Saudi Arabia’s energy minister took a rare sideways swipe at the International Energy Agency on Wednesday, accusing the body of overhyping the impact of US shale growth on the oil market.
In a retort to remarks by IEA head Fatih Birol, Khalid Al Falih said at an energy panel in Davos that the agency was failing to put the scale of US production increases into context.
“I was not disputing the amazing revolution of shale . . .[but] in the overall global supply demand picture it’s not going to wreck the train,” said Mr Falih.
“We should not be scared,” he added, at the World Economic Forum’s annual conference on Wednesday. “That’s the core job of the IEA, not to take it out of context.”
Mr Falih appeared alongside his Russian counterpart Alexander Novak and US energy secretary Rick Perry, who together now represent countries pumping more than a third of the world’s crude.
The appearance of a US representative on a panel of traditional producer nations illustrates the transformative effect the shale boom has had on global energy markets.
The IEA said last week US crude production was on course to overtake Saudi Arabia and rival Russia, with the body revising 2018 growth forecasts for the US higher to output of more than 10m b/d.
The Paris-based body stressed that “explosive” expansion in shale was offsetting Opec-led supply cuts, a fear held among many countries participating in a deal to curb production that stared in 2017.
Mr Falih argued that rapid global oil demand growth and natural decline rates at existing fields meant greater supplies would be needed, adding there was an “oversized focus” on US shale growth.
The Saudi minister said US output would be “absorbed” just as rising supplies in the 1980s were eventually needed by the market. His comments may raise eyebrows because the boom in North Sea and Alaskan output at that time led to two decades of relatively low prices and is seen as a major factor behind the eventual collapse of the Soviet Union.
His comments come as Saudi Arabia attempts to transform its economy as part of an overhaul of the state, driven by the kingdom’s crown prince Mohammed bin Salman. Riyadh, however, needs higher oil prices to finance widescale economic and social reforms, including the planned share sale of state oil company Saudi Aramco.
Mr Birol was not on the panel, but made a statement as a member of the audience. “I believe the shale revolution is coming very strongly and we will see more and more impacts of that in years and years to come,” he said.
Despite Mr Birol’s bullish outlook on US shale the IEA has long argued the world needs greater investment in future production to meet growing energy demand.
But the agency has faced criticism for its monthly oil market forecasts, which some in the industry have said tend to focus too heavily on short term supply growth, creating unnecessary uncertainty for investors.
On the supply cut deal, Mr Falih said it is “very unlikely” global producers, including Russia, would unwind their production curbs at the ministers’ next formal meeting in June. He said eventually there would be a “gradual, smooth exit” so as not to “shock” the market in 2019.
Mr Perry, the US energy secretary, said that the emergence of the US as a major oil producer to rival Saudi Arabia and Russia meant that there may be areas in which the three countries could work together.
He said they were “blessed” to be able to supply the world with fossil fuels. But he made clear President Donald Trump’s administration was not seeking too close an alliance with the US’s rivals.
“America First means one thing: competition”.
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