The Organization of Petroleum Exporting Countries will once again become an enemy for US shale if the US Congress passes a law called NOPEC or No Oil Producing and Exporting Cartels Act, Bloomberg said this week citing sources at A meeting between a US government and the US Parliament was attended by senior OPEC officials and US bankers.
The United Arab Emirates Oil Minister, Suhail al-Mazrouei, allegedly told lenders at the meeting that if the bill was legally binding, the group would subject OPEC members to US antitrust rules, which in fact is a cartel, a cartel would indeed break out, and every member would bring production to a maximum.
This would be a repeat of what happened in 201
Bankers who provide the debt financing needed by shale producers are the natural target for opponents of the NOPEC Bill. Banks were burned during the 2014 crisis and are still recovering and gaining confidence in the industry. The purse eases as the WTI level comes closer to $ 60 a barrel, but lenders are well aware that this is largely due to the OPEC action: the cartel is slashing production and the Impact on prices are becoming increasingly clear. Related topics: Pakistan wants to become a natural gas hotspot
If OPEC starts pumping at maximum capacity again without Iran and Venezuela and defaults in Libya continue, this would depress prices especially in the event that Russia participates. Finally, the state oil companies have been annoyed to pump more.
The legislation of NOPEC has little chance of becoming a law. It is not the first attempt by US legislators to hold OPEC accountable for their cartel behavior, and none of the others has subjected it to a law. However, the not-so-subtle threat posed by Al-Mazrouei highlights the weakest point in US shale: the industry's dependence on borrowed money.
The topic was extensively analyzed earlier this month by energy expert Philip Verleger in an oil price story, whereupon it comes down to too much debt. Shale, as formulated by Total's Chief Executive in an interview with Bloomberg in 2018, is very capital intensive. Yields can be appealing when drilling and fraying in a sweet spot in the shale. They can also be improved by making everything more efficient, but in the end, you need a lot of money to continue drilling and fraying, despite all the praise for the decline in production costs in all slate areas.
The fact that many could only receive this money from banks has been highlighted before: The shale oil and gas industry was in a crisis of investor confidence following the 2014 crash, as the only way to do business was to constantly increasing amounts of oil and gas to promote. Shareholder returns were not high on the agenda. This had to change after the crash, and most of the smaller players – the survivors – have to recover completely. Free cash remains a luxury.
Related: The EIA cuts US oil exploration forecasts
The industry is aware of this vulnerability. The American Petroleum Institute has spoken out against NOPEC, almost as vocally as OPEC itself, and Bob Dudley of BP said this week at CERAWeek in Houston that NOPEC "could have serious unintended consequences when it comes to litigation around the world would lead ".
Consequences "is not a sentence that bankers like to hear. Chances are that they will defy the legislation to turn the wheels of slate. In the meantime, the industry may want to look for ways to reduce dependency on borrowed money by limiting production at some point before it is forced to do so.
By Irina Slav for Oilprice.com
More Top Reads from Oilprice.com: