US Not a Swing Oil Producer: IEEJ (Premium Content)

The US is too small to be considered a swing crude producer or to have an impact on oil supply: that role remains Saudi Arabia's, said the chief economist and managing director at the Institute of Energy Economics Japan, Ken Koyama.

He told NGW  on the sidelines of the Atlantic Council 2017 summit in Istanbul April 27 that the US would remain a price taker: "US shale production responds to prices; Saudi Arabia does not respond to prices, it takes the decision to increase or cut production."

That point had earlier been made by the International Energy Agency's executive director Fatih Birol, reminding delegates that the US was still a small producer and a net crude oil importer and so unable to compensate for the huge drop in investment in conventional oil outside the US where, along with Brazil and Canada, output was going up either because of decisions taken before the mid-2014 oil price collapse, or because most US crude is able to compete in a $40/barrel environment. 

IEEJ chief economist Ken Koyama (Photo credit: Institute of Energy Economics Japan)

Koyama however did not downplay the importance of the US, saying it would be important for years to come. The US Energy Information Administration's latest projections showed that its output had the potential to keep growing until the 2040s, compared with earlier forecasts that it would plateau in the 2020s.

Oil glut 'will take longer to clear' than LNG glut

This oversupply of oil would take longer to absorb than the LNG oversupply, said Koyama, with a further boost to world supplies due from the expanded production from the North Field, which is liquids-rich. He said this made it cost-competitive against lean gas LNG projects elsewhere, such as in east Africa, which "need to compete." Qatar's North Field was a very challenging project for others too, such as Russia's Sakhalin and Yamal LNG projects."

Asked whether there was a risk that too low a price would deter producers, the IEEJ chief economist explained it was not enough for gas to be cheap; it had to be competitive against other fuels such as nuclear, coal and renewables. "We cannot otherwise see a golden age for gas in Asia or Europe," he said, alluding to the rhetorically-titled report from the IEA of some years ago, asking if the world was entering a gold age thanks to cheap shale. "Only the US is in a golden age," he said, which was the result of cheapness relative to coal, not policy decisions to decarbonise the power sector.

Koyama believes the LNG oversupply could be over in the early 2020s.

Saudi's lead in persuading fellow Opec members and some non-member countries to cut output had been very effective, Qatar's oil minister and present president of Opec Mohammed Saleh Abdulla Al Sada told the event.

Whereas in the past, the most that could be hoped for was hitting 70% of the cuts, last December's output target had been almost 100% achieved. "This is huge," Al Sada said. The next Opec ministerial meeting is on May 25 in Vienna.

William Powell