Iraq Closes In On 5 Million BPD Output As Canada Eyes It Own Shale Revolution

Developments in Canada suggest that the crude market could be swamped again soon. File Image / Pixabay

Removing contractual restrictions on its crude is allowing Iraq to earn a premium on the oil's official selling price, and in the grander scale of things it illustrates the lengths even hard-line producing nations are willing to go in a global market that is quickly becoming fiercely competitive.

But if the prognostications of Wood Mackenzie and other analysts prove true, that market will soon become even more ferocious: not because of U.S. shale, although concerns over American production are as acute as ever; instead, Canadian producers increasing their exploration activities in the Duvernay and Montney formations of Alberta could result in a huge new frontier for the shale sector.

Nevyn Nah, an analyst at industry consultant Energy Aspects Ltd., said Iraq's state-owned marketing company SOMO allowing buyers to load its crude without saying where the cargo will end up has encouraged buyers "to pay a premium for cargo optionalities, which in this case lets them lock in its destination later, allowing them to swing shipments east or west and take advantage of arbitrage opportunities."

Bloomberg noted that the strategy, which enabled two shipments loading in March to fetch a premium at auction on the Dubai Mercantile Exchange, "is another example of how Middle Eastern producers are reconsidering the way they price and sell their crude amid a global glut and competing supply from the U.S. to Africa."

In addition to Iraq breaking from tradition in its determination to get the best price for its crude, Jabar al-Luaibi, the country's oil minister, told a Chatham House conference in London that it is equally determined "that we will reach 5 million barrels per day (bpd) export capacity by the end of this year", thanks to a plan to more than double production from the northern Kirkuk oilfields with the help of BP.

Currently Iraq is pumping about 4.36 million bpd, but Luaibi assured his audience that this does not mean it will run afoul of the Organization of the Petroleum Exporting Countries' (OPEC) cutback efforts: "Iraq has made it clear at every time and every event that Iraq will comply with OPEC declarations in good spirit, genuine spirit."

Still, with so many countries either vowing or hoping to boost production rates, the market in 2018 and beyond is looking cluttered, and Wood Mackenzie points out that Canada's current shale output of about 335,000 bpd should grow to 420,000 bpd in a decade.

Moreover, the Canadian Association of Petroleum Producers believes the pace of output growth could quicken and the estimated size of the resources could rise as activity picks up and knowledge of the Duvernay and Montney fields improves.

Chevron Corp, Royal Dutch Shell, and ConocoPhillips are among the players maneuvering to develop the fields, and Shell will reportedly invest more money this year in the Duvernay than any other shale field except the Permian Basin in West Texas.

Mark Salkeld, president of the Petroleum Services Association of Canada, said of these developments, "The potential is absolutely huge; the only thing holding us back is access to market and the cost."

Although U.S. shale has become the scapegoat for analysts worried about overproduction leading to another global glut, Reuters recently pointed out that a host of countries are paying lip service to the OPEC cutbacks while preparing to boost their own capacities, and it singled out Russia as a chief offender in this regard, whose production continued to grow last year with average daily output at a 30-year high of 10.98 million bpd.