US shale boom to have 'minimal' impact on Gulf - S&P

New S&P report plays down fears voiced by Saudi billionaire businessman Prince Alwaleed Bin Talal
(For illustrative purposes only)
By Andy Sambidge
Sat 23 Nov 2013 10:40 AM

The effects on oil and gas producers in the GCC of surging shale oil and gas production in North America are minimal at present, according to a new report by Standard & Poor's Ratings Services.

However S&P added that the shale boom could impact the oil price in an extreme medium- to long-term extreme scenario.

Under this scenario, shale oil supplies increase substantially from the US and sufficient infrastructure would be in place to render shale oil exports competitive with GCC oil exports, S&P said.

"Notwithstanding the potential consequences of shale oil production in North America on the level of oil imports, we consider there to be limited effect on rated GCC oil producers at present," said Standard & Poor's credit analyst Karim Nassif.

"This, in part, reflects GCC-based producers' ability to redirect their oil exports, as well as the fact that many of them export heavier crudes that are not currently being displaced by shale volumes.

"The more immediate effects of US shale production, in our view, center on GCC-based natural gas producers." For now, diverting Gulf oil and gas exports originally destined for the US to Asia and the Far East has proved effective.

"The more immediate effects of US shale production, in our view, center on GCC-based natural gas producers."

He said diverting Gulf oil and gas exports originally destined for the US to Asia and the Far East has so far proved effective.

But he added that GCC-based oil and gas incumbents recognise that more substantive and innovative strategic plans are needed over the longer term

The report follows comments made earlier this week by Saudi billionaire businessman Prince Alwaleed Bin Talal who claimed the increased shale output in the west poses a real threat to the kingdom’s economic stability.

Speaking to Canada’s The Globe and Mail newspaper, the prince said new shale oil discoveries “are threats to any oil-producing country in the world” and the kingdom urgently needed to urgently diversify its economic output in order to guarantee its long-term stability.

“It is a pivot moment for any oil-producing country that has not diversified,” he was quoted as saying. “Ninety two percent of Saudi Arabia’s annual budget comes from oil. Definitely it is a worry and a concern.”

However, his concerns have fallen on deaf ears as the kingdom’s deputy oil minister on Wednesday said the Riyadh government remains unconcerned by surging US shale output, which threatens to eat into OPEC's market share, and sees no need to cut production to support prices.

"I think that the world economic growth will be sufficient to handle growth from all sorts - shale oil, shale gas, tight oil and including renewable," Prince Abdulaziz Bin Salman Bin Abdulaziz told a conference in Dubai.

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