Saudis Go Back to the Future to Take on U.S. Shale Rivals

Break-Even Thresholds for U.S. Shale Projects ($Bbl) - Image Credit:Bloomberg New Energy Finance

Break-Even Thresholds for U.S. Shale Projects ($Bbl) – Image Credit:Bloomberg New Energy Finance

Rockpick: With Niobrara Oil on average being profitable at just over $55 bbl, the Niobrara overall is still viable at current prices, however it looks like the Saudi’s are determined to demonstrate their considerable power in the marketplace to their shale oil competitors.

By Isaac Arnsdorf, Wael Mahdi and Grant Smith – Nov 4, 2014 – Bloomberg News

The Saudi oil minister’s visit to Venezuela this week is also a trip through time.

Flash back to December 1998 when Saudi Arabia looked to its fellow OPEC member for help lifting oil prices from about $10 a barrel.

Back then, the Saudis were defending their dominance in the global oil market from new suppliers in Latin America. Now the desert kingdom is cutting prices to the U.S. to contend with upstart shale producers. To win the showdown, the Saudis are trying to bring OPEC’s weaker members in line before the Nov. 27 meeting of the organization, said Seth Kleinman, head of European energy research at Citigroup Inc. in London.

“Shale is in the Saudis’ sights,” Kleinman said by e-mail. “It’s going to be shale or it’s going to be OPEC.”

Ali Al-Naimi, Saudi Arabia’s oil minister, flew to Venezuela for a conference that starts this week, according to two people with direct knowledge of his plans who asked not to be identified because they’re not authorized to speak to the media. He’s due to attend a gas forum in Acapulco, Mexico, on Nov. 11 and 12.

The trip is reminiscent of the 1990s, when Saudi Arabia’s competition with Venezuela and Mexico for shipments to the U.S. Gulf Coast drove down prices, according to Mike Wittner, head of oil market research at Societe Generale SA in New York.

The Organization of Petroleum Exporting Countries is under pressure because of the historic expansion of U.S. production from hydraulic fracturing and horizontal drilling. U.S. fields are pumping 8.97 million barrels a day, the most since the 1980s, according to the U.S. Energy Information Administration. Meanwhile, global consumption will increase the least since 2009 as economic growth slows in Europe and Asia, the Paris-based International Energy Agency said.

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