OPEC has much to lose if shale development spreads beyond US: Citi, PWCMeanwhile, both Citi and accountants PriceWaterhouseCooper say the OPEC oil cartel has much to lose if largescale shale development spreads beyond the US, not just in terms of oil prices but also in terms of geopolitical influence. Citi, whose report is entitled "Energy 2020: Independence Day," sees future oil prices in a range significantly below the $90-$120/b range in which Brent has traded since 2011, easing toward $70-$90 by the end of the current decade. Citi believes the period of rising prices that began in the previous decade appears to be coming to an end, high prices having stimulated a sixfold increase in global upstream capital spending that is driving a new round of global supply increases by bringing deepwater, oil sands and shale oil resources into production. "Brent looks likely to stabilize below $90, perhaps falling well below these levels at times and as a result the current $90/b floor price for Brent looks likely to become a ceiling price by the end of this decade," it says. Citi says that while the challenge to OPEC comes from fundamental changes in North American supply rather than from political intent, there are also political implications. "Energy independence dramatically affects the drivers of price at a time when oil producing countries are seeing their fiscal requirements increasing and hence as in no other time historically have a stake in indefinite increases in oil prices," Citi says. "Meanwhile, the wake of the Arab Spring has left oil producing countries on the defensive, attempting to assuage domestic populations by raising social and economic expenditures further. Tighter fiscal balances could make it hard to publicly agree to collective OPEC production cuts," it says. Higher spending requires corresponding revenues which in turn need oil prices to be at a certain level, Citi says. "Oil producers increasing their social spending programs to assuage restless young, unemployed populations look to face higher and higher fiscal breakeven prices for oil – already well over $100 for many countries – even as global oil prices look to be capped at $90/b this decade," it says, adding: "There remains a real possibility that such oil producing countries could, in the extreme case, become failed states." PwC, in "Shale oil: the next energy revolution," says shale oil production has the potential to climb to 14 million barrels of oil equivalent per day by 2035, accounting for 12% of the world's oil supply. This could mean oil prices of $83-$100/barrel in real terms, significantly lower than the $133/b projected by the US EIA, which assumes low levels of shale oil production. But, says PwC, while shale oil development will provide greater long-term energy security at lower cost for many countries the benefits of lower oil prices will vary significantly. It suggests that big net importers such as India and Japan could see GDP boosts of 4%-7% by 2035 while the US, China, the eurozone area and the UK might gain by 2%-5% of GDP. In contrast, major oil exporters such as Russia and the Middle East could see their trade balances worsen by around 4%-10% of GDP in the long run if they fail to develop their own shale oil resources, PwC says. Global shale development has the potential to influence the dynamics of geopolitics by increasing energy independence for many countries and reducing the influence of OPEC, says PwC. Oil producers "will have carefully to assess their current portfolios and planned projects against lower oil price scenarios" while "national and international oil producers will also need to review their business models and skills in light of the very different demands of producing shale oil onshore rather than developing complex 'frontier' projects on which most operations and new investment is currently focused," PwC says. Shale is undoubtedly controversial in environmental terms and PwC says appropriate regulation will be needed to meet local and national environmental concerns, PwC says. Shale oil development could also have perverse effects on attempts to cut carbon emissions by making alternative lower carbon transport fuels less attractive. But PwC also suggests that shale oil might displace production from higher cost and more environmentally sensitive areas such as the Arctic and Canadian tar sands.
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