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Improving pipeline efficiencies – part 2

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World Pipelines,

Declining crude prices

Global crude oil prices have been depressed for over a year-and-a-half, having tumbled more than 60% from a high of US$120 per bbl. This trend was accelerated in mid 2014 when, despite strong downward pressure on oil markets, OPEC surprised many analysts by increasing production. Even in the face of plummeting prices, Abdalla Salem El-Badri, OPEC secretary-general, announced they would not cut production at a November 2014 meeting. Within weeks, oil fell further, hitting under US$50 per bbl in January 2015. This week, West Texas Intermediate (WT) crude oil, a leading price indicator, was trading at just under US$35.00 per bbl.

Although OPEC members claim that driving prices ever lower will result in a re-balance of the global oil markets by bringing supply in line with demand, most analysts believe their true goal is to ensure as many competitors as possible are forced offline through bankruptcy.

Addressing assembled US oil producers at last week's conference in Houston, Mr. El-Badri, OPEC Secretary-General, bluntly stated his position by commenting: "Shale oil in the United States, I don't know how we are going to live together."

Enhanced oil recovery

Less than a decade ago, many energy industry pundits agreed with the sentiment that US oil and gas production was becoming tapped out and in irrevocable decline. 'Peak oil' had arrived, they said, and the world's dependence on Middle East oil would continue unabated indefinitely. Then 'enhanced oil recovery' technologies changed all that by enabling US producers to unlock previously unrecoverable 'tight' oil and gas from shale formations in North Dakota, Texas, Utah, Pennsylvania and dozens of other hotspots, contributing 5 million additional bpd of oil to the market.

"The incredible rebound by the US energy industry with the shale revolution, made possible by harnessing new production technologies, added 5 million bpd of oil to the market, driving domestic output to levels not seen since the 1970s," Mr. Bigger commented. "No one expected US shale producers to supply roughly 5% of the world's 95.6 million bpd of oil production, least of all OPEC. Saudi Arabia has enjoyed its status as a market maker for over 40 years by virtue of its 10 million bpd of oil production, and the actions of OPEC make it clear that their intention is to bring the US energy industry to its knees, something that doesn't have to happen nor will happen."

Mr. Bigger stressed that even the combined crude oil output by OPEC's members is not a potent enough market force to control, or even cap global prices.

"The market influence of domestic shale producers cannot be put back into the bottle, by OPEC or anyone else," he stated. "The dual forces of enhanced oil recovery technology and available capital to underwrite the continued development of the massive shale formation reserves will be the final arbiter of where crude oil prices settle in the near future and long-term."

He pointed out that the International Energy Agency (IEA), an autonomous global energy policy organisation based in Paris, believes US shale production will function as a pricing regulator on the market once oil returns to the US$60 per barrel level. The bulk of US shale output originates in the Bakken in North Dakota, the Eagle Ford in South Texas and the Permian Basin in West Texas and eastern New Mexico, accounting at times for over 9 million bbls at peak production. Once prices return to levels that allow profitability, the IEA expects US drilling activity to be restored.

In an 'Oil Medium Term Market Report' issued 22 February 2016, the IEA stated: "In 2016, we are living in perhaps the first truly free oil market we have seen since the pioneering days of the industry. In today's oil world, anybody who can produce oil sells as much as possible for whatever price can be achieved. Just a few years ago such a free-for-all would have been unimaginable.

Edited from source by Stephanie Roker

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