According to the Wall Street Journal, The American energy boom is deepening splits within the Organization of the Petroleum Exporting Countries, threatening to drive a wedge between African and Arab members as OPEC grapples with a revolution in the global oil trade.
OPEC members gathering on Friday in Vienna will confront a disagreement over the impact of rising U.S. shale-oil production, with the most vulnerable countries arguing that the group should prepare for production cuts to prop up prices if they fall any lower.
“We are heading toward some problems,” said a Persian Gulf OPEC delegate.
African OPEC members such as Algeria and Nigeria—which produce oil of similar grade to shale oil—are suffering the worst effects from the North American oil boom. Nigeria Oil Minister Diezani Alison-Madueke deemed U.S. shale oil a “grave concern.”
Gulf countries, notably Saudi Arabia, pass relatively unscathed—and are the only OPEC members with the flexibility to cut production. But they are unlikely to let that happen at Friday’s meeting, several OPEC delegates said.
That would deepen power struggles that have dominated the organization in recent years. Iran, Venezuela and Algeria, who need high oil prices to cover domestic spending and offset falling production, have regularly clashed with Gulf countries led by Saudi Arabia, who have the financial strength to withstand lower prices.
OPEC has overcome past rivalries to rally against an external threat, most notably in 2008 when it agreed to a production cut of more than four million barrels a day to stem a price crash during the financial crisis. But the uneven impact of the North American supply surge makes a collective response—such as a coordinated production cut to support prices—more difficult, said delegates on both sides of the divide.
The U.S. and Canada are set to produce about 21% more oil by 2018 than from this year, according to data from the International Energy Agency.
This marks a historic and largely unexpected reversal. U.S. crude-oil production peaked in 1970 and had declined continuously for more than 20 years when shale oil first began to flow after 2008. U.S. crude production has risen to a 21-year high as hydraulic fracturing, known as fracking, and other technologies have unlocked large resources of oil previously trapped in shale rock in North Dakota and Texas. Shale deposits in other areas, such as Pennsylvania, are yielding mostly natural gas.
OPEC, the source of around one-third of the world’s oil, has clearly been taken aback by the shift in U.S. production. In 2010, the organization forecast U.S. and Canadian oil production of 2014 at 11.8 million barrels a day. Just two years later, that forecast had risen to 14.5 million barrels a day.
Joseph F. Barone