The Role of OPEC in the Wake of Shale Oil and Gas Production in the US
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The Role of OPEC in the Wake of
Shale Oil and Gas Production in the US
Introduction
According to the sources consulted, shale oil and gas will have a short-term impact on Organisation of the Petroleum Exporting Countries (OPEC), but OPEC will regain lost ground and retain its position as the leading supplier oil and gas. This paper will include an examination of OPEC as well as a look at the shale oil and gas industry in the US, some of the problems associated with it and an explanation of why the industry is not likely to be a permanent solution for energy independence or result in the elimination of dependence on petroleum from OPEC nations. In the long run, it is asserted that the role of OPEC will remain mostly unchanged.
OPEC
The Organisation of the Petroleum Exporting Countries (OPEC) was formed at the Baghdad Conference in 1960 by Iran, Kuwait, Iraq, Saudi Arabia and Venezuela (OPEC, Brief History 2013). Eventually, mostly during the 1960s, nine other countries joined; Qatar in 1961, Indonesia in 1962 (left in 2009), Libya also in 1962, United Arab Emirates in 1967, Algeria in 1969, Nigeria in 1971, Ecuador in 1973 (left from 1992 through 2007) and Angola in 2007 (OPEC, Brief History 2013). Gabon was also a member from 1975 until 1994 (OPEC, Brief History 2013). OPEC was first headquartered in Geneva, Switzerland, until relocating to Vienna, Austria in 1965 (OPEC, Brief History 2013). OPEC seeks to maintain consistent petroleum policies amongst its members, obtain fair prices for petroleum producing countries, efficiently supply petroleum to other nations and ensure a fair return for petroleum industry investors (OPEC, Brief History 2013).
According to their website’s Press Room article “About OPEC” (2013), OPEC supplies roughly 45 % of the world's crude oil. Their oil exports comprise about 60 percent of all internationally traded petroleum, which provides them with leverage in terms of international oil prices (Energy Information Administration, Energy and Financial Markets, 2013). OPEC also has about 80 % of the world's oil reserves (About OPEC 2013).
OPEC helps sustain stability in the oil market by using their spare oil production capacity to increase or decrease the amount of oil produced (About OPEC 2013). The Energy Information Administration (EIA) describes spare capacity as the volume of production that can commenced within 30 days and maintained for a minimum of 90 days (Energy Information Administration, Energy and Financial Markets, 2013). Saudi Arabia normally possesses the greatest spare capacity at 1.5 to two million barrels per day (Energy Information Administration, Energy and Financial Markets, 2013). Dramatic price fluctuations for petroleum products can be harmful to the global economy (Mirchi et al. 2012).
OPEC is especially concerned about any factors that could undermine the prosperity of the oil industry and possibly impact the security of the world’s oil supplies (About OPEC 2013). For example, if demand changed suddenly it would affect the profitability of oil producers and the economies of many other countries (About OPEC 2013). A decrease in demand could require oil production to slow down or stop, which could cause damage to the oil fields (About OPEC 2013). Between 2010 and 2030, the net average annual oil demand is forecasted to increase by nearly 1 % per year as countries such as India and China experience economic expansion, which could offset potential decreasing if demand from some other countries (Mirchi et al. 2012). OPEC will be able to satisfy this increased demand (Mirchi et al. 2012).
Shale Gas and Oil
Oil shale is defined as any sedimentary rock that has solid bituminous material which becomes a petroleum-like substance when the rock is heated (Bartis et al. 2005). This heating process that results in the petroleum-like substance is called retorting (Bartis et al. 2005).
