OPEC faces significant challenges ahead

OPEC has reached a crossroads in developing a vision, mission, goals and tools into a more flexible and sustainable growth-based organization in the global energy market.
The 12 OPEC oil ministers decided last Thursday to keep a production target of 30 million barrels a day until next December. However, it faces significant challenges in the future to retain a strong grasp over the pricing oil system in the global energy market.
Saudi Arabia continues to demonstrate its power as the “swing producer” with its huge reserves, production and relatively high spare capacity of production within the organization. But changes in the global energy market with efforts from some countries to seek alternatives energy sources require some new strategies.
The most important development is the revolution in methods of producing oil and gas from unconventional energy sources such as “hydraulic fracturing” of shale, tar sands and rock oil.
These developments took place mainly in North America where Canada is now an oil exporting country and the United States is self-sufficient in natural gas. The US hopes to be self-sufficient in oil by 2025, according to ConocoPhillips CEO Ryan Lance in his speech before an audience of OPEC ministers last Wednesday.
Yet Andrew Callus, a reporter of Reuters, reported that OPEC oil producers are not worried about the shale revolution.
According to Reuters, the OPEC ministers expressed a relaxed view of the challenges that shale oil might pose. This view is held despite the fact that “that the US was the fastest-growing non-OPEC oil producer in 2011 for the third year” in a row, according to the annual BP statistical review released on Wednesday.
US oil production is up 1 million bpd since 2006 to 7.84 million bpd, consumption is down 1.85 million to 18.84 million, according to the review.
In fact, the “shale revolution” in North America poses not only significant challenges for OPEC position in the energy market, but domestic demand of OPEC members and non-OPEC producers supply also pose challenges that require attention.
The domestic demand within OPEC member countries is increasing due to higher rates of growth rates of population and acceleration of transformation toward industrialization, especially in Saudi Arabia. Even if some policy measures and substitutes of oil, such as natural gas and solar energy, are implemented to maintain the balance between exported and locally consumed crude, the spare capacity of production of the organization is going to be negatively affected. Hence, OPEC could lose its upper hand in making pricing decisions in the energy market.
The other challenge facing OPEC is the increasing exports of oil from countries that are not members of the organization. Non-OPEC oil supply is estimated by OPEC most recent monthly report to have averaged 52.40 mbpd in 2011, an increase of 90 tb/d over the previous year while the growth of the same group is projected at 0.7 mbpd in 2012, following an upward revision of 30 tb/d from the last report and supported by strong anticipated growth from the US. On a quarterly basis, non-OPEC supply in 2011 is estimated to have averaged 52.71 mbpd, 51.97 mbpd, 52.04 mbpd and 52.88 mbpd respectively.
The changes in the global energy market are real and the 52-years-old organization has reached a crossroads in its approach to the energy market.
OPEC has the ability to expand as larger international organization similar to, and cooperating with, the Organization of Cooperation and Economic Development (OECD) rather than minimize the future impact of oil shale in the global energy market.

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