Pavel Zavalniy: the decision to cut oil production is crucial for establishing balance in the global energy sector
Moscow. OPEC has reached an agreement to limit oil production. Starting from January 2017 the cartel members will reduce the total production to 32.5 million barrels a day. Russia, not being an OPEC member, supported the decision and announced the intention to reduce oil production to 300 thousand barrels a day. Pavel Zavalniy, Chairman of the State Duma’s Energy Committee, comments on the news for the Oil and Gas Information Agency:
“This decision is crucial for establishing balance in the global energy sector. Hydrocarbons are investment-consuming commodity. It takes a lot of time and money to produce them. 5-7 years pass between the exploration and the beginning of field development. Field