Shale oil, also known as light tight oil is seeing growth in the US and has the potential to spread globally in the coming years (PWC UK 2013). Shale oil production in the US has already increased from 111,000 barrels per day in 2004 to 553,000 barrels per day in 2011 (PWC UK 2013). Global shale oil production could be responsible for 12 % of the world’s total oil supply by 2035 (PWC UK 2013). This could result in a 25 to 40 % decrease in oil prices in 2035 when compared to the EIA forecasted price of $133 per barrel in 2035 (PWC UK 2013). Shale oil could influence the dynamics of geopolitics by bolstering energy independence for some countries and decreasing OPEC’s influence and benefit businesses that use oil or oil-related products (PWC UK 2013). There are also potential environmental consequences connected to increased shale oil production (PWC UK 2013). The figure below shows rates of shale gas production in several countries as of 2012.
Chart from ‘5 Charts That Explain the Great Energy Shift. The rise of fracking and the decline of coal’ (Woody 2013).
Development of shale deposits will decrease OPEC’s portion of the global oil market to 39 % at the close of this decade, from 41 % in 2012 (Smith 2013). Global shale oil resources are estimated to be at least 330 billion barrels, and may be as much as 1,465 billion barrels (PWC UK 2013). Shale oil resources are also expected to be developed in China, Argentina and Russia, and other countries have also discovered the presence of resources (PWC UK 2013). In response, OPEC has recently tripled estimates for shale oil production in North America from 1.7 million barrels a day to 4.9 million barrels a day in 2018, and predicted lower demand for its own oil by 1.1 million barrels a day until 2018 (Smith 2013).
From: ‘Outlook for shale gas and tight oil development in the US’, American Petroleum Institute, US Energy Information Administration (Sieminski, 2013).
Shale oil production in the US and Canada will level off around 2017 because of the decline in well output, environmental concerns, concentration on less productive rock formations and increasing costs of labour and equipment (Smith 2013). Technological advances make it possible to recover and use new types of oil resources, but the current rate of acceleration of the tight oil supply in the US and Canada lacks long-term sustainability (IEA Factsheet 2013; Smith 2013). Demand for OPEC crude is expected to return when shale production begins to fade after 2018 because the Middle East will still have the only large supply of low-cost oil (IEA Executive Summary 2013; Smith 2013). In sum, the role of OPEC countries in supplying the world with oil will be temporarily decreased for a decade due to accelerated output from the US, Canada, Brazil and other countries, but OPEC re-emerges in a larger role post-2020 (IEA Factsheet 2013; IEA Executive Summary 2013)..
Shale Oil and Gas Production Risks
The Green River Formation is located in portions of Colorado, Utah, and Wyoming (Bartis et al. 2005). Estimates of the oil resource in Green River Formation, the largest known in the world, are between 1.5 and 1.8 trillion barrels, of which between 500 billion and 1.1 trillion may be recoverable (Bartis et al. 2005). The midpoint of 800 billion barrels is over three times the amount of oil reserves in Saudi Arabia (Bartis et al. 2005). These 800 billion barrels of recoverable oil resources would meet 25 % of current US demand of 20 million barrels per day for over 400 years (Bartis et al. 2005).
Both shale gas and shale oil wells have their highest production rates during the first 30 days of operation, termed initial production during the first 30 days (IP30) followed by quick decline (Maugeri, 2013). Rates decrease by 40–50 % after the first year and an additional 30–40 % after the second year. After five years, the rate is about 10% of IP30 (Maugeri 2013).
The antidote to this decline is intensive drilling of new wells to increase production rates and improve the recovery of oil for the field or formation (Maugeri 2013). Intensive drilling has led to the recover more oil than previously expected resulting in a boom of shale oil production in the US (Maugeri 2013). New wells in Bakken-Three Forks in 2012 are shown below in a figure originally found in The Shale Oil Boom: A US Phenomenon, by Leonardo Maugeri.
Bakken-Three Forks: Drilled and producing wells per year (Maugeri 2013)
Data for this figure was elaborated on the basis of the North Dakota Department of Mineral Resources Database (Maugeri 2013, p. 5).
According to the North Dakota Department of Mineral Resources (NDDMR) maintaining North Dakota’s Bakken-Three Forks 2012 oil production level required 90 new wells each month (Maugeri 2013). Drilling intensity in Eagle Ford and the Permian Basin has also increased recently from 26 in 2008 to 5,230 in 2012 (Maugeri 2013).
