OPEC worried about America’s infant shale oil boom

by Robert Maynard

America’s shale oil boom has just begun and it already has OPEC rattled.  The move toward energy independence on the part of the world’s largest energy user is a HUGE concern to energy producing entities like OPEC.  The concern on OPEC’s part over our beginning steps toward energy independence reinforces an observations made in a TNR article of January of this year that the fracking technology responsible for that boom not only could provide a major boost to out economy, but undermine Jihadism:

As noted above it is a technique which allows for the extraction of more energy sources than would otherwise be possible. According to many sceintifc surveys there are enough such domestic energy resources here in the U.S., which such a technique would make available to extraction, that not only could be achieve energy independence, but we could become a net exporter of energy. This would help us to achieve the goal of another massive economic expansion.

The other goal it would help to achieve is to push back against Islamic extremism. Hardly a day goes by without us hearing about some act of violence, or threat to destroy Western Civilization, which can be attributed to this phenomenon.

Given that a lot of Jihadi activity is funded with Middle East oil money, slowing down that revenue source would slow down such activity.  Here is an article from RedState.com that talked a look at OPEC’s reaction to what fracking has accomplished:

At a critical Friday meeting in Vienna, the Organization of the Petroleum Exporting Countries (OPEC) will set production policy. For the first time, they will be grappling with the challenges of shale oil, even none of the member states are major shale oil producers.

The shale boom began in the U.S. as a ripple in North Dakota and Texas. Some thought its impact would be limited and regional, not global. Now that uptick on our domestic production curve has triggered a tsunami with geopolitical implications.

That’s because the U.S. does not need 100% energy independence to get OPEC’s attention. Due to production but also conservation and a protracted recession, our need for imported oil has contracted from 60-70% of consumption to about 40%, headed south. As the world’s largest crude oil market, changes in our domestic supply picture must necessarily reshuffle the import mix. Remember how skeptics argued that the shale boom is “a mirage“? I have often maintained that domestic supply increments of 500,000 barrels per day can be significant in a worldwide 90 million bpd marketplace. We’re starting to see that play out, albeit in some surprising ways.

From Rigzone.com:

OPEC Divided Over U.S. Oil Boom

U.S. crude production has risen to a 21-year-high as a new combination of technologies has unlocked large resources of oil previously trapped in shale rock in North Dakota and Texas. In tandem, exports from three of OPEC’s African members: Nigeria, Algeria and Angola to the U.S. have fallen to their lowest level in decades, dropping 41% in 2012, according to the U.S. Department of Energy.

In contrast, Saudi shipments of oil to the U.S. increased 14% in 2012.

This disparity looks set to deepen power struggles that have dominated OPEC in recent years. Iran, Venezuela and Algeria, who need high oil prices to cover domestic spending and offset falling production, have regularly clashed with Gulf countries led by Saudi Arabia, who have the financial strength to withstand lower prices.

As it turns out, North Dakota oil is light and “sweet” – low in sulfur. Consequently, it displaces imports from places like Nigeria which produces a similar crude. Saudi Arabia’s incremental production tends to be heavier and “sour”, and so is still in demand in refineries in the Gulf Coast and elsewhere that had been reconfigured for a lower quality blend as domestic supplies of lighter crude dwindled.

Since oil revenue is the main pillar of GDP in all the OPEC member countries, the ones with eroding market share (hence eroding revenues) feel the pinch right away:

Saudi Arabia can tolerate lower prices, said Amrita Sen, chief oil analyst at London-based Energy Aspects Ltd. “There will be some members, like Venezuela, Iran who will struggle at $90,” she said.

Iran needs high prices to offset the loss of $26 billion of oil revenues last year from tough Western sanctions on its exports, according to estimates from the U.S. Energy Information Administration.

Algeria, which has been rattled by frequent riots over food and housing, needs an oil price of $121 a barrel to cover its planned domestic expenditure, according to the International Monetary Fund.

Note that one of the oil producing countries that is being negatively impacted in Iran.  Given the central role that they play in our struggle with jihadism, this is a significant development.