However, today the market predicts a few more years of abundance, moreover, for the third year, OPEC cannot abandon production restriction measures aimed at reducing the supply surplus.
“We live in an era of plenty. And the supply crisis is not visible at all on the horizon, ”notes Ed Morse, head of commodity research at Citigroup Inc. In New York.
Forecasts have not come true
The most large-scale collapse of the oil market in the past 25 years, which occurred earlier in this decade, has forced the company to cut costs dramatically. This has led to numerous warnings that the increase in supply will not keep pace with growing demand and will not be able to compensate for the decline in production at aging fields.
According to the IEA, over the period from 2014 to 2016, investments in the oil and gas industry declined by $ 350 billion or more than 40% (the sharpest decline since the 1980s) after prices collapsed from levels above $ 120 and went under the mark $ 30. The number of new projects approved in 2017 is at a minimum over the past 70 years.
In November 2015, the IEA warned that supply growth outside OPEC would run out by 2020. Three months later, the agency began to sound the alarm – a crisis is coming! The chairman and chief executive officer of French Total Patrick Puianne then predicted a deficit of 10 million barrels per day, which is equivalent to the volumes that Saudi Arabia was producing at that time. Concerns about the crisis were shared by almost all industry participants, from the top managers of Royal Dutch Shell Plc to the well-known oil trader Andy Hall.
However, instead of a shortage, the world faced an abundance of supply. This year, according to many estimates, America will produce about 12 million barrels per day – it was previously predicted that the country will reach this level not earlier than 2042. Russia brought production to record levels, and Iraq is close to historic highs. In Brazil, the most active growth rates are expected in the past 15 years.
According to Bank of America Corp., three-quarters of non-shale projects will be profitable in five years, even at an oil price of $ 40 per barrel.
Against this background, Brent crude stuck around $ 60 after a brief jump to 4-year highs above $ 86 in October, when market participants were afraid of Trump's sanctions against Iran.
The threat recedes
The world needs production capacity of 10 million barrels per day by the beginning of the next decade, but investment in the industry without shale is not enough to provide such volumes, said IEA head Fatih Birol at a recent forum in Davos. In the meantime, OPEC producers do not get tired of repeating that their current policy is aimed at stimulating investment to prevent a supply crisis.
Yes, the risks to the market in the form of American sanctions against Venezuela and Iran have not disappeared anywhere. But with the growth of activity in the shale deposits of the United States, as well as the reduction of costs by large producers through the use of new technologies, the threat of shortages recedes.
Recently, the shale boom gave signals of slowing down, but, according to the forecasts of the American government, production will continue to set new records in the next decade and turn the country, which was once dependent on imports, into an exporter that will compete with OPEC countries. According to the forecasts of the consulting company Rystad Energy AS, by 2025, the States will produce more oil than Russia and Saudi Arabia combined.
Slate is a story of technology triumph, and there are all signs that this trend will continue. As history shows, this process is no longer reversed. Perhaps at some point the pace will slow down, but there will be no reversal of the trend, ”Paul Stevens warned from the think tank of Chatham House in London.
The art of saving
But the explanation is not limited to slate. The collapse of oil forced the company to tighten their belts, increase their efficiency and generally change the pattern of production costs in the industry. In other words, by cutting costs, they learned to continue mining at much lower prices.
Due to this, mining costs in the Gulf of Mexico and Brazil fell by 50% – companies used the previously built infrastructure, combining it with new technologies, said Morse from Citigroup.
Norwegian Equinor ASA has reduced the break-even price in its portfolio of new projects to $ 21 per barrel. For comparison: in 2013 this level was about $ 70. Last year, BP Plc began to produce oil as part of a project in the Gulf of Mexico, saving 15% of budget expenditures, and is now working on expanding the Mad Dog project, whose costs have been cut more than twice.
“Opinion on inadequate expenditures is based on an assessment of the cost structure. Costs continue to decline, not increase, and everywhere, ”stressed Morse.
Moreover, there are even signs of recovery in costs, which speaks in favor of an even more active increase in production. As Birol noted, this year capital expenditures in the shale industry will increase by 20%.
“While there are no signs of oil shortage on the horizon. And those who expect to see higher prices in the future, such as OPEC or Saudi Arabia, still believe that in three years there will be a shortage of supplies, ”said Amy Myers Jaffe, a researcher at the Council on Foreign Relations in New York
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