I was only midway through the second day of a week-long energy conference when I heard the line that summed up the whole thing. Mohammad Barkindo, OPEC's secretary general, was on the stage sharing his organization's perspective on the U.S. shale boom:
We only wish it had been done in an orderly fashion.
He's right, of course: Revolutions can be so haphazard.
This tension between the order OPEC seeks and the seething energy of the oil industry elsewhere was the defining theme of CERAWeek, an annual get-together in Houston organized by IHS Markit.
On one hand, you had the likes of Barkindo and Saudi Arabian energy minister Khalid Al-Falih. They warned that the slump in investment in oilfields -- outside of North America's onshore basins, anyway -- will mean a supply shortfall and price spike down the road.
The market doesn't seem so concerned:
Maybe the market's too sanguine. If it is, though, then it might be because of the other, more cacophonous noise from the conference; namely, the various drillers, producers and technology providers bragging about cost cuts.
This isn't just OPEC versus shale. It's the select versus the swarm.
Al-Falih declared on Tuesday that OPEC is "the only catalyst to the stability and sustainability of the market." He was talking about the agreement, struck by the organization with some non-members such as Russia, to cut supply, which helped push oil back above $50 a barrel.
Even so, Al-Falih's claim is a bit rich. The instability of various members such as Libya, Nigeria and Venezuela, along with chronic economic imbalances in even strong members such as Saudi Arabia, played a big role in the world enduring not one but two triple-digit oil-price spikes within the past decade. Those spikes also helped unleash that unruly shale boom.
Compounding this has been another dose of instability from OPEC -- or, rather, Saudi Arabia -- in the past three years as it first opened the taps and then decided to tighten them again.
The crash forced the industry to get its act together on costs. Some of that involved simply squeezing suppliers, who have been vocal about getting paid when oil prices recover.
Everywhere you look at CERAWeek, though, there are signs of structural changes, too.
The U.S. E&P industry's survival strategy of slashing jobs and experimenting with things like longer lateral wells to boost productivity are already something of cliche.
More intriguing were snippets that sounded more like something out of Silicon Valley than Houston. For example, Hess Corp. CEO John Hess seemed almost giddy on Monday as he talked of moving his company's data to the cloud (yes, Amazon.com Inc. is now helping to power the shale boom, too).
There are many other examples, ranging from Siemens AG's remote operating system for an oil platform in the North Sea -- meaning fewer expensive offshore staff -- to the likes of Maana. This Palo Alto-based start-up deploys a different type of platform -- software -- helping oil companies use more of their vast troves of data to make smarter operating decisions.
While the world isn't used to thinking of oil and gas as a technology-driven business, it of course is. Higher productivity in areas such as the Permian basin stems partly from more-accurate drilling and better-informed fracking from gathering and processing more data.
And yet, as Ashok Belani, Schlumberger Ltd.'s technology chief, said while sitting on the same panel as Hess, the average well has less than 10 gigabytes of data associated with it. That's about the same as a couple of hi-definition movies downloaded on your laptop. The potential to get more informed about each well by orders of magnitude, and thereby drill and frack smarter, is clear.
Was everyone talking their book? Yes, that's what conferences are for. And even Big Data is small change if you can't actually capitalize on it.
But OPEC, or anyone else depending on oil for their survival, would be foolish to dismiss these myriad efforts to cut costs as mere hyperbole.
That's partly because they were blindsided, like everyone else, by the first wave of shale. The International Energy Agency hinted at this in its latest medium-term oil market outlook, released on Monday, when it took the time to also lay out a wide range of scenarios for future U.S. production growth, depending on price.
The sensitivity to that price may be acute indeed. In a report published in October, Wood Mackenzie estimated that, of 17 large U.S. E&P companies, most could hold production steady without spending beyond cash flow at an oil price of $50 a barrel. Raise that to $60, though, and most could afford to raise production by 10 percent. Just a few years ago, that differential of $10 would have been more like $20 or $30, says Andy McConn, a corporate analyst at Wood Mackenzie.
That narrower range on E&P cost sensitivities, enabled by efficiency gains from a multitude of initiatives, is the counterargument to OPEC's stance of trying to manage the market via a select set of nations. While OPEC warns of supply shortages, the swarm of E&P companies and the businesses aiming to transform that industry continue to chip away production costs -- and thereby pricing power.
Will the efficiency gains prove sustainable and intensify? It is too early to say and the cycle isn't dead. Still, innovation in technology and processes have a way of sticking.
Thursday's news that Royal Dutch Shell PLC is selling most of its Canadian oil sands assets -- the longest of bets on long-term oil prices -- also isn't a sign of this being a passing phase. Nor is the somewhat bizarre warning on Wednesday from Harold Hamm, CEO of shale producer Continental Resources Inc., that the U.S. E&P industry could kill the oil market with its exuberance. Oil prices do indeed have a way of going down as well as up. Last I heard, North Dakota was competing with OPEC, not applying for membership.
And one thing is clear. Here are the oil prices required by OPEC and several prominent members to balance their public budgets:
Cutting those costs, which reflect embedded social and political structures, will require far more than redesigning a supply chain. Yet OPEC's members, squeezed by deflation in the cost of rival oil production and alternative energy technologies, must somehow do exactly that -- as orderly as they can, of course.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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