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OPEC+ market management needed to spur oil industry investment: UAE minister

Abu Dhabi — OPEC and its allies should be commended for helping prop up the oil market, as without their efforts, the industry would be suffering from an even more dire drop-off in investment that would lead to a looming supply crunch, UAE energy minister Suhail al-Mazrouei said Wednesday.

OPEC has estimated that some $10.6 trillion in industry spending will be needed across the upstream, midstream and downstream sectors through 2040 to meet expected oil demand, which will grow by 12% from current levels to reach 110.6 million b/d.

"We need to work harder as an industry to replace the reserves that we deplete," Mazrouei said at an oil conference in Abu Dhabi. "And guess what, it's not cheap. Year on year it's getting more expensive."

Ayed al-Qahtani, OPEC's research division director, said the industry lost some $500 billion in investments during the oil price malaise of 2015 and 2016.

"When you talk about a stable, safe comfortable environment for investors to put their money, I think OPEC+ through their efforts have undertaken the responsibility of stabilizing the market," Qahtani said during a panel session at the Abu Dhabi International Petroleum Exhibition and Conference. "This is for the sake of saving the industry for decades to come."

Bruising battle

OPEC, Russia and nine other non-OPEC allies are almost three years into their pact to put aside a bruising market share battle and cut production to reverse a slump in oil prices that began in 2014.

The current agreement calls on the 24-country coalition to cut 1.2 million b/d through March. Ministers will meet December 5-6 in Vienna to discuss the future of the deal, with several officials indicating that the cuts will likely be extended at the same levels through the end of 2020.

Some analysts have speculated that the coalition may need deeper cuts to prevent another price fall, with many forecasts predicting lackluster demand growth and surging non-OPEC supplies, particularly from the US.

Mazrouei, however, noted that even US shale producers are seeing reservoir problems with larger water cuts. A recent report by the Texas Alliance of Energy Producers and the Independent Petroleum Association of America found that every barrel of oil produced in the Permian Basin comes with about three barrels of water, and the storage and disposal of that water could become increasingly problematic.

US softening

"We see a softening of what the US can produce," Mazrouei said. "Challenges will happen as reservoirs get aged."

OPEC's World Oil Outlook forecasts that US tight oil production, which includes NGLs, will peak in 2029 at 17.4 million b/;d, compared with 10.2 million b/d in 2018, before falling back to 14.5 million b/d in 2040.

OPEC members will likely be needed to fill the supply gap, according to the report.

"It takes great efforts from this industry, and it comes at a cost," Mazrouei said. "We need a group like OPEC+, and we need collaboration."

He also decried what he said was the unfair characterization of OPEC as a cartel.

"You call us cartel and these names," he said. "I think it's time to stop calling us these names. We are working for the benefit of the world economy."

--Herman Wang, herman.wang@spglobal.com

--Dania Saadi, dania.el.saadi@spglobal.com

--Edited by Claudia Carpenter, claudia.carpenter@spglobal.com