OPEC will raise oil production in the face of US inability to produce oil

Despite the moderation of international barrel prices in recent months, some executives predict that the global market will remain tight in supply at least through 2023. Economic activity in China and exports from Russia are two variables that could trigger an oil shortage and higher prices. Washington's slowdown in oil production in order to swing the value of a barrel has given way to a decade-long domination by the Organisation of Petroleum Exporting Countries (OPEC). Saudi Arabia, the Association's main oil producer, in collaboration with Kuwait, plans to increase production capacity, although they fear it will not be enough to meet global demand. 

OPEC will once again take centre stage in the global oil market as US production slows, according to US shale oil industry leaders at CERAWeek 2023. US industry executives expect OPEC to come back stronger than ever, potentially pushing domestic production out of the market, in part because of the slowdown in "rock oil" production. The US Energy Information Administration estimates in its latest short-term energy outlook this week that US crude oil production will rise from 11.88 million barrels per day in 2022 to 12.44 million barrels per day this year. 

In 2010, oil exploitation experienced its biggest boom as companies went beyond their capabilities in terms of production. The growth expected by, at the time, the administration of former president Donald Trump, was estimated at 560,000 barrels produced per day for the current times. While the pandemic affected all sectors, the crude oil processing sector was no exception. According to the US Energy Information Administration, growth has not even reached half of what was expected, at around 200,000 barrels of oil per day. The American nation's concern can be seen in statements such as those of Ryan Lance, president and CEO of ConocoPhillips, in which he states that difficult times lie ahead. 

This is where conflicts of interest come in. The US oil industry now prioritises shareholder returns despite criticism from the White House. But faster depletion rates in many wells combine with supply chain and labour obstacles to hamper growth. OPEC's market share and influence over global oil supplies will increase as US production growth slows. Shale executives say the cartel, led by its largest producer in the Gulf, now dominates markets. ConocoPhillips says with trepidation that this situation will result in "the world going back to what we had in the 1970s and 1980s, unless we do something to change that trajectory".

Throughout 2022 and early 2023, words back and forth between the Biden Administration and OPEC have generated tensions whose consequences have directly affected both Washington's international relations with OPEC and the price of black gold. Pioneer Natural Resources CEO Scott Sheffield told the Financial Times on the sidelines of the energy conference that he sees "three countries as leaders now, and will be for the next 25 years". These are Saudi Arabia, the United Arab Emirates (UAE) and Kuwait. Haitham al-Ghais, secretary general of the Organisation of Petroleum Exporting Countries of Kuwait, said in Houston that increasing energy and supply is "a global responsibility that OPEC cannot take on alone". 

OPEC may have a key role to play in engaging hydrocarbon markets. At the same time, OPEC officials have been warning for years that investment in the oil market must increase if a supply crisis is to be avoided in the future. According to the UAE's energy minister, OPEC does not fear for current demand, but for reserves over the next 10 years. If we add to this the low production expected by the United States, the concerns within the Gulf countries seem more than valid and understandable. 

The Wall Street Journal also reported this month that many US oil companies plan to spend more money this year while holding production steady or letting it rise slightly. The report cited field depletion and inflation as the main reasons for this. Then, in a more recent report last week, the same media outlet cited productivity data showing the difficulty of finding large wells in the Permian Basin, the largest producing shale field in the US. In addition, today's large wells produce less oil than before. Natural depletion is part of the life of oil companies, and in conventional wells it takes longer. But it is faster in shale wells, which take much less time to start producing than conventional wells.

This increases the depletion of shale producers' inventories. And when oil prices rose on warnings from the US executive of an imminent Russian invasion of Ukraine last year, companies decided to expand into previously unattractive parts of the shale belt. Analysts believe that higher prices have spurred exploration in less productive shale acreage, because the marginal increase in production could help producers offset some of the losses they incurred during the downturn when prices collapsed. Higher prices tend to drive higher production, but it is hard not to wonder if there is another reason to drill in lesser-known locations, such as Iowa, Kansas and Illinois. 

The real reason could be the decline in available drilling acreage. A Wall Street Journal review of analytical data a year ago showed that many companies operating in the shale region had less than a decade of drilling. This period is limited to between three and seven years for smaller companies. Last year, Sheffield denied the possibility of "continuing to grow at 15-20% per annum". He stressed that the stock will run out for everyone. US oil production could grow by almost 600,000 barrels per day, according to Energy Information Administration projections for this year.

While Europe's energy supplies continue to dwindle, the arrival of Russian oil and gas has been disrupted by war, and the environment is the main concern, the United States opts for cynicism. Joe Biden's administration strained with industry in recent years over fuel price hikes and disagreements over energy policy. Biden achieved important victories in his energy transition agenda, but the war in Ukraine disrupted the global hydrocarbon market and forced the government to reach out to industry again. The US always wins. 

While urging its partners in the West to opt for clean energy, the land of freedoms approves the Willow Project where there are estimated to be enough reserves to supply the US nation and in turn ease the market. The US is always a good partner, everyone's friend, the winning horse, even if it acts as the Trojan Horse. At a time when it is needed the most, it squeezes the hardest. With an economy that seems invincible because of the power of the dollar, during Europe's biggest energy crisis in living memory, the US tried to put pressure on OPEC while Europe feared one of the harshest winters in living memory.

Europe is no longer among the most influential regions or countries in the world, the shortcomings of which were demonstrated by the pandemic as governments everywhere fought over shipments of masks from China. Europe is that advanced pupil that is demanded more than the rest, but of which the whole world takes advantage. Pollution in 2022 for the entire continent was 5 times less than that of the United States, which together with China is the most polluting country in the world. Meanwhile, from the White House, Alaska Republican Senator Dan Sullivan accused the government and environmental groups of torpedoing the project. "If you don't do Willow, we'll get power from places like Venezuela, Saudi Arabia, where emissions are much higher. Not doing Willow pumps more CO2 into the atmosphere," Sullivan said, a claim that is totally false, but let's remember that the US always wins.

Americas Coordinator: José Antonio Sierra.