The Opec cartel is back in control of the world oil market as the shale revolution peters out, according to a number of industry executives who warned of higher prices for crude in the year ahead.
Despite recent record profits, the heads of American shale producers told the Financial Times that rising costs and investor pressure to return cash to shareholders would continue to hamper US supply growth.
The dim outlook is a reversal from the previous decade, when the shale industry’s ability to quickly boost production prompted claims the sector had become a new “swing producer” with market power to rival Opec kingpin Saudi Arabia.
“I think the people that are in charge now are three countries — and they’ll be in charge the next 25 years,” said Scott Sheffield, chief executive of Pioneer Natural Resources, the biggest independent US shale oil company. “Saudi first, UAE second, Kuwait third.”
Sheffield spoke on the sidelines of the annual CERAWeek energy industry conference in Houston, where talk centred on the amount of oil supply available to keep up with strong expected growth in demand.
Rick Muncrief, chief executive of Devon Energy, another top shale producer, said thinning global supply capacity left him alarmed about the possibility of a new price surge as oil balances tightened.
“We’re just on a razor,” he told the FT. “That’s why I’ve talked about being concerned right now — but I think it gets really, really serious in the next 12 months.
“Does it mean that the power is just going back to Opec if the US starts keeping [production] flat? We’re 10 per cent of the world’s oil production and Opec plus Russia is a much larger percentage. So yeah, they can dictate things probably more than we would.”
When Russia’s full-scale invasion of Ukraine sent Brent crude oil prices to as high as $130 a barrel last year, increased output from Opec, resilient Russian supply and record releases of crude from US strategic reserves helped to stem the rise. Brent settled at $83.29 a barrel on Tuesday.
But the revival of China’s economy from Covid-19 lockdowns will put more pressure on suppliers to prevent another damaging price surge just as central banks battle to tame inflation. Opec has since November been cutting 2mn barrels a day from its production quotas under a deal that drew a rebuke from the US.
The comments from shale executives came a day after about two dozen of them including Sheffield, Muncrief, Nick Dell’Osso of Chesapeake Energy, Travis Stice of Diamondback Energy, Vicki Hollub of Occidental Petroleum, and John Hess of Hess Corporation met with Opec secretary-general Haitham Al Ghais for a private dinner in a downtown Houston steakhouse.
Two officials from the US Department of Energy were also present.
The meal was cordial, said several people involved, in contrast to tenser meetings in previous years when Opec perceived shale as a threat to its sway over oil markets and prices.
The shale executives pressed Al Ghais on how much spare production capacity Opec could deploy, and offered their own assessment of how much extra output the US could deliver this year — a range between 400,000 and 600,000 b/d, according to one person at the dinner.
On Tuesday, Al Ghais told CERAWeek attendees that Opec countries needed help to meet rising consumption, warning of higher prices if other producers continued to hold back upstream investment.
“We are investing already and we urge and call for others to invest,” he said, referring to longer-term plans from Saudi Arabia, the UAE and Kuwait to increase capacity. But he added: “It’s a global responsibility that Opec cannot shoulder on [its] own.”
Unless upstream investment around the world rose quickly, Al Ghais said, “we could be facing issues in the future with regards to energy security, and accordingly affordability”.
US production has recovered slowly following a crash in 2020 and its current level of 12.4mn b/d remains well below its pre-pandemic output. Shale executives said future growth would be much slower too.
“The plateau is on the horizon,” Ryan Lance, chief executive of ConocoPhillips, told conference delegates. “I think that’s one of the issues that the US is going to grapple with — [output] probably starts to plateau later this decade.”
The outcome would resemble an earlier era of heightened Opec influence over oil markets, the Conoco leader said.
“Opec’s market share probably grows from like 30 per cent today to somewhere closer to 50 per cent. The world is going back to what we had in the ‘70s and the ‘80s unless we do something to change that trajectory.”
