Private Agreement | Russell T. Rudy Energy LLC
It is not unprecedented for public figures to publicly articulate one position, while privately holding a different opinion. In a recent article in “Oil Voice”, Paul Hodges seems to think this is the case with Saudi Energy Minister, Khalid al-Falih.
In a recent meeting of global energy leaders, al-Falih stated that international oil market fundamentals are improving and we are about to achieve equilibrium. He cited declining non-OPEC production declines due to major cutbacks in upstream investment, as well as reservoir depletion. He went on to say that this could lead to a long term shortage.
On the face of it, this would seem a direct contradiction to ExxonMobil CEO, Rex Tillerson, who, at the same conference, opined that he did not foresee an oil shortage. To the contrary, he said that we have confirmed the viability of a very large resource base in North America which provides the industry with enormous spare capacity. Importantly, this capacity can be brought on stream quickly and without mega-investment.
Hodges contends that the key point is that energy output is not just about oil prices. Rather, he sees OPEC and non-OPEC producers competing for market share on a 3-dimensional battle field. Yes, they compete against each other, but also against coal, and the climate change issue cannot be ignored.
China is a prime example of the continuing viability of coal, which still is the primary fuel for power generation. This is partly because on a BTU (British Thermal Unit) basis, coal competes effectively with natural gas, and is much cheaper than crude oil. Coal supplies did not seem to diminish in spite of the recent bankruptcies of two major producers, Peabody and Arch. Also, fuel switching is simply not an option for many power generators.
Hodges contends that the Saudis never expected to close down the U. S. shale oil industry because it depends on our military for defense. He further thinks that the Saudis realize that they have vast reserves, and if prices are too high, consumers will conserve more and accelerate the move away from fossil fuels to renewables.
If Tillerson and al-Falih both accept the aforementioned facts, Hodges feels that they both share the same conclusion. However, they both have to play to their constituencies. For Tillerson this means his shareholders, but for al-Falih it is the other members of OPEC. It would be dangerous for Saudi Arabia to refuse to support a production freeze, even if they see it as doomed and counterproductive in the long term. Rather, by publicly supporting the freeze, al-Falih can look like a team player and cannot be blamed if oil prices ultimately end up lower, rather than higher.
To read the article in its entirety, which includes some excellent graphics, please go to http://www.oilvoice.com/n/ExxonMobil-Saudi-Arabia-differ-on-oil-outlook-or-do-they/0a567e7695be.aspx .
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