Kemp: OPEC's Options (None of Them Good) {Good for OPEC}

Reuters via Rig Zone ^ | November 17, 2014 | John Kemp

[thackney]

As ministers from the 12 members of the Organization of the Petroleum Exporting Countries (OPEC) prepare to fly to Vienna for their 166th meeting next week, the quiet consultations and soundings have already begun.

OPEC must decide whether and how to respond to the 30 percent decline in oil prices since the middle of June, in what may be the organisation's toughest test in five years.

Slower oil demand growth and rising competition from non-OPEC suppliers, especially U.S. shale producers, pose a common threat to all the organisation's members.

But formulating a common response will be hard because the slowdown in demand and the shale revolution have had a very different impact from member to member.

Saudi Arabia, Kuwait and the United Arab Emirates are producing and exporting close to their highest-ever levels of crude, according to the BP Statistical Review of World Energy.

All three countries have built large financial reserves so they could weather a prolonged period of lower prices without too much effect on their day-to-day government operations.

In contrast, production and exports from Iran, Iraq, Libya, Venezuela and Nigeria have been variously hit by war, sanctions, unrest, expropriations and mismanagement.

None of those countries has significant foreign exchange reserves and the drop in oil revenues will quickly feed through into reduced government spending and/or inflation.

The light oils being produced in the United States are not much of a direct threat to the heavier crude grades exported by Saudi Arabia and other Gulf countries.

But they compete directly with the very light oils exported by North and West African producers, including Libya, Nigeria and Angola.

Formulating a common response... two separate issues: (1) OPEC's share of the world oil market versus non-OPEC producers; and (2) how OPEC's share is allocated among its members.

[elpadre]

“..rising competition from non-OPEC suppliers, especially U.S. shale producers, pose a common threat to all the organization’s members.”

Halleluiah!!! - If only our oil wells were also a threat to them. Far too many rich Arabs around the world, controlling too many economies and governments.

[thackney]

If only our oil wells were also a threat to them.

???

Is that what it said?

[RayChuang88]

And it’s going to get worse as new technologies to convert natural gas into motor fuels start to come online in the next decade. Unlike the Fischer-Tropsch process to convert coal to liquid fuel, the gas-to-liquid conversion process results in extremely pure forms of gasoline (petrol) and diesel fuel that burn far more cleanly, which also means lower air pollution.

[dfwgator]

Good, OPEC needs to die. Turn Saudi Arabia back into a vast desert.

[elpadre]

saying - if production of fracking oil is causing trouble in OPEC, then if our oil well heads produced at a high rate as well, maybe OPEC would implode.(just a thought)

[thackney]

Fischer-Tropsch process to convert coal to liquid fuel

Do you understand that process goes to gas first, then to liquid? The Sulfur, ash, etc is removed before the liquid fuel is made.

http://www.purdue.edu/discoverypark/energy/assets/pdfs/cctr/outreach/Basics1-CoalGasification-Jun07.pdf

Coal to liquid does not carry all the impurities into the liquid fuel.

[tcrlaf]

The only reason the Saudi’s dropped the price of oil is because ISIS is a dagger pointed straight at Mecca, and the Saudi Royal House. They have already told other OPEC members to bugger off about the price drops.

ISIS is funding themselves with oil money, and this is how the Saudi’s intend to stop them.

[thackney]

Fracking oil is a misleading term. The industry uses Hydraulic Fracturing on traditional fields as well as tight formation like shale. ~90% of all on shore wells today will be hydro frac’d within their production life.

http://www.halliburton.com/public/projects/pubsdata/hydraulic_fracturing/fracturing_101.html

[ZirconEncrustedTweezers]

[thackney]

I believe that ISIS is a major cause of Saudi living with lower priced oil.

Saudis have reasons better than shale to let prices fall
http://www.freerepublic.com/focus/f-news/3225105/posts

With oil, the Saudi regime always takes the long view. With security, however, its motivations are more immediate.

[RayChuang88]

True, but converting the coal to a gaseous form is complex and pretty energy intensive. Sure, the Germans did it during World War II, but it was very costly to set up those special refineries to make the aviation-grade petrol from coal. So much so that when the Americans studied the plans for the German refineries, they rejected the idea because the cost to make one gallon of gasoline from coal was WAY higher than refining it from crude oil.

[thackney]

Different topic, but GTL isn’t cheap either.

Shell, who has a couple commercial plants outside the US evaluated and decided it could not compete in the US.

Sasol, who does both GTL and CTL, claims they may be able to make it work economically in the US is still evaluating it.

[elpadre]

interesting - have also read that there is a break point whereby if the cost would go below that point it would no longer be profitable to extract by fracking as they do in ND. Do you know what it is?

- just a curious ol’ octogenarian speaking

[thackney]

Keep in mind, there is no magic on/off price.

There are average prices, that vary by field, by company and by different locations in the same field.

Even at average break-even price, there is going to be growth in production, just slower growth than it was.

Estimates of what the average break-even price are, vary all over the place.

- - - -

Morgan Stanley said Eagle Ford break-even costs range from $30 to $60 a barrel. Most U.S. tight-oil reserves break even from $60 to $80, Barclays Plc (BARC) said in slides presented at the Argus European Crude Conference in Geneva last week.

http://www.bloomberg.com/news/2014-10-14/u-s-shale-oil-output-growing-even-as-prices-drop-eia.html

- - - -

late-2013 ($/bbl): Oil Basin - Breakeven Price
Eagle Ford $65
Bakken Core $75
Permian $80
Niobrara $80
Bakken Fringe $85
Utica $85
Mississippian $85
Cana Woodford $90
Ardmore Woodford $95
http://oilpro.com/q/432/oil-price-where-us-rig-count-would-decline

- - - -

Bernstein Research said this week that about a third of U.S. shale production would be uneconomical if oil prices were to fall to $80 per barrel.

MORNINGSTAR INC Our analysis suggests that the average breakeven for our E&P coverage is $70 per barrel

ROBERT W. BAIRD EQUITY RESEARCH
“We estimate $73 as the weighted average breakeven point for U.S. supply.”
Eagle Ford Liquids Rich $53
Wolfcamp North Midland $57
Bakken Core $61
Niobrara Extension $64
Eagle Ford Oil $65
Niobrara Core $68
Wolfcamp South Midland $75
Bakken Non Core $75
Texas Panhandle $81
Mississippi Lime $84
Barnett Combo $93

UBS INVESTMENT RESEARCH
EAGLE FORD $43.34

GOLDMAN SACHS
EAGLE FORD $80-$90

Several more at:
http://www.reuters.com/article/2014/10/23/idUSL3N0SH5N220141023

[elpadre]

great info - thanks