Goldman Sachs on oil, OPEC, shale: Could see record non-OPEC production growth in 2018
A research note from Goldman Sachs on Tuesday (in brief and bolding is mine)
- 2017-19 is likely to see the largest increase in mega projects' production in history, as the record 2011-13 capex commitment yields fruit
- OPEC's decision in November 2016 to cut production was rational, in our view, and fit into its role of inventory manager of last resort
- However, the unintended consequence was to underwrite shale activity through a bullish credit market at a time when delayed delivery of the 2011-13 capex boom could lead to record non-OPEC production growth in 2018
And, more from Goldman Sachs on the changing role of OPEC ... from price setter to inventory manager
- In the New Oil Order, we believe OPEC's role has structurally changed from long-term price setter to inventory manager.
- In the past, large-scale developments required seven years+ from FID to peak production, giving OPEC long-term control over oil prices.
- US shale oil currently offers large-scale development opportunities with 6-9 months to peak production. This short-cycle opportunity has structurally changed the cost dynamics, eliminating the need for high cost frontier developments and instigating a competition for capital amongst oil producing countries that is lowering and flattening the cost curve through improved contract terms and taxes.