ПРОДОЛЖАЯ ПОЛЬЗОВАТЬСЯ ЭТИМ САЙТОМ, ВЫ ВЫРАЖАЕТ СВОЕ СОГЛАСИЕ НА ИСПОЛЬЗОВАНИЕ НАМИ ФАЙЛОВ COOKIE. ОЗНАКОМЬТЕСЬ С НАШИМИ ЗАЯВЛЕНИЯМИ О КОНФИДЕНЦИАЛЬНОСТИ И ФАЙЛАХ COOKIE
X

Print

OPEC Guide



OPEC faces challenging path to H2 oil output cuts if deal is extended

April 26, 2017 - By Herman Wang in London



  • OPEC will need to fit extension around expansion plans
  • Field maintenance works helped with compliance in 1H
  • Need for revenue may be primary driver of talks


OPEC ministers appear to be coalescing around an extension to the production deal in force since January, but they are likely still far apart on how those cuts might physically be continued into the second half of the year.


Virtually every OPEC member has broad plans to increase its production capacity this year -- in some cases aggressively.


And a significant portion of the cuts that OPEC delivered as part of its pact with 13 key non-OPEC countries to slash 1.8 million b/d from the market came through oil field maintenance works timed for the first half of the year to conveniently help with compliance.


With many of those works wrapping up, OPEC members will have to get serious about shutting in production if they intend to extend the deal, while appeasing lenders, international oil companies and citizens greatly invested in their plans to raise output capacity.


The International Energy Agency, in its medium-term forecast earlier this month, projected that OPEC would boost its sustainable crude production capacity by 280,000 b/d this year to 36.18 million b/d and a further 640,000 b/d in 2018 to 36.82 million b/d.


The competing priorities -- and the need for OPEC to be more nimble when market fundamentals shift -- have many observers doubtful that the cuts will be extended in their current form.


Analysis continues below...


Request a free trial of: Oilgram News Oilgram News
Oilgram News

Oilgram News brings you fast-breaking global petroleum and gas news on and including:

  • Industry players, upstream and downstream markets, refineries, midstream transportation and financial reports
  • Supply and demand trends, government actions, exploration and technology
  • Daily futures summary
  • Weekly API statistics, and much more
Request a free trial More Information


"The current agreement needs more flexibility," said Michael Cohen, head of energy commodities analysis for Barclays.


Sources close to OPEC say that too much time remains between now and the May 25 meeting in Vienna, when ministers will discuss and possibly negotiate any extension, to make any definitive comments on how cuts in the second half of the year would work.


One industry source, who spoke on condition of anonymity, said OPEC had yet to agree on their outlook for the market.


"The market situation is rather complex," the source said. "Everyone is awaiting the drawdown in stocks, especially from the US, which is late and keeps everyone nervous."


Within OPEC, some of the countries that have been complying with their quotas still want to see greater discipline from members that have yet to cut down to their commitments, the source said.


Kamil al-Harami, an independent consultant and former president of state-owned Kuwait Petroleum International, said OPEC members would be united by their desire to keep prices elevated.


Many of the capacity expansion projects, especially in the Persian Gulf region, where reserves are relatively low-cost to develop, will continue, Harami said, but countries will likely extend the cuts to help balance budgets.


Oil prices are up some 11.5% since the OPEC/non-OPEC production cuts were agreed, providing many of the countries with improved fiscal balances to provide social services and other spending.


"The concern is how to avoid deficits and outside borrowing," Harami said. "The higher the price of oil, the more the benefits to the government."


FLEXIBLE EXTENSION


Kuwait, whose oil minister Essam al-Marzouq chairs an OPEC/non-OPEC monitoring committee overseeing the deal, illustrates the dilemma that many participants may face in negotiating a cut extension.


The emirate has announced a $115 billion spending program over the next five years that aims to boost its production capacity from 3 million b/d to 4 million b/d by 2020 and then eventually 4.75 million b/d by 2040.


Under the production cut agreement, Kuwait has lowered its output to 2.70 million b/d, according to the latest S&P Global Platts OPEC survey, with state-owned Kuwait Oil Company in January announcing it had closed 90 wells and would bring forward field maintenance.


As head of the monitoring committee, Marzouq has remarked on the need for Kuwait to lead by example on the production cuts.


But at an Abu Dhabi energy conference last week, he also endorsed a more open-ended deal extension, telling reporters if demand in the second half of the year is higher than in the first, any production cuts should be eased.


"I was thinking we could relax our commitment a little bit because [in] H1, demand doesn't go up that much. H2 demand should be higher," he said.


Similarly, the UAE has targeted a production capacity of 3.5 million b/d by 2018. Its most recent output level stood at 2.85 million b/d, according to the Platts survey.


While that is still above its quota under the deal, UAE officials have said that maintenance works on key export grades Murban and Das would see output fall significantly in April and May. When those works are complete, production could rise again in June.


"Our oil is preferred around the world. It is the cheapest [to produce]," UAE oil minister Suhail al-Mazrouei said in Abu Dhabi, referring to the Gulf region at large.


LONG-TERM DEMAND


OPEC's second-largest producer Iraq, which has hinted it may seek an exemption from any cut extension, just as it unsuccessfully sought one from the current deal, has announced a goal of producing 5 million b/d by the end of the year, up some 600,000 b/d from its current level.


Iraq is working with BP, Shell and Lukoil to boost output in the fields they have invested in, as the country says it badly needs the oil revenues from the additional production to fight the Islamic State insurgency.


Neighboring Iran, hobbled for the last several years by western sanctions on its oil sector, which were lifted in January 2016, has been courting investment to regain its pre-sanctions output level of some 4 million b/d.


But oil minister Bijan Zanganeh has said Iran would be willing to hold its output at current levels of about 3.8 million b/d if the cuts were to be extended, amid doubts the country could boost production even if it wanted to without outside help, given the years of underinvestment.


Among OPEC members, only Saudi Arabia has demonstrated any willingness to be a swing producer and hold its production substantially below its maximum capacity. Its March output was 10 million b/d, according to the Platts survey.


Saudi energy minister Khalid al-Falih, even as he announced in Abu Dhabi a preliminary agreement among Gulf Cooperation Council ministers that a continuation of the cuts was necessary, floated the idea of a three-month extension instead of a full half-year.


The kingdom is investing to maintain its total output capacity at 12.5 million b/d, as Saudi officials have warned of the need to meet rising global demand in the years ahead.


"We don't only think about the market in 2017 but try to look at prospects in coming years," Falih said. "We need to think what would happen if investment in GCC countries continues at low levels."


Related article -- OPEC compliance with cuts 115% over January-March: Platts survey








Авторское право © 2017 S&P Global Platts, подразделение S&P Global. Все права защищены.