OPEC Despairs as Texas Grows Stronger

OPEC Despairs as Texas Grows Stronger

It is no secret that Saudi Arabia and OPEC´s continued efforts to hinder the inevitable advance of the U.S. shale-oil industry were at the heart of the plummeting of crude prices in 2014. As a result of OPEC´s plotting, the Texas oil and gas industry was driven to job cuts and bankruptcies, and the sector´s growth rate slowed across the region.

For years, we have been waiting for the next chapter to unfold; will OPEC´s strategies pay off? Will they succeed in reducing the impact of America´s massive increase in production? I have always been a firm believer in the power of the shale revolution and our nation´s potential to thrive in the new world energy order. OPEC has been able to delay what´s coming, but it cannot stop it; shale is the present and the future, and now we have proof that no plot is enough to block its advance.

U.S. Oil and Gas Producers Out-Play OPEC Competitors, Redrafting World Oil Map

Texas, and the U.S. oil and gas industry as a whole, have proven to be more resilient than Saudi Arabia had anticipated. Instead of giving up, in a landscape of historic lows for oil prices, US producers have succeeded in reducing costs and thriving in an increasingly hostile market. Over a year and a half after the Saudis started focusing aggressively on driving prices down to put Texas oil companies out of business, the verdict is in, and it doesn´t look good for our OPEC competitors.

Ever since its inception, the US-led shale revolution has been redrafting the world oil map at a blistering pace. Over the last few years, America has conquered the title as the undisputed most prolific oil nation on the planet. As the shale revolution turns into a broader technological revolution for American industries, the opportunity to catapult the U.S. economy into the stratosphere and reshore American jobs in massive numbers becomes a palpable thing. We are witnessing the dawn of a new era of infinite possibilities.

Rystad Energy Study Shows United States #1 in Economically Recoverable Oil Reserves

Meanwhile, desperation is setting in for many OPEC nations. Only last month, Rystad Energy reported that the United States had overtaken Saudi Arabia and Russia as the world's leading holder of economically recoverable oil reserves, at 264 billion barrels.

The Norwegian oil and gas consulting firm has thus hailed the US as the new dominant force in the world oil market. In an effort to fight off the continued assault on its market share, Saudi Aramco, Saudi Arabia's state-owned oil company, has lowered the pricing terms for Arab Light crude sold to China: the price per barrel decreased by US $1.30 between August and September contracts, a move that constitutes the most significant cut in the last 10 months. Moreover, the Arab nation has recently lost its status as China´s number one oil supplier, in favor of Russia.

OPEC Turmoil from Backfired Strategy

As Saudi Arabia fights fiercely over a volatile market share, other OPEC nations are in complete turmoil. Venezuela is experiencing food riots, hyperinflation, and increasing political instability. Across the Atlantic, in Nigeria, just like in early 2015, the oil price slump has impacted the local currency, the Naira, which has now fallen by 60 percent. Further South in the African continent, Angola has been forced to seek assistance from the International Monetary Fund.

In view of the current scenario, it is possible to conclude that OPEC´s strategies may have simply backfired. The adversity has probably only made America stronger and more efficient: today, Texas oil can be produced for as little as $2.25 per barrel.

Texas Set to Thrive on Tech Prominence

As bountiful as Saudi Arabia´s wells might still be - an arguable point in itself - Texas will doubtlessly win the battle in the end. 10 years ago, the production decline rate of a well after the first four months was about 90%. Today, modern fracking has managed to reduce that to 18%. According to Scott Sheffield, chief executive of Pioneer Natural Resources, the Permian basin in West Texas holds as much oil as Saudi Arabia´s richest fields, and its production could expand from 2m to 5m barrels a day even at a static price of $55 per barrel.

In other words, the future is here, and technology is winning the battle. No matter how bountiful Saudi wells may be, as the US continues to perfect fracking and increase productivity, the race will have a predictable outcome, and Texas will thrive.

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Attorney Jimmy Vallee is an energy Mergers & Acquisitions lawyer, oil and gas industry commentator, and frequent resource for media outlets including USA Today, U.S. News & World Report, Oil & Gas Monitor and others. His new book, Giant Shifts: Energy Trends Reshaping America’s Future, released in May, 2017 hit #1 in two Amazon categories the week of its launch. Connect with Jimmy at [hidden email]  “Noted Energy Futurist” – Mensa AG 2016


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