By SUMMER SAID
DUBAI -- Production of
oil from shale deposits outside North America will be too
limited and too costly to significantly harm the interests of
established oil exporters, the adviser to Saudi Arabia's oil
minister said Wednesday, in the most comprehensive response yet
from the OPEC heavyweight to an energy boom that is reshaping
However, Ibrahim al-Muhanna, a close adviser of Saudi Oil
Minister Ali al-Naimi, acknowledged for the first time the
psychological impact the US shale boom is having on members of
the Organization of the Petroleum Exporting Countries, most of
whom have so far played down the significance of the
"There appears to be fear on the side of some oil producing
countries, particularly OPEC and Arab countries, of the
negative impact shale oil may have on the petroleum market with
regard to the huge increase in supply which may lead to
collapse of prices," he said in a speech in Kuwait, a draft of
which was provided to The Wall Street Journal. "This
fear is misplaced," he said.
"Increases in the production of shale oil during the
remaining part of this decade will be restricted to the United
States and Canada within the limits of 1.5 million barrels per
day, which is a small quantity in a market where demand exceeds
90 million barrels per day," he said. "Production of shale oil
in the remaining parts of the world is not expected before the
start of the next decade at best."
The extra supply is not a competitive threat because it
costs much more to produce than oil in most of OPEC's member
countries, he said. "There are many difficulties that face the
production activities of shale oil...most importantly, the high
production cost which amounts to about $70 to $80 per barrel,"
Mr. Muhanna's comments come as many industry experts are
questioning whether major OPEC oil producers in the Gulf can
maintain their historic dominance of the oil market amid the
sharp rise in production in North America.
US crude production in November and December topped 7
million bpd for the first time in 20 years. At the same time,
Saudi Arabia reduced its oil production to 9.025 million bbl in
December, 5% less than in November. It was the kingdom's
deepest cut in almost three years, reflecting weaker demand,
chiefly from Asian nations.
The International Energy Agency, which represents key oil
consumers, has predicted the US will overtake Saudi Arabia as
the world's No. 1 oil producer by 2020.
Saudi Arabia and other Gulf producers say they are sanguine
about these changes, arguing that their exports to the US
remain buoyant and their sales to China and other Asian markets
continue to grow.
Nevertheless, change is already afoot in the oil market.
According to OPEC itself, oil supply from the US is expected to
increase by about 570,000 bpd this year, while demand
for its own oil will likely fall by 400,000 bpd this year.
The hardest hit OPEC member has been Nigeria, which has seen
its exports to the US fall sharply in recent years.
Dow Jones Newswires