The International Energy Agency recently announced that the United States will overtake Saudi Arabian oil production by the end of the decade.
The announcement wasn’t merely overdue. It was wrong, Ed Morse , managing director and global head of commodities research at Citigroup Global Markets Inc. , told hundreds gathered at Hart Energy’s DUG East Conference & Exhibition in Pittsburgh.
“The US is already there,” Morse said. “The US is an 11 million barrel per day (MMb/d) producing country, not the 6.6 MMb/d producing country that the weekly Department of Energy data indicate.”
Taking into account all exports of oil products, such as natural gas liquids (NGLs), the US is in the driver’s seat, Morse said.
Morse, who served as the US representative at the International Energy Agency (IEA) for President Carter and President Reagan, says the unconventional oil and gas revolution is more than a catch phrase. He predicts climbing production could cause prices to hit a ceiling, change the way oil is benchmarked and create painful times for stalwart oil countries.
Morse said the medium-term outlook for prices should be lower. The Brent forecast is under $100 next year, going down to $85, he said. In the current pricing environment, $90 Brent is a floor price.
However, by decade’s end, $90 Brent will be the “ceiling rather than floor price. There’s too much production,” he said.
Morse doesn’t think oil prices can rise much more because, by his view of cost data, at no time in modern history has energy cost been as high a percentage consumer income and global GDP as it currently is.
“This is a tipping point where if you get a Brent-related price above $120 or $125, something has to give, and it has to be growth,” Morse said.
Low prices won’t be welcomed by US producers, though virtually all unconventional oil can be produced here at $75 or $80 a barrel, he said.
“The only good news for producers in the US is that the current $22 differential between West Texas Sour (WTS), West Texas Intermediate (WTI) and Brent is likely to shrink considerably,” he said.
Reaching something closer to equilibrium of about $5 or $6 a barrel will mean that “relatively speaking there will be higher value in the U.S. market.”
For other countries, the costs will be crippling. Morse said major challenges may be in store for OPEC.
“We’ll see a