UAE Energy Minister sees threat from US shale oil rivals diminished

“ Growth at any cost ” no longer stimulates US production

Mazrouei says demand could reach pre-COVID levels before 2022

No conflict between ADNOC’s growth objectives and OPEC membership

London –
U.S. crude production is unlikely to return to vigor in the near term, even with the recent rise in oil prices, leaving OPEC and its allies some leeway as they lead the market through recovery from the coronavirus, UAE Energy Minister Suhail al-Mazrouei said Jan.19.

Investors in U.S. shale companies have been scorched by their earlier turmoil in production growth, culminating with the COVID-19 market crash in 2020, and will be much more cautious going forward, Mazrouei said at the meeting. Atlantic Council World Energy Forum.

“Looking at what the shale has gone through, I’m not sure growth at any cost is an option,” he said. “I think there is now wisdom about the right pace of growth. I think it will be wise growth driven by investor expectations.”

The minister reaffirmed that he expects global demand for oil to return to pre-pandemic levels by early 2022, if not late 2021.

“I hope that with the help of various governments and various approvals, the vaccinations will be faster,” Mazrouei said. “In addition, during the summer we will see the effect of seasonality [in reducing infections]. We’re seeing good demand in China and India, and we’re seeing people in some parts of the world starting to get back to normal. “

According to the latest forecast from the US Energy Information Administration, US crude production will average 11.1 million b / d in 2021, up from 11.3 million b / d in 2020 and 12.3 million b / d in 2020. j in 2019.

OPEC, Russia and several other key producers are in the midst of a harsh deal to cut production, but many members, including the UAE, have started to push for quotas to be relaxed to recoup the market share lost due to the pandemic.

At the last OPEC + alliance meeting, however, Saudi Arabia surprised the market by announcing a unilateral cut of 1 million bpd to prevent oil prices from falling, which has led to some speculation. that American shale rivals could take advantage of this and seek to increase production.

OPEC officials, however, dismiss the concerns, saying American companies have learned their lesson.

The International Energy Agency appears to agree, saying in its January 19 monthly oil market report that many U.S. shale officials can focus on paying down debt and increasing investor returns. , rather than on increasing production.

“If they stick to these plans, OPEC + could start to reclaim the market share it has steadily lost to the United States and others since 2016,” the IEA said.

Growth vs discipline

In the decades to come, Mazrouei said global demand for oil will eventually exceed pre-pandemic levels and the UAE is investing in its production capacity so that it can meet future supply needs.

Citing OPEC’s latest long-term forecast that oil demand will reach 109 million b / d by 2040, up from around 100 million b / d before the coronavirus crisis, Mazrouei said consumption would be driven by demographic growth even as the development of renewable energies continues at a sustained pace.

“There is still room to grow beyond 100 million bpd,” he said. “We will see. It depends on the alternatives, on their ease of access to the market.”

Abu Dhabi, the emirate that produces the vast majority of the UAE’s crude oil, plans to invest $ 122 billion until 2025 to increase the production capacity of state-owned oil company ADNOC to 5 million bpd by 2030, up from just over 4 million bpd now.

At the same time, in a nod to concerns about climate change, ADNOC aims to reduce the greenhouse gas intensity of its oil and gas production by 25% by 2030.

Mazrouei said the dual strategy will serve the UAE well in the oil market of the future, as investors increasingly seek to meet environmental and sustainability goals. Abu Dhabi already has a relatively low carbon intensity for its crude oils, given its easily accessible reserves and the associated lack of flaring.

“We aim to be the cheapest producer and the cleanest producer,” Mazrouei said. “This combination is what gives us confidence that there will be future demand for our barrels. We will be ready, if there is a pick-up in demand, that we have these resources.”

The UAE made waves at the end of 2020 with reports that it would reconsider its OPEC membership largely due to ADNOC’s growth ambitions. OPEC’s current supply agreement with Russia and several other key producers limited UAE crude production to a quota of 2.63 million bpd from January to March.

At the December OPEC + meeting, Mazrouei and his Russian counterpart Alexander Novak pushed hard for much higher quotas, but ultimately agreed to a smaller increase in the face of opposition from other more concerned members. by the fragile state of the world economy.

Mazrouei said there was no conflict between ADNOC’s plans and OPEC membership.

“We believe that for those who invest in the technology to produce relatively cleaner barrels, they will have that demand on their barrels in the future,” he said. “I’m not worried about the competition and I don’t think there is a contradiction between having the capacity and staying in the squad.”