URTeC '15: Speakers assess global market in wake of Iranian deal

By KURT ABRAHAM, Executive Editor on 7/20/2015

An all-star panel of upstream-related speakers managed to agree on Monday morning, that the Iranian deal with the U.S. and other Western countries may pose an oversupply problem for oil markets in the long term, and it will create problems in the very short term, as well. Speaking at the opening plenary session of the Unconventional Resources Technology Conference (URTeC) in San Antonio, Adam Sieminski, administrator of the U.S. Energy Information Administration (EIA), noted that Iran has been storing oil in very large crude carriers (VLCCs) along its coastline, just waiting for a nuclear deal to be signed that would lift sanctions and allow it to throw that oil onto the market.

 “We estimate that 38 MMbbl of oil are in storage by the Iranians,” said Sieminski. “Of course, we have heard other estimates as well. But once the Iranians work off this initial wave of stored oil, we think they are, at best, capable of adding another 300,000 to 500,000 bpd to global inventories by the end of the year.” Some of the other estimates that he referred to include figures of 15 or 17 VLCCs being used to store in excess of 30 MMbbl of oil, and one claim that Iran was storing more than 45 MMbbl of oil on 23 tankers, including a few that are not part of that nation’s fleet.

Officials in Tehran have said repeatedly that they could pump another 500,000 bopd within a month of sanctions being lifted and up to 1 million bpd within six or seven months. However, noted Luis Giusti, senior advisor at the Center for Strategic and International Studies and a former president of Venezuelan national oil company PDVSA, “it will be at least 2017 and maybe longer” before Iran can ratchet up production for any significant output increase, a figure that Sieminski agreed with. “And when I hear talk of Iran producing 6 MMbpd or Iraq producing 7 MMbpd in the future, a couple of things come to mind,” added Giusti. “One, I imagine that Saudi and other OPEC members would have something to say about this, and two, Iraq has to get its own act together internally.”

Talk of even greater production coming onto a global oil market that is already fighting low prices is not welcome news to the ears of attendees at URTeC, most of whom are heavily involved in shale play activity, be they operators or service company personnel. The low prices have put a major dent in U.S. shale operations, prompting technical sessions at URTeC to focus on “getting more for less.”

The morning’s third panelist, Tony Vaughn, executive V.P. for E&P at Devon Energy, noted that the U.S. industry already has done quite a job of adjusting to the new reality. “Different sets of the cost structure have dropped faster than others,” noted Vaughn. “We’re seeing as much as a 20% to 30% drop in the cost of completions, compared to 12 months ago.” But if oil prices fail to recover soon, and more production goes on the market, Vaughn also made a prediction: “If we stay in a WTI environment of less than $60/bbl, people are going to retreat to the better parts of plays. And firms that are concentrated more on the fringes of these plays are going to be very stressed.”

Sieminski said that he thinks the industry is learning how to react to lower prices. “And technology is helping, too,” he added. “Some people came into shale plays early and paid too much for the land and prospects, and they were not technologically savvy enough. So, they saw a lower return for their efforts. Now, some companies have access to the latest technology to improve recovery in shale plays, so they can take advantage of this by buying those shale assets and developing them at a higher return.”

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