If the leveraging of oil shale resources leads to a profitable domestic crude oil substitute industry, the US would benefit from the economic effects and new jobs, consumers will benefit from reduced world oil prices, and the price reduction could have national security benefits in the US as well (Bartis et al. 2005). However, there are costs; some of the land over the Green River Formation could experience permanent topographic and flora and fauna changes (Bartis et al. 2005). Oil shale production will also affect air quality due to increased emissions of greenhouse gasses, such as carbon dioxide, which is higher than during conventional crude oil production (Bartis et al. 2005). Implementing measures to control greenhouse gas emissions could increase the cost of producing shale oil (Bartis et al. 2005). Shale oil production also requires roughly three barrels of water for each barrel of oil and water needs are predicted to keep increasing (Bartis et al. 2005).
There are also positive effects to oil and gas shale production, especially in terms of the economy. A domestic oil shale industry result in several hundred thousand new jobs both in the vicinity of the oil shale operations and in industries nationwide that contribute to the oil shale operations (Bartis et al. 2005). Oil shale production of three million barrels per day could be advantageous to US consumers by reducing world oil prices, and the reduction in world oil prices will also offer some national security benefits for the United States (Bartis et al. 2005).
Economic profits of about $20 billion per year range are attainable for an oil shale industry producing three million barrels a day with additional $15 to $45 billion per year benefit for US consumers due to lower world oil prices (Bartis et al. 2005). However, it is also possible that increases in employment caused by shale oil production could be partially offset by decreases in employment in other industries or other parts of the country (Bartis et al. 2005). Additionally, although the Persian Gulf, the primary target for energy independence advocates in the US, could lose a portion of the US market to shale oil and gas, they are likely to find new consumers in rapidly growing Asian markets (Maugeri 2013).
In the End, OPEC Remains
According to a report by the International Energy Agency, production of shale oil and gas in the US and worldwide will only decrease reliance on the Middle East for the short-term (Wald 2013). After the late 2010s the Middle East is predicted to return to its usual position as a very important producer and exporter of oil as they have the largest supply of low-cost light oil and light tight such as that resulting from shale is not, in comparison, low-cost oil (Wald 2013).
The International Energy Agency’s evaluation of world supplies coincides with those presented by the United States Energy Department’s Energy Information Administration, which expects higher levels of US oil production from shale through the late teens to be followed by a dramatic slowdown (Wald 2013). By the mid-2020s, production falls and the Middle East will once again provide the majority of the increase in the worldwide supply (Wald 2013). High market prices for oil will increase motivation to drill for the limited resources to produce light tight oil, but the low-cost suppliers of crude are in OPEC (Wald 2013). Additionally, OPEC nations are the only ones with ample spare oil production capacity, which provides the ability to quickly increase production on short notice (About OPEC 2013). Through its spare crude oil production capacity OPEC can simultaneously meet growing demand and stabilise prices (Mirchi et al. 2012).
The uptick in US shale oil production will not be the main problem for OPEC, the primary consideration for OPEC over the next few years will relate to be how much spare or unused oil production capacity it will be able to sustain while avoiding a growth of tension amongst member nations (Maugeri 2013). Such a problem is particularly relevant to Saudi Arabia, as they easily have the largest spare capacity in the world (Maugeri 2013).
Overall, far from having a permanently decreased role, OPEC has the ability to readily dominate the global oil market for the foreseeable future and chart the direction, either positively or negatively, of energy transition policies (Mirchi et al. 2012). As well, OPEC will be able to take on a pivotal role in terms of global energy security via the choice of either cooperative or non-cooperative strategies (Mirchi et al. 2012). Through their use of specific supply strategies, OPEC can exert a certain amount of control over the price of oil and affect the energy transition (Mirchi et al. 2012).
