Shale Boom Curbs OPEC’s Grip as Saleri Sees $120 Oil Cap

Technological advances to harness shale resources will curb OPEC’s influence in the oil market and cap crude prices at $120 a barrel, said Nansen Saleri, former head of reservoir management at Saudi Arabian Oil Co.

The boom in North American oil output could be replicated in Russia, China and Brazil as new extraction techniques enable the development of as much as 9 trillion barrels in unconventional resources, said Saleri, who is now chief executive officer of Houston-based consultant Quantum Reservoir Impact. That’s diminishing the role played by the Organization of Petroleum Exporting Countries, currently in control of 40 percent of global oil supplies, he said.

“We’ve already entered an era that’s not OPEC-centric anymore,” Saleri said in an interview in New York on June 7. “One can anticipate now a much more stable, less volatile price environment because of the multitude of production coming on board.”

The use of techniques such as hydraulic fracturing and horizontal drilling has helped push U.S. crude output to its highest in two decades, prompting a cut in imports from some OPEC members such as Nigeria and Algeria, which offer similar types of oil. OPEC signaled growing unease with the U.S. oil boom by announcing a study into shale at its May 31 meeting in Vienna.

Russia, U.S.

Worldwide recoverable resources of tight oil in shale formations, which are tapped by hydraulic fracturing, or fracking, could be 345 billion barrels, the U.S. Energy Information Administration said in an assessment yesterday.

Russia has the biggest resources of “technically recoverable” tight oil, with 75 billion barrels, the EIA said. The U.S. is the world’s second-largest holder with 58 billion barrels, up from 32 billion two years ago, the agency said. OPEC-member Libya has the fifth-biggest resources with 26 billion barrels, the EIA said.

West Texas Intermediate futures, at about $94 a barrel today, will probably trade in a range of $80 to $120 this decade as surging output limits gains while economic progress in China and India prevents prices from collapsing, Saleri said. Production costs of $30 to $50 a barrel for U.S. shale developers will decline within the next 10 years as extraction processes improve, he said.

“What was difficult is now becoming easy, and that’s because of the invisible hand of technology,” Saleri said. He founded Quantum Reservoir Impact, which helps oil-producers increase output rates, in 2007.

Saudi Resources

Saudi Arabia can unlock more of its “huge resources” using available technology and recover as much as 70 percent of the oil it holds underground, Saleri said. The kingdom is capable of boosting its production capacity to 15 million barrels a day, up from 12.5 million at present, he said. Any decision the country takes on capacity will probably depend on market conditions, he said.

Saleri, citing what he sees as an abundance of current supply, dismissed the ideas of so-called peak-oil theorists, who argue the world is running out of crude and that producers can’t pump much more from aging fields. “We are in the beginning of the journey on the unconventional side of oil,” he said.

To contact the reporter on this story: Wael Mahdi in Manama at wmahdi@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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