Energy Headlines

August 31, 2016

US shale has been stymied by Saudi Arabia, says Shell CEO

Saudi Arabia’s move to abandon its role as the balancing force in world oil markets has put the brakes on America’s energy boom, with Riyadh successfully pressuring US shale producers, according to the head of Royal Dutch Shell.

Ben van Beurden, chief executive of Shell, said in an interview that Opec, the oil producers’ cartel led by the Saudis, had reminded shale companies and their backers in the bond markets that “there is still risk in this business”.High quality global journalism requires investment.

Many in the industry, he said, had come to believe — wrongly — that there was no price risk any more, assuming that Opec would always adjust the oil volumes it supplied to meet global demand and keep crude prices at more than $100 a barrel.

Speaking to the Financial Times, Mr van Beurden said the plunge in oil prices after Opec’s landmark decision in November not to cut production in the face of soaring US output and weaker-than-expected demand had sent a “powerful” signal that Riyadh would not “underwrite the price” by using its supplies to balance the market.

“I think they [the Saudis] have been quite successful, if you like, in making it very clear to shale oil companies as well as their financiers that they cannot forget the price risk,” he said. “The industry will remember it for some time.”

Mr van Beurden stopped short of predicting a sharp slide in US output, arguing that companies’ efforts to cut costs and improve efficiency meant that production was likely to continue “for a while to come” at about current levels, until “the sweet spots start running out”.

“The shale environment in the US, a lot of people say it has shown remarkable resilience and that’s absolutely true,” he said. “It continues to grow in the face of relatively low prices.”

But, he added, if US crude prices remained in the $50 to $60 a barrel range, then it would be hard to justify substantial new spending on infrastructure and drilling. Extracting “more marginal” barrels would need higher oil prices, he said.

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