HOUSTON—As certain OPEC members work to ease pain inflicted by an oversupply of oil and insufficient demand, an opportunity exists to form an alliance on the other side of the world.

“The opportunity here isn’t one necessarily based on market control; it’s based on leadership and technology,” Texas Railroad Commissioner Ryan Sitton said Feb. 16.

Speaking during the Australian American Chamber of Commerce’s annual Energy & Technology Conference, Sitton said there is an opportunity to form an energy alliance starting with Canada, Mexico and the United States.

The relationship between Canada, Mexico and the United States was strengthened when the three countries announced Feb. 16 that they are sharing public energy data on a newly created website. The collaboration, which aims to improve energy outlooks for North America, comes as OPEC leaders reach out to its members and top producers such as Russia to curtail production growth.

New technology and techniques have boosted production in North America, sparking others in the world to call on its expertise to drive production growth overseas. But developing more transportation infrastructure would more closely align North American countries, he said.

If North America proves it can transport hydrocarbon products better than anybody else and the cost of doing business here is lower than anywhere else, “then my belief is that I don’t have to put in place market controls. We’ll be driving the markets anyway,” Sitton said, comparing the concept to having a superior platform to deliver technology.

“My challenge to Texas energy producers and I extend the same challenge to you is .... How do we rethink this normal? How do we have countries like the United States, states like Texas, countries like Australia play a bigger role in markets across the world?” he asked.

The comments were delivered as oil and gas producers worldwide endure a downturn marked by lower commodity prices that have forced companies to cut back spending, seek cost savings, stall projects and let go of employees.

The world’s saturated market is partly OPEC’s refusal to act as a swing producer, cutting production to mitigate price falls and other nations’ reluctance to slow production. Tension among OPEC members could mean more of the same.

OPEC Woes, Opportunity

There is more conflict today among OPEC members than there was in the 1970s when the group gained its market control, Sitton said.

Saudi Arabia, feeling economic pressure amid rock bottom oil prices, has voiced a willingness to cooperate, if others cut production as well.

The tide appeared to be set for change with news on Feb. 16 that some OPEC members—Qatar, Saudi Arabia and Venezuela among others—and Russia agreed to maintain oil production at January 2016 levels. But buy-in is still needed from other members, including Iran and Iraq.

The alliance marks the first time in 15 years that OPEC and non-OPEC countries have reached a production agreement and comes despite Saudi Arabia and Russia’s opposing stances on Syria.

But OPEC leaders said in December they were reaching out to non-OPEC members in a joint effort to improve market conditions. In the past, the view has been that OPEC only functions by content volume, but world dynamics have changed, OPEC President Emmanuel Kachikwu of Nigeria said.

Saudi Arabia, Russia Oil Freeze Agreement Regarded As Useless, Unenforceable

Discord remains, including probable opposition to a production freeze by Iran, which wants to reclaim market share lost after decades of sanctions. News reports suggested Feb. 17 that Iran may go along with the plan, though many experts see cooperation as a long shot.

Internal conflict has the potential to break up the monopoly, Sitton said.

“The primary reason is most OPEC nations have very little if any sovereign wealth. Saudi Arabia, Kuwait and UAE are really the only ones who have a lot of money in the bank,” he said. “Everybody else basically lives paycheck to paycheck off their oil industry.”

Sharing Information

“If OPEC was to split apart and those in the United States, Canada and Mexico were to more closely align, then obviously we would have a bigger market share,” Sitton said. “That by itself doesn’t give us market control. You have to be willing to be a swing producer.”However, “In today’s market, I don’t believe that would be the right thing for Canada, the U.S. or Mexico to do.” Technology and leadership would instead be the focus, he added.

The bond between Canada, Mexico and the United States is already getting stronger.

The U.S. Energy Information Administration (EIA) said Feb. 16 that the three countries are launching a framework for sharing energy information for North America. A North American Cooperation on Energy Information website, www.nacei.org, links to each countries’ energy statistical arms and can be displayed in English, French and Spanish.

According to the EIA, areas of focus include:

  • Comparing, validating and improving energy import and export information;
  • Sharing public geospatial information related to energy infrastructure;
  • Exchanging views and information on projections of cross-border energy flows and
  • Harmonizing terminology, concepts and definitions of energy products.

“Canada, Mexico, and the United States plan to convene working groups to validate trade statistics for liquid fuels, natural gas, and electricity, as well as to work to reconcile trade data discrepancies,” the EIA said. “The working groups will continue validation of geographic information system (GIS) data and will expand energy infrastructure maps to include additional elements and functionality. The three countries will also maintain regular consultations on outlooks for energy markets.”

Velda Addison can be reached at vaddison@hartenergy.com.