THE optimism in the oil producing nations as the oil price hovers above $60 a barrel will not last in the absence of any alternative to replace oil.
The belief that oil will once again reach the level of $90 and $100 is not going to happen since the United States is going to surge and become the leading producer of oil and gas surpassing the Ghawar oil field of Saudi Arabia and the Siberia gas field in Russia. It is going to meet more than 80 percent of the total energy needs of the world.
The continuous purge in supply of oil and gas outside the Organization of Petroleum Exporting Countries (OPEC) will continue if the cost of producing a barrel of oil cost less than $60, to compete with the prevailing oil price which is going to be with us for some time to come.
This is provided the current cuts of 1.8 million barrels will remain in force. The intention is there and will be confirmed by OPEC and Russia during a meeting at the end of this month in Vienna. The other challenge is for how long this current cut in oil production will last as the shale oil production continues to grow and eat into OPEC’s market share. Or is it going to slow down to meet the requests of its shareholders for dividends?
Either way, the oil producing countries and us in Kuwait and similarly our neighbors must find alternatives to oil. It’s never too late but we need to have a stable long-term government, as our recent history shows we had six different governments, 5 parliaments in five years. So how can any government accomplish anything in such short time?
The alternative to oil is the solution with our small and young population. We must appeal to our elected members of the Parliament to look for solutions — look for the replacement to oil through their consultants and advisors or look for old papers and recommendations as how to ‘live’ without oil. The oil prices are in a comfortable zone and the current level of $61/$62 will reduce our fiscal deficit by more than 30 percent, but this is not sustainable in the long term.
So no one should expect oil prices to move above the maximum of $70 a barrel, and this is not workable.
The oil producing countries shouldn’t be optimistic and must face the reality that depending on oil is neither an option nor a long term solution.
By Kamel Al-Harami – Independent Oil Analysts