XPost: can.politics, ab.politics, bc.politics   
   XPost: mtl.general   
   From: Panca@nyet.ca   
      
     CALGARY — The Globe and Mail - Thursday, Oct. 16 2014   
      
      
   As prices plunge, the global oil showdown begins   
      
     A plunge in world oil prices is forcing the producing countries to rethink   
   forecasts for output and what that might mean for their economies   
      
   A plunge in world oil prices is forcing the producing countries of the Middle   
   East, former Soviet Union and North America to rethink forecasts for output and   
   what that might mean for their economies.  The drop has suddenly brought into   
   sharp focus an increasingly intense high-stakes battle for market share in an   
   energy world that has gone from scarcity to abundance in less than a decade.   
      
   OPEC   
      
   Saudi Arabia, along with Kuwait and United Arab Emirates, will oppose any moves   
   within the Organization of the Petroleum Exporting Countries to hold back   
   production, even if they would help prop up prices, the Wall Street Journal   
   reported on Thursday, quoting a Gulf OPEC official. The 12-country cartel is   
   due to meet next on Nov. 27.   
      
   Saudi Arabia, OPEC's most influential player, and its fellow producers have   
   watched market share erode as a revolution in oil from shale formations has   
   allowed the United States to sharply reduce imports. In September, their   
   combined production hit a 13-month high amid weaker-than-expected demand in   
   Europe and Asia, causing a glut that has put pressure on prices, according to   
   the International Energy Agency.   
      
   Saudi Arabia's production rose slightly to 9.73 million barrels a day. Its   
   officials have long told nervous markets that the country is comfortable with   
   Brent crude between $90 and $110 (U.S.) a barrel, though it has never promised   
   to defend the range, according to FirstEnergy Capital Corp. analyst Martin   
   King.   
      
   It has been resolute in defending its franchise, especially in Asia, where it   
   reduced its official selling prices to customers. Market share is crucial to   
   Saudi Arabia as it in the midst of a spending spree at home to improve living   
   standards and diversify its economy, according to The Economist.   
      
   Iran, tied for third in OPEC production capacity, has struggled with weaker   
   Asian demand. That and skidding prices put it in a precarious economic   
   position, as it requires oil at nearly $140 a barrel to erase its budget   
   deficit. Crude has not come close to that price since months before the   
   financial crisis took hold in 2008.   
      
   Mr. King has projected that Brent crude could bottom out in the high-$70s a   
   barrel if the OPEC members move toward co-ordinating to reduce supplies and the   
   high-$60s by year-end if they do not.   
      
   Russia   
      
   It is the world's third-largest oil producer behind Saudi Arabia and the United   
   States, and revenue from its crude exports has fuelled President Vladimir   
   Putin's increasingly militaristic ambitions along its borders. So far, the fall   
   in crude prices has not blunted them, despite worsening damage to the economy.   
      
   Russia derived half its federal budget revenue from mineral extraction taxes   
   and export customs duties on oil and gas in 2013, according to the U.S. Energy   
   Information Administration.  That makes its economy highly sensitive to   
   movements in crude markets.  Global benchmark Brent oil, which sold on Thursday   
   for $85.02 a barrel, has lost about a quarter of its value since the start of   
   the year.   
      
   The country requires oil prices of $100 a barrel to balance its budget,   
   according to The Economist.   
      
   Russia has flirted in years past with acting in concert with OPEC to take   
   production off the market to rescue prices, but has shown no signs of doing so   
   intentionally this time, even as global demand slows.   
      
   However, third-quarter production slipped from a year earlier, the first time   
   that had occurred since the financial crisis nearly six years earlier,   
   according to the IEA's October Oil Market Report.   
      
   In mid-September, the United States and European Union announced their latest   
   round of sanctions against Russia, prohibiting U.S. and European companies from   
   providing goods and services to Russian deep-water, Arctic or shale projects.   
      
   The IEA predicted that the sanctions would have minimal impact on short-term   
   production, but will hamper the country's ability to offset declining output   
   from older oil fields.  As a result production is expected to average 10.9   
   million barrels a day in 2015, which would be down from this year's estimated   
   volume.   
      
   North America   
      
   A renaissance in oil production in the United States has brought dramatic   
   change to the global oil movements. Output has surged to 8.5 million barrels a   
   day from five million in 2006, and the U.S. Energy Information Administration   
   has predicted output of 9.5 million next year. At the same time, imports have   
   dwindled to 7.6 million (b/d) from 10.1 million. Canada is the only foreign   
   supplier to have boosted U.S. market share.   
      
   As much as 70 per cent of the annual U.S. output gains come from three major   
   shale deposits – the Bakken in North Dakota and the Eagle Ford and Permian in   
   Texas, according to Manuj Nikhanj, managing director at ITG Investment   
   Research.   
      
   The plays require active horizontal drilling and hydraulic fracturing, or   
   fracking, operations to keep the oil flowing, with well costs running between   
   $6-million (U.S) and $12-million each. Break-even oil prices for most of the   
   major shale fields are between $60 and $70 a barrel, Mr. Nikhanj said.   
      
   It is doubtful crude prices in the current range will force producers to   
   curtail operations, though reduced cash flow may prompt them to trim capital   
   spending, especially as shaky capital markets make it tougher for companies to   
   raise extra money by issuing shares or debt. The eventual result could be a   
   slightly flatter profile for overall production gains.   
      
   In Canada, the Alberta oil sands have generated the bulk of new production. In   
   recent years, developers expanded multibillion-dollar projects as congested   
   pipelines backed supplies up within the province, at times leading to deeply   
   discounted prices.  Currently, that discount is unusually narrow.  That, and   
   the weaker Canadian dollar, have combined to keep realized prices for domestic   
   heavy oil relatively steady in comparison with world prices.   
      
   According to BMO Nesbitt Burns, it takes oil at $90 a barrel, on average, to   
   develop and operate oil sands mines profitably, though well-established   
   projects can run at much lower prices.  All-in costs for steam-driven projects,   
   which comprise most new developments, average $65 a barrel.   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)