(Rigzone) Saudi officials insist the kingdom’s oil production strategy is not aimed at putting U.S. shale producers out of business, a message that has been repeated to visiting U.S. policymakers.
The United States remains the kingdom’s most important security partner, and Saudi officials do not want to be seen to be deliberately trying to halt the shale revolution.
Rising domestic oil production is important to U.S. policymakers because it has given the United States a greater sense of energy security, and the Saudis remain keen not to offend their most important ally.
Saudi officials talk about defending market share and refusing to subsidise “high cost” production which encompasses unconventional output such as oil sands and frontier areas such as deep water and the Arctic.
In response to the plunge in prices, capital expenditures totalling almost $400 billion on a range of exploration and development projects have been axed or postponed, which will reduce non-shale non-OPEC production in the latter part of the decade.
In the short term, however, the brunt of the oil market adjustment has fallen on shale producers, since other forms of exploration and production have much longer lead times.
The battle between Saudi Arabia and the shale producers has been a war of attrition in which progress has been slow so far.
But the most recent data show the tide may finally be turning in the kingdom’s favour, as U.S. shale producers run out of cash and fresh financing, and are unable to maintain output. Turning The Tide Even after oil prices began falling in June 2014, U.S. production (including condensates) continued to increase by another 1 million barrels per day (bpd).Between June 2014 and its peak in April 2015, oil output rose from an estimated 8.7 million bpd to 9.7 million bpd, according to the U.S. Energy Information Administration.Since April 2015, production has fallen, but it was still running at 9.3 million bpd in November 2015, the latest month for which reasonably comprehensive estimates are available.