In order to preserve its place in the global energy markets, OPEC may act to drive market prices to lower levels so that energy production from alternate sources is less competitive (Mirchi et al. 2012). Or, OPEC can help ensure energy security and market stability and help smooth adaptation to changes through constructive communication and cooperation (Mirchi et al. 2012).
Conclusion
According to the sources consulted for this project, shale oil and gas will have a short-term impact on OPEC, but OPEC will regain lost ground and retain its position as the leading supplier oil and gas. This paper included an examination of OPEC as well as its present and likely future role in the petroleum industry, especially in conjunction with the shale oil and gas industry in the US. The shale oil and gas industry was also examined in terms of some of the problems associated with it and primary reasons why it is not likely to be a permanent solution for energy independence or eliminate dependence on petroleum from OPEC nations. In the long run, with the exceptions of some fluctuations, the role of OPEC will remain mostly unchanged.
REFERENCES
Bartis, J.T., LaTourrette, T., Dixon, L., Peterson, D.J., and Cecchine, G., 2013. Oil Shale Development in the United States: Prospects and Policy Issues. RAND [ONLINE]. Available at: http://www.rand.org/content/dam/rand/pubs/monographs/2005/RAND_MG414.pdf. [last accessed: 15th November 2013]
International Energy Agency (web address renewed 09-Apr-2010 15:01:17 UTC). World Energy Outlook 2013 Factsheet, How will global energy markets evolve to 2035? [ONLINE]. Available at: http://www.worldenergyoutlook.org/media/weowebsite/factsheets/WEO2013_Factsheets.pdf. [last accessed: 15th November 2013]
International Energy Agency, 2013. World Energy Outlook 2013, Light tight oil shakes the next ten years, but leaves the longer term unstirred [ONLINE]. Available at: http://www.iea.org/publications/freepublications/publication/WEO2013_Executive_Summary_English.pdf. [last accessed: 15th November 2013]
Maugeri, L. 2013. The Shale Oil Boom: A U.S. Phenomenon [ONLINE]. Cambridge, MA: Harvard University. Available at: http://belfercenter.ksg.harvard.edu/files/The%20US%20Shale%20Oil%20Boom%20Web.pdf. [last accessed: 15th November 2013]
Mirchi, A., Hadian, S., Madani, K., Rouhani, O.M. and Rouhani, A.M., 2012. World Energy Balance Outlook and OPEC Production Capacity: Implications for Global Oil Security. Energies 2012, 5, pp. 2626-2651.
Organization of the Petroleum Exporting Countries (web address renewed 05-Dec-2012 09:29:40 UTC). OPEC : About OPEC [ONLINE]. Available at:http://www.opec.org/opec_web/en/press_room/178.htm. [last accessed: 15th November 2013]
Organization of the Petroleum Exporting Countries (web address renewed 05-Dec-2012 09:29:40 UTC). OPEC : Brief History [ONLINE]. Available at:http://www.opec.org/opec_web/en/about_us/24.htm. [last accessed: 15th November 2013]
PricewaterhouseCoopers LLP. Shale oil: the next energy revolution [ONLINE]. Available at: http://www.pwc.com/en_GX/gx/oil-gas-energy/publications/pdfs/pwc-shale-oil.pdf. [last accessed: 15th November 2013]
Sieminski, A., 2013. Outlook for shale gas and tight oil development in the U.S., American petroleum Institute, U.S. Energy Information Administration [ONLINE]. Washington, DC: American Petroleum Institute. Available at: http://www.eia.gov/pressroom/presentations/sieminski_04042013.pdf. [last accessed: 15th November 2013]
Smith, G., 2013. OPEC Sees Less Demand for its Oil to 2018 Amid Shale Boom, Bloomberg Finance L.P.. [ONLINE]. 7 November. Available at: http://www.bloomberg.com/news/print/2013-11-07/opec-sees-less-demand-for-its-oil-to-2018-amid-shale-boom.html. [last accessed: 15th November 2013]
U.S. Department of Energy, 2013. Energy & Financial Markets - U.S. Energy Information Administration (EIA) - U.S. Energy Information Administration (EIA) [ONLINE]. Available at: http://www.eia.gov/finance/markets/supply-opec.cfm. [last accessed: 15th November 2013]
