is steering the US towards the dissolution of an otherwise convenient partnership.

Trump’s post-victory pledge An America First Energy Plan outlines his mission to “achieving energy independence from the OPEC cartel and any nations hostile to our interests.” He cites the main conduit of this energy independence will be the “estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own.”

That vision will no doubt have been buoyed by the discovery of an estimated four billion barrels of oil and two billion barrels equivalent of natural gas liquids in the Bossier and Haynesville shale formations on the US Gulf Coast and the impending first flow of the Dakota Access Pipeline in the coming fortnight.

Whether An America First Energy Plan is a long-term statement of intent or a short-term exercise in rhetoric is yet to be seen. That said, when a gale starts to snarl on the horizon, those who doubt its strength may be hit with the force of many winds.