OPEC Will Resist Sabotage by Shale Oil Producers, Says Kachikwu

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Ibe Kachikwu

Ejiofor Alike with agency reports

The Minister of State for Petroleum, Dr. Ibe Kachikwu, has stated that the Organisation of Petroleum Exporting Countries (OPEC) will resist any deliberate action by shale producers to sabotage the oil market.

In their continuing efforts to stabilise the oil market, 14 OPEC member countries and 10 participating non-OPEC producing countries, led by Russia, extended their production adjustments, which originally started January 1, 2017, for a further period of nine months, beginning July 1, 2017.
The move will keep roughly two per cent of global production off the market in an attempt to boost prices.

Despite attempts by the cartel to reduce the excess inventory in the market to boost prices, Reuters reported that in the Permian Basin – the largest US oilfield – producers are pumping at the fastest rate in years, taking advantage of new technology, low costs and steady oil prices to reap profits at OPEC’s expense.

OPEC has acknowledged the global clout of shale but seeks to hinder its growth by keeping just enough oil supply on the market to hold prices below $60 per barrel.
“All shale companies in the US are small companies. The reality is that at $50 to $60 a barrel, (the US oil industry) can’t break beyond 10 million barrels per day,” Reuters quoted Noureddine Boutarfa, who represented Algeria at the OPEC meeting, as saying.

“For all OPEC members, $55 (per barrel) and a maximum of $60 is the goal at this stage,” said Iran’s oil minister, Bijan Zanganeh.
“So, is that price level not high enough to encourage too much shale? It seems it is good for both,” he added.
OPEC has, however, realised that supply cuts and higher prices only make it easier for the shale industry to deliver higher profits after it found ways of slashing costs when Saudi Arabia turned up the taps three years ago.

OPEC meets again in November to reconsider output policy.
Though many OPEC members now appear to believe that shale has to be accommodated, there are indications that another fight is around the corner as Kachikwu has hinted that the cartel might review its strategies in the event of any sabotage by the shale producers.

“If we get to a point where we feel frustrated by a deliberate action of shale producers to just sabotage the market, OPEC will sit down again and look at what process it is we need to do, Reuters quoted Kachikwu as saying.
The history of the relationship between OPEC and the US shale oil industry has evolved a great deal since the cartel discovered it had a surprise rival emerging in a core market for its oil around five years ago.

US shale bankers went to Vienna during the recent OPEC meeting and the cartel is said to be planning to send top officials to Texas in a bid to understand whether the two industries can co-exist or are poised to embark on another major fight in the near future.

“We have to coexist,” said Khalid al-Falih, Saudi Arabia’s energy minister, who pushed through OPEC production cuts in December, 2016.
Riyadh’s previous strategy was to pump as much oil as possible and try to kill off US shale with low oil prices.
Shale’s limitations, including rising service costs were discussed by OPEC.

“We had a discussion on (shale) and how much that has an impact,” said Ecuador Oil Minister Carlos Pérez.
“But we have no control over what the US does and it is up to them to decide to continue or not,” he reportedly added.
When the OPEC delegates asked the chief executive of Permian oil producer, Centennial Resource Development Inc, Mark Papa, to give a presentation on shale’s potential, he reportedly appeared to have played his cards close to his chest.

“In terms of the threat, we still don’t know how much (US shale) will be producing in the near future,” Venezuela’s oil minister, Nelson Martinez, said after the talk.
Some US shale leaders may also want a better insight into OPEC’s thinking and help OPEC understand that shale is not a flash in the pan.
Some of OPEC’s customers are happy to see an alternative as India, the world’s third-largest oil consumer, said it was looking to the United States for greater supply.
“The new normal has to be accepted,” India’s energy minister, Dharmendra Pradhan, had said ahead of the OPEC meeting.

  • Daniel Obior

    This is dumb. It is only low oil price than can keep the US shale oil production in check. Clearly, several shale oil projects were discontinued when oil price was low and below $40 pb, when the OPEC strategy was to maintain market share. The greed of shortsighted OPEC producers like Nigeria, have forced the abandoning of this superior long term strategy, for the short term one of reduction in production to shore up price. The consequence is that several shale oil projects that were previously abandoned, are now profitable with the higher oil price. At the current relatively high oil price, Kachikwu is just blowing hot air. He is in fact sounding like Buhari who promised to control oil price. While we may forgive Buhari for his gaffe given that he is barely educated, Kachikwu has no excuse for this type of stupid talk.

    • Jon West

      At university in England, a racist white South African Professor once accosted me and opined that while I was his best student, he regarded all black learned people as really people with ideas in their heads but no idea about the connections between these ideas. The result , according to him is the production of engineers with engineering formulae in ther heads and nothing really productive and scalable.
      I was quite upset, but swallowed bile and decided to really think about it. Thirty years after this interaction, I met the now very old Professor again and he asked me whether he was really wrong about his assertion. Seeing people like Kachikwu, Daukoru and all the other people I have met in my professional life in Nigeria, I gave the old racist a wry smile and he shook my hands. The answer was clear to both of us. Kachikwu is what the old racist was alluding to- an “educated” Black illiterate.

      • abdulrauf aliyu

        You have said it all

        • E don do Niaja

          Yea Jon! Kachukwu’s statement is meant for our educated illiterate population and you aptly captured it. Shale producers in Canada and USA are waiting for certain profitable price before embarking on production and Kachukwu want to fight and control them? Really!

  • the thinker

    Kachikwu no dey shame? Na only Nigeria day fight Shale producers. Out of all OPEC Members we are the only ones crying about crude oil prices. Abeg make we go find another business do

  • Abia_Man

    Able PRO, continue performing your magic acts while the Nigeria Delta nations are robbed blind. I hope you have a plan.