Ward, M.L., 2013. Shale’s Effect on Oil Supply Is Forecast to Be Brief. The New York Times, [ONLINE]. 12 November. Available at: http://www.nytimes.com/2013/11/13/business/energy-environment/shales-effect-on-oil-supply-is-not-expected-to-last.html?_r=0. [last accessed: 15th November 2013]
Woody, T. 2013. 5 Charts That Explain the Great Energy Shift. The Atlantic [ONLINE]. 5 November. Available at: http://www.theatlantic.com/technology/archive/2013/11/5-charts-that-explain-the-great-energy-shift/281116/. [last accessed: 15th November 2013]
Shale Oil and Gas Production in the US
Introduction
According to the sources consulted, shale oil and gas will have a short-term impact on Organisation of the Petroleum Exporting Countries (OPEC), but OPEC will regain lost ground and retain its position as the leading supplier oil and gas. This paper will include an examination of OPEC as well as a look at the shale oil and gas industry in the US, some of the problems associated with it and an explanation of why the industry is not likely to be a permanent solution for energy independence or result in the elimination of dependence on petroleum from OPEC nations. In the long run, it is asserted that the role of OPEC will remain mostly unchanged.
OPEC
The Organisation of the Petroleum Exporting Countries (OPEC) was formed at the Baghdad Conference in 1960 by Iran, Kuwait, Iraq, Saudi Arabia and Venezuela (OPEC, Brief History 2013). Eventually, mostly during the 1960s, nine other countries joined; Qatar in 1961, Indonesia in 1962 (left in 2009), Libya also in 1962, United Arab Emirates in 1967, Algeria in 1969, Nigeria in 1971, Ecuador in 1973 (left from 1992 through 2007) and Angola in 2007 (OPEC, Brief History 2013). Gabon was also a member from 1975 until 1994 (OPEC, Brief History 2013). OPEC was first headquartered in Geneva, Switzerland, until relocating to Vienna, Austria in 1965 (OPEC, Brief History 2013). OPEC seeks to maintain consistent petroleum policies amongst its members, obtain fair prices for petroleum producing countries, efficiently supply petroleum to other nations and ensure a fair return for petroleum industry investors (OPEC, Brief History 2013).
According to their website’s Press Room article “About OPEC” (2013), OPEC supplies roughly 45 % of the world's crude oil. Their oil exports comprise about 60 percent of all internationally traded petroleum, which provides them with leverage in terms of international oil prices (Energy Information Administration, Energy and Financial Markets, 2013). OPEC also has about 80 % of the world's oil reserves (About OPEC 2013).
OPEC helps sustain stability in the oil market by using their spare oil production capacity to increase or decrease the amount of oil produced (About OPEC 2013). The Energy Information Administration (EIA) describes spare capacity as the volume of production that can commenced within 30 days and maintained for a minimum of 90 days (Energy Information Administration, Energy and Financial Markets, 2013). Saudi Arabia normally possesses the greatest spare capacity at 1.5 to two million barrels per day (Energy Information Administration, Energy and Financial Markets, 2013). Dramatic price fluctuations for petroleum products can be harmful to the global economy (Mirchi et al. 2012).
OPEC is especially concerned about any factors that could undermine the prosperity of the oil industry and possibly impact the security of the world’s oil supplies (About OPEC 2013). For example, if demand changed suddenly it would affect the profitability of oil producers and the economies of many other countries (About OPEC 2013). A decrease in demand could require oil production to slow down or stop, which could cause damage to the oil fields (About OPEC 2013). Between 2010 and 2030, the net average annual oil demand is forecasted to increase by nearly 1 % per year as countries such as India and China experience economic expansion, which could offset potential decreasing if demand from some other countries (Mirchi et al. 2012). OPEC will be able to satisfy this increased demand (Mirchi et al. 2012).
Shale Gas and Oil
Oil shale is defined as any sedimentary rock that has solid bituminous material which becomes a petroleum-like substance when the rock is heated (Bartis et al. 2005). This heating process that results in the petroleum-like substance is called retorting (Bartis et al. 2005).
Shale oil, also known as light tight oil is seeing growth in the US and has the potential to spread globally in the coming years (PWC UK 2013). Shale oil production in the US has already increased from 111,000 barrels per day in 2004 to 553,000 barrels per day in 2011 (PWC UK 2013). Global shale oil production could be responsible for 12 % of the world’s total oil supply by 2035 (PWC UK 2013). This could result in a 25 to 40 % decrease in oil prices in 2035 when compared to the EIA forecasted price of $133 per barrel in 2035 (PWC UK 2013). Shale oil could influence the dynamics of geopolitics by bolstering energy independence for some countries and decreasing OPEC’s influence and benefit businesses that use oil or oil-related products (PWC UK 2013). There are also potential environmental consequences connected to increased shale oil production (PWC UK 2013). The figure below shows rates of shale gas production in several countries as of 2012.
Chart from ‘5 Charts That Explain the Great Energy Shift. The rise of fracking and the decline of coal’ (Woody 2013).
Development of shale deposits will decrease OPEC’s portion of the global oil market to 39 % at the close of this decade, from 41 % in 2012 (Smith 2013). Global shale oil resources are estimated to be at least 330 billion barrels, and may be as much as 1,465 billion barrels (PWC UK 2013). Shale oil resources are also expected to be developed in China, Argentina and Russia, and other countries have also discovered the presence of resources (PWC UK 2013). In response, OPEC has recently tripled estimates for shale oil production in North America from 1.7 million barrels a day to 4.9 million barrels a day in 2018, and predicted lower demand for its own oil by 1.1 million barrels a day until 2018 (Smith 2013).
From: ‘Outlook for shale gas and tight oil development in the US’, American Petroleum Institute, US Energy Information Administration (Sieminski, 2013).
Shale oil production in the US and Canada will level off around 2017 because of the decline in well output, environmental concerns, concentration on less productive rock formations and increasing costs of labour and equipment (Smith 2013). Technological advances make it possible to recover and use new types of oil resources, but the current rate of acceleration of the tight oil supply in the US and Canada lacks long-term sustainability (IEA Factsheet 2013; Smith 2013). Demand for OPEC crude is expected to return when shale production begins to fade after 2018 because the Middle East will still have the only large supply of low-cost oil (IEA Executive Summary 2013; Smith 2013). In sum, the role of OPEC countries in supplying the world with oil will be temporarily decreased for a decade due to accelerated output from the US, Canada, Brazil and other countries, but OPEC re-emerges in a larger role post-2020 (IEA Factsheet 2013; IEA Executive Summary 2013)..
Shale Oil and Gas Production Risks
The Green River Formation is located in portions of Colorado, Utah, and Wyoming (Bartis et al. 2005). Estimates of the oil resource in Green River Formation, the largest known in the world, are between 1.5 and 1.8 trillion barrels, of which between 500 billion and 1.1 trillion may be recoverable (Bartis et al. 2005). The midpoint of 800 billion barrels is over three times the amount of oil reserves in Saudi Arabia (Bartis et al. 2005). These 800 billion barrels of recoverable oil resources would meet 25 % of current US demand of 20 million barrels per day for over 400 years (Bartis et al. 2005).
Both shale gas and shale oil wells have their highest production rates during the first 30 days of operation, termed initial production during the first 30 days (IP30) followed by quick decline (Maugeri, 2013). Rates decrease by 40–50 % after the first year and an additional 30–40 % after the second year. After five years, the rate is about 10% of IP30 (Maugeri 2013).
The antidote to this decline is intensive drilling of new wells to increase production rates and improve the recovery of oil for the field or formation (Maugeri 2013). Intensive drilling has led to the recover more oil than previously expected resulting in a boom of shale oil production in the US (Maugeri 2013). New wells in Bakken-Three Forks in 2012 are shown below in a figure originally found in The Shale Oil Boom: A US Phenomenon, by Leonardo Maugeri.
Bakken-Three Forks: Drilled and producing wells per year (Maugeri 2013)
Data for this figure was elaborated on the basis of the North Dakota Department of Mineral Resources Database (Maugeri 2013, p. 5).
According to the North Dakota Department of Mineral Resources (NDDMR) maintaining North Dakota’s Bakken-Three Forks 2012 oil production level required 90 new wells each month (Maugeri 2013). Drilling intensity in Eagle Ford and the Permian Basin has also increased recently from 26 in 2008 to 5,230 in 2012 (Maugeri 2013).
If the leveraging of oil shale resources leads to a profitable domestic crude oil substitute industry, the US would benefit from the economic effects and new jobs, consumers will benefit from reduced world oil prices, and the price reduction could have national security benefits in the US as well (Bartis et al. 2005). However, there are costs; some of the land over the Green River Formation could experience permanent topographic and flora and fauna changes (Bartis et al. 2005). Oil shale production will also affect air quality due to increased emissions of greenhouse gasses, such as carbon dioxide, which is higher than during conventional crude oil production (Bartis et al. 2005). Implementing measures to control greenhouse gas emissions could increase the cost of producing shale oil (Bartis et al. 2005). Shale oil production also requires roughly three barrels of water for each barrel of oil and water needs are predicted to keep increasing (Bartis et al. 2005).
There are also positive effects to oil and gas shale production, especially in terms of the economy. A domestic oil shale industry result in several hundred thousand new jobs both in the vicinity of the oil shale operations and in industries nationwide that contribute to the oil shale operations (Bartis et al. 2005). Oil shale production of three million barrels per day could be advantageous to US consumers by reducing world oil prices, and the reduction in world oil prices will also offer some national security benefits for the United States (Bartis et al. 2005).
Economic profits of about $20 billion per year range are attainable for an oil shale industry producing three million barrels a day with additional $15 to $45 billion per year benefit for US consumers due to lower world oil prices (Bartis et al. 2005). However, it is also possible that increases in employment caused by shale oil production could be partially offset by decreases in employment in other industries or other parts of the country (Bartis et al. 2005). Additionally, although the Persian Gulf, the primary target for energy independence advocates in the US, could lose a portion of the US market to shale oil and gas, they are likely to find new consumers in rapidly growing Asian markets (Maugeri 2013).
In the End, OPEC Remains
According to a report by the International Energy Agency, production of shale oil and gas in the US and worldwide will only decrease reliance on the Middle East for the short-term (Wald 2013). After the late 2010s the Middle East is predicted to return to its usual position as a very important producer and exporter of oil as they have the largest supply of low-cost light oil and light tight such as that resulting from shale is not, in comparison, low-cost oil (Wald 2013).
The International Energy Agency’s evaluation of world supplies coincides with those presented by the United States Energy Department’s Energy Information Administration, which expects higher levels of US oil production from shale through the late teens to be followed by a dramatic slowdown (Wald 2013). By the mid-2020s, production falls and the Middle East will once again provide the majority of the increase in the worldwide supply (Wald 2013). High market prices for oil will increase motivation to drill for the limited resources to produce light tight oil, but the low-cost suppliers of crude are in OPEC (Wald 2013). Additionally, OPEC nations are the only ones with ample spare oil production capacity, which provides the ability to quickly increase production on short notice (About OPEC 2013). Through its spare crude oil production capacity OPEC can simultaneously meet growing demand and stabilise prices (Mirchi et al. 2012).
The uptick in US shale oil production will not be the main problem for OPEC, the primary consideration for OPEC over the next few years will relate to be how much spare or unused oil production capacity it will be able to sustain while avoiding a growth of tension amongst member nations (Maugeri 2013). Such a problem is particularly relevant to Saudi Arabia, as they easily have the largest spare capacity in the world (Maugeri 2013).
Overall, far from having a permanently decreased role, OPEC has the ability to readily dominate the global oil market for the foreseeable future and chart the direction, either positively or negatively, of energy transition policies (Mirchi et al. 2012). As well, OPEC will be able to take on a pivotal role in terms of global energy security via the choice of either cooperative or non-cooperative strategies (Mirchi et al. 2012). Through their use of specific supply strategies, OPEC can exert a certain amount of control over the price of oil and affect the energy transition (Mirchi et al. 2012).
In order to preserve its place in the global energy markets, OPEC may act to drive market prices to lower levels so that energy production from alternate sources is less competitive (Mirchi et al. 2012). Or, OPEC can help ensure energy security and market stability and help smooth adaptation to changes through constructive communication and cooperation (Mirchi et al. 2012).
Conclusion
According to the sources consulted for this project, shale oil and gas will have a short-term impact on OPEC, but OPEC will regain lost ground and retain its position as the leading supplier oil and gas. This paper included an examination of OPEC as well as its present and likely future role in the petroleum industry, especially in conjunction with the shale oil and gas industry in the US. The shale oil and gas industry was also examined in terms of some of the problems associated with it and primary reasons why it is not likely to be a permanent solution for energy independence or eliminate dependence on petroleum from OPEC nations. In the long run, with the exceptions of some fluctuations, the role of OPEC will remain mostly unchanged.
REFERENCES
Bartis, J.T., LaTourrette, T., Dixon, L., Peterson, D.J., and Cecchine, G., 2013. Oil Shale Development in the United States: Prospects and Policy Issues. RAND [ONLINE]. Available at: http://www.rand.org/content/dam/rand/pubs/monographs/2005/RAND_MG414.pdf. [last accessed: 15th November 2013]
International Energy Agency (web address renewed 09-Apr-2010 15:01:17 UTC). World Energy Outlook 2013 Factsheet, How will global energy markets evolve to 2035? [ONLINE]. Available at: http://www.worldenergyoutlook.org/media/weowebsite/factsheets/WEO2013_Factsheets.pdf. [last accessed: 15th November 2013]
International Energy Agency, 2013. World Energy Outlook 2013, Light tight oil shakes the next ten years, but leaves the longer term unstirred [ONLINE]. Available at: http://www.iea.org/publications/freepublications/publication/WEO2013_Executive_Summary_English.pdf. [last accessed: 15th November 2013]
Maugeri, L. 2013. The Shale Oil Boom: A U.S. Phenomenon [ONLINE]. Cambridge, MA: Harvard University. Available at: http://belfercenter.ksg.harvard.edu/files/The%20US%20Shale%20Oil%20Boom%20Web.pdf. [last accessed: 15th November 2013]
Mirchi, A., Hadian, S., Madani, K., Rouhani, O.M. and Rouhani, A.M., 2012. World Energy Balance Outlook and OPEC Production Capacity: Implications for Global Oil Security. Energies 2012, 5, pp. 2626-2651.
Organization of the Petroleum Exporting Countries (web address renewed 05-Dec-2012 09:29:40 UTC). OPEC : About OPEC [ONLINE]. Available at:http://www.opec.org/opec_web/en/press_room/178.htm. [last accessed: 15th November 2013]
Organization of the Petroleum Exporting Countries (web address renewed 05-Dec-2012 09:29:40 UTC). OPEC : Brief History [ONLINE]. Available at:http://www.opec.org/opec_web/en/about_us/24.htm. [last accessed: 15th November 2013]
PricewaterhouseCoopers LLP. Shale oil: the next energy revolution [ONLINE]. Available at: http://www.pwc.com/en_GX/gx/oil-gas-energy/publications/pdfs/pwc-shale-oil.pdf. [last accessed: 15th November 2013]
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