OILSANDS SHOULD WOO OPEC
Report urges closer ties to members
Alberta and the federal government should develop a closer — but not too close — relationship with OPEC member countries such as Saudi Arabia, says a new report from the University of Calgary’s School of Public Policy.
The call for a closer relationship with OPEC is at odds with the views of many North American analysts and oil executives, who have consistently criticized the global oil cartel’s high production volumes as an attempt to flood the market.
“Canada’s and Alberta’s interests, if measured in oil export volumes alone, are surely no less than that of many OPEC members,” said the report, released Thursday.
“Given the importance of the oilsands to the Canadian economy, the federal government should facilitate a closer monitoring of the market, including stepping up its and Alberta’s relationship with OPEC members, but stopping short of seeking some formal status with the organization,” it said.
Many analysts have described Saudi Arabia’s push to hold OPEC production steady — at 30 million barrels per day — while oil prices fell in late 2014 as a “price war” and a deliberate move to weaken its neighbours, including OPEC member Iran, and competing oil producers.
Citigroup this year described OPEC’s production decisions as setting up a “potential battle by Saudi Arabia for market share” at refineries in the U.S. Gulf Coast between shale oil producers, oilsands producers and OPEC.
Robert Skinner, the author of Thursday’s report and an executive fellow at the School of Public Policy, however, called the Saudi Arabianled move a market-driven decision.
“It’s not some kind of nefarious geo-political scheming,” said Skinner, who has also been director of policy at the International Energy Agency and worked with the Canadian divisions of Total S.A. and Statoil ASA.
He said Saudi Arabia, the most influential player in OPEC, pushed to keep OPEC production volumes at 30 million barrels per day because other countries within the cartel refused to cut production, while expecting Saudi Arabia to cut its oil output. Saudi Arabia has since held its production steady, allowing market forces to set the price of oil, rather than targeting a price by altering its oil output and OPEC’s production quotas.
“Maybe OPEC is coming around to the OECD way of thinking,” Explorers
Canada’s and Alberta’s interests, if measured in oil export volumes, are surely no less than that of many OPEC members.
and Produces Association of Canada president Gary Leach said, referring to Saudi Arabia’s decision to let the market set the price of oil. “Other than better intelligence gathering, I’m not sure what Alberta or Canada could do.”
FirstEnergy Capital Corp., in its most recent crude oil price forecast, predicted that “Saudi Arabian production will remain very strong for the next several years at a minimum.” The firm expects West Texas Intermediate oil prices to rise slightly to US$60 per barrel by the end of 2016.
“We definitely are not in favour of being another member of OPEC,” Canadian Association of Oilwell Drilling Contractors president Mark Scholz said.
He added, however, that reaching out to the cartel and the foreign governments behind it is “probably not a bad idea at least from just an Intel perspective, at least to understand the business strategies.”
The CAODC released its drilling forecast for 2016, which predicted oilfield activity would fall to its lowest levels “in a generation.” The industry association predicts there will be an average of 159 rigs running next year, which would be the lowest average number since 1983.
Skinner’s report also noted that the current oil price rout, which began in 2014 and has been driven by an oversupply of crude, has more in common with the prolonged price shock of the 1980s than the more recent collapse in crude prices in 1997 and 2008, which were “demand driven.”