Reflection on the implications that unconventional resources have for OPEC

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Credits of the photo to OPEC

The OPEC (Organization of the Petroleum Exporting Countries) acknowledged the impact of the incorporation of unconventional resources into the market in the 166th and 167th member meetings. With ambiguity, they do not clearly express their opinion about the relation between unconventional resources and the cause of the volatility of the market in the past year.

Nevertheless it recognizes[i] the incorporation of more resources into the market which has caused the organization to take measures of adaptation and to balance off the market.

The organization, which cooperates with other international institutions, has recognized the challenge these new resources may bring, concerning new market policies[ii]. Actually it is through these international channels that the OPEC has expressed in the clearest and most official way the concern towards the influence that unconventional resources can have in the natural area of their domain.

How is the shale industry is affecting the OPEC’s domain?

The attention is focused on the repercussion unconventional resources have in the country members of the organization like Saudi Arabia, Venezuela and Iran. The purpose is to get their reactions because they can give us a better picture about the implications of their energy strategy in the organization. Therefore they are interesting for the power influence they have on their own right and through the OPEC.

The leading country for excellence is Saudi Arabia, with the best production conditions (the cheapest cost of production at a price of $2 per barrel), then Venezuela as the second most important thanks to its reserves –with the largest reserves of the OPEC–, and Iran.

Saudi Arabia

There has not been made a direct reference to the emergence of the shale industry by any government official or any press statement mentioning it clearly as of year 2015, but there is acknowledgement of the current situation of the international energy market[iii], stressing the capacity and pledge of the kingdom to continue balancing the situation of the market.

In an email exchange with a Trade Advisor from the Economic and Commercial Office in the Embassy of Spain in Saudi Arabia, as of September 2015 and in which, in an email to the author, the trader exposes that Saudi Arabia has not engaged into any legislation/regulation reform that recognizes the incorporation of unconventional resources into the national industry, nor has made any public statement about the unconventional energy industry for that matter.

In another email exchange with a specialist in Energy Policy from the U.S. Congressional Research Service, as of September 2015 in an email to the author, Saudi Arabia is not involved in government-to-government programmes in regards to the unconventional industry and perhaps it is through the state-owned oil companies that the kingdom may conduct its interest in the issue.

It is precisely through the leading state-owned oil company, Saudi Aramco when it is seen the interest to invest in the development of the unconventional industry[iv] recognizing the potential benefits for energy needs[v] of the kingdom. The Saudi business sector is also recognizing the opportunity and getting involved in the shale industry[vi].

Venezuela

As for Venezuela, its People’s Minister of Petroleum and Mining stated that the rise of the US unconventional resources has affected the market and the OPEC and the national interest of the country[vii]. Quoting:

the rise of unconventionals has provoked a drop of the oil prices which puts our economy in arrest

Noting that energy represents approximately 20% of its GDP[viii]. Government members have expressed their opposition to the development and use of “fracking” technology[ix]. Taking this reaction into consideration, it is unlikely that any official declarations are appearing stating that they are involved in any bilateral government-to-government cooperation to develop the shale industry in the country. There were no documents or statements found in favour of adopting unconventional energy or getting involved in any initiative in that regard.

Iran

Iran’s official position is in line with Venezuela when speaking about unconventional resources. Members of the government have acknowledged that the US unconventional resources are contributing to the current instability of the market[x]. Particularly, John M. Deutch commented that unconventional energy adds another burden to the weakened nation as it leaves Iran with little margin to recover its market share, damaged by the immediate effect of the international sanctions[xi]. Iran’s current position has provoked the devaluation of its energy assets, which means that the country has suffered from wealth loss. As of 2015, no public statement was found expressing their interest to incorporate “fracking” technology.

However, there are other OPEC members that have individually engaged in international initiatives for the cooperation in the development of unconventional resources. The United Arab Emirates has signed a bilateral agreement with the US for the cooperation in all things energy[xii], which also contemplates shale resources.

Dear reader see you in my next post.

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References

[i] Organization of the Petroleum Exporting Countries (OPEC), “OPEC Bulleting”, 11-12/2014, 166th OPEC Conference. Available from: <http://www.opec.org/opec_web/static_files_project/media/downloads/publications/OB11_122014.pdf&gt;. [September 2015].

[ii] Joint International Energy Agency (IEA) –International Energy Forum (IEF) –Organization of the Petroleum Exporting Countries (OPEC), 2014. “Report on the Fourth Symposium on Energy Outlooks”. Available from: <http://www.opec.org/opec_web/static_files_project/media/downloads/publications/Fourth_joint_Symposium_on_Energy_Outlooks_22_January_2014_Riyadh.pdf&gt;. [September 2015].

[iii] Cabinet Session, Saudi Arabia Ministry of Foreign Affairs, 2014. Statement of the Council 1436. Available from: <http://www.mofa.gov.sa/sites/mofaen/ServicesAndInformation/aboutKingDom/SaudiGovernment/StatementsOfCouncil/TheCabinet1436/Pages/ArticleID201521014938648.aspx&gt;. [September 2015].

[iv] Natural Gas Asia 2015. “Saudi Arabia Will be Second Shale Frontier, Says Aramco´s Al- Falih”. Available from: <http://www.naturalgasasia.com/saudi-arabia-will-be-second-shale-frontier-says-aramcos-al-falih-15429&gt;. [April 2015];

[v] Saudi Aramco 2015. “Unconventional Gas Efforts Highlighted”. Available from: < http://www.saudiaramco.com/en/home/news-media/news/unconventional-gas-efforts-highlighted.html&gt;. [September 2015].

[vi] U.S.-Saudi Arabian Business Council. “SABIC Invests in the US Shale Gas”. Available from: < http://www.us-sabc.org/custom/news/details.cfm?id=1696&gt;. [September 2015].

[vii] Consulado de Venezuela en España (Consulate of Venezuela in Spain) 2015. “Ministro Chávez: Unidad y consenso entre productores contra volatilidad en el precio del crudo”. Available from: <http://consuladodevenezuela.es/contenido.php?idNot=4621&gt;. [September 2015].

[viii] Crane, Keith & Rand Environment, Energy, and Economic Development (Program). & International Security and Defense Policy Center. 2009, “Imported oil and U.S. national security”. RAND Infrastructure, Safety and Environment: RAND National Security Research Division Santa Monica, California. Page 49. Available from: <http://www.rand.org/pubs/monographs/2009/RAND_MG838.pdf&gt;. [July 2015].

[ix] Natural Gas Asia 2015. “Saudi Arabia Will be Second Shale Frontier, Says Aramco´s Al- Falih”. Available from: < http://www.naturalgasasia.com/saudi-arabia-will-be-second-shale-frontier-says-aramcos-al-falih-15429&gt;. [April 2015].

[x] Iran Chamber of Commerce, Industries, Mines and Agriculture, 2013. “Iran reacts to US propaganda”. Available from: <http://en.iccima.ir/news/iccima-news-bulletin/iran-economy-bulletin/item/6819-iran-reacts-to-us-gas-propaganda.html&gt;. [September 2015].

[xi] Fondazione Eni Enrico Mattei (FEEM) Lecture: “The Global Revolution of Unconventional Oil”, by John M. Deutch, MIT. March 11 2014. Available at: <https://www.youtube.com/watch?v=Uald4hs-3-Y&gt;. [March 2015].

[xii] The United States Department of Energy 2014. “United Arab Emirates and United States Sign MOU at Strategic Energy Dialogue”. Office of International Affairs. Available from: < http://energy.gov/ia/articles/united-arab-emirates-and-united-states-sign-mou-strategic-energy-dialogue&gt;. [September 2015].

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