London — US crude production is unlikely to return in force in the near-term, even with the recent rise in oil prices, allowing OPEC and its allies some breathing room as they shepherd the market through the coronavirus recovery, UAE energy minister Suhail al-Mazrouei said Jan. 19.
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Investors in US shale companies have been burned by their previous unrestraint in growing production, culminating in the 2020 COVID-19 market crash, and will be much more cautious going forward, Mazrouei said at the Atlantic Council Global Energy Forum.
"Looking at what shale has been through, I'm not sure growth at any cost will be an option," he said. "I think there is wisdom now on the right pace of growth. I think it will be wise growth driven by investor expectations."
The minister reiterated that he expects global oil demand to return to pre-pandemic levels by the start of 2022, if not the end of 2021.
"I'm hopeful that with the help of various governments and various approvals, that vaccinations will be faster," Mazrouei said. "Also, during the summer, we will see the seasonality effect [in reducing infections]. We're seeing good demand in China and India, and we are seeing that people are starting, in certain parts of the world, to go back to normal."
The US Energy Information Administration's latest forecast is that US crude production will average 11.1 million b/d in 2021, down from 11.3 million b/d in 2020 and 12.3 million b/d in 2019.
OPEC, Russia and several other key producers are in the midst of a severe output cut accord, but many members, including the UAE, have begun to lobby for quotas to be eased to recapture market share lost to the pandemic.
At the OPEC+ alliance's most recent meeting, however, Saudi Arabia surprised the market by announcing a unilateral 1 million b/d cut to prevent oil prices from backsliding, leading to some speculation that US shale rivals could take advantage and seek to raise production.
OPEC officials, however, dismiss the concerns, saying US companies have learned their lesson.
The International Energy Agency appears to agree, saying in its closely watched monthly oil market report on Jan. 19 that many US shale officials may focus on paying down debt and boosting investor returns, rather than growing production.
"If they stick to those plans, OPEC+ may start to reclaim the market share it has steadily lost to the US and others since 2016," the IEA said.
Growth vs. discipline
In the decades to come, Mazrouei said global oil demand will eventually surge past pre-pandemic levels, and the UAE is investing in its production capacity to be able to meet future supply needs.
Citing OPEC's latest long-term forecast that oil demand will hit 109 million b/d by 2040, up from about 100 million b/d before the coronavirus crisis, Mazrouei said consumption would be driven by population growth even as renewables development continues apace.
"There is still room to grow beyond the 100 million b/d," he said. "We will see. It depends on the alternatives, how convenient they are in getting to the market."
Abu Dhabi, the emirate that produces the vast majority of the UAE's crude oil, plans to invest $122 billion through 2025 to boost state oil company ADNOC's production capacity to 5 million b/d by 2030, from just over 4 million b/d now.
At the same time, in a nod to climate change concerns, ADNOC aims to lower the greenhouse-gas intensity of its oil and gas production by 25% by 2030.
Mazrouei said that dual strategy will serve the UAE well in the oil market of the future, as investors increasingly seek to address environmental and sustainability goals. Abu Dhabi already has a relatively low carbon intensity for its crude oils, given its easily accessible reserves and lack of associated gas flaring.
"We are targeting to be the lowest cost producer and cleanest cost producer," Mazrouei said. "That combination is what gives us confidence there will be future demand for our barrels. We will be ready, if there is a demand pickup, that we have those resources."
The UAE made some waves in late 2020 with reports that it was reconsidering its membership in OPEC due in large part to ADNOC's growth ambitions. OPEC's current supply accord with Russia and several other key producers has limited the UAE's crude production to a quota of 2.63 million b/d over January-March.
At the December OPEC+ meeting, Mazrouei and Russian counterpart Alexander Novak had heavily lobbied for much higher quotas, but ultimately accepted a smaller increase in the face of opposition from other members that were more concerned about the fragile state of the global economy.
Mazrouei said there was no conflict between ADNOC's plans and membership in OPEC.
"We believe that for those who are investing in the technology to produce relatively cleaner barrels, they will have that demand on their barrels in the future," he said. "I am not worried about competition, and I don't think there is a contradiction between having the capacity and staying part of the group."