OPEC to Study U.S. Shale Oil Bonanza as Export Concern Grows

OPEC signaled growing unease with the U.S. oil boom by starting a study into shale at its meeting in Vienna, where the group kept supply targets unchanged as $100 crude dulls the need to address excess production.

“It is a concern,” Nigerian Petroleum Minister Diezani Alison-Madueke said yesterday after the session of the Organization of Petroleum Exporting Countries. The committee will consider the effect of shale oil on the global market for OPEC crude “in the not-too-distant future,” she said.

U.S. mastery of hydraulic fracturing and horizontal drilling techniques has led to a slump in energy imports from some OPEC nations, most notably those in Africa, which typically produce lighter grades of oil similar to the North American blends. U.S. crude production jumped 20 percent in a year to 7.37 million barrels a day in the week ended May 3, the highest level since February 1992, data from the U.S. Energy Department’s Energy Information Administration show.

“By the end of the decade the U.S. won’t need to import much crude at all,” Seth Kleinman, head of energy strategy at Citigroup Inc. in London, said in a Bloomberg Television interview yesterday. “The market is justifiably very skeptical that OPEC’s going to be able to achieve any real kind of supply restraint. They’re scrambling right now, hoping and praying that prices hold up and I think they are going to be disappointed.”

Angolan Imports

U.S. imports from Angola declined to 85,000 barrels a day in March, the lowest level since 1993, according to EIA data published May 30. Shipments from Nigeria slid to 194,000 barrels in February, at least a 19-year low.

Growing competition from the U.S. means Africa should begin to “look inwards as well to create alternate markets within the continent,” Alison-Madueke said. “Asia has always been an alternate market. Asia will still have growing energy needs for quite a while to come, but remember that China itself may be discovering shale gas pretty soon.”

Some Middle Eastern and North African OPEC members, including Libya, Algeria and Iran, said yesterday they have no concerns that shale supply will sap demand for their crude, while Saudi Arabian Oil Minister Ali Al-Naimi said this is just the latest in a series of new sources that the market has absorbed, such as the North Sea, Brazil and Russia.

“Demand is pretty good right now, and though there are clearly some concerns, OPEC is not going to make any serious changes until there’s reason to do so,” Jamie Webster, a Singapore-based analyst at PFC Energy, said in Vienna yesterday.

U.S. shale is a light crude and doesn’t affect exporters of medium and heavy grades such as Venezuela, the Latin American nation’s oil minister, Rafael Ramirez, told reporters yesterday.

Displacing OPEC

“Every North American barrel pushes out an OPEC barrel,” even though the U.S. doesn’t yet export much crude, said Roy Mason, founder of tanker tracker Oil Movements, in Halifax, England. “It’s a problem for OPEC now, and it will get worse.”

Even so, drilling for tight oil is an expensive way of supplying oil, meaning shale producers will “have an interest in high prices,” Mason said.

Five months ago, after OPEC’s mid-December meeting, Secretary-General Abdalla el-Badri fended off questions about U.S. shale, saying: “We’re not really concerned. I don’t see that big a quantity.”

Now, he’s taking a more measured approach.

“We are studying it very carefully, how much this will affect OPEC supply,” el-Badri said yesterday. “Maybe the Americans will increase by 1 million and somebody else will decrease by 1 million, so we have to know at the end of the day the non-OPEC supply; it’s not only the American supply. We get different numbers about shale oil, we are trying to get more accurate information.”

The 12 members of OPEC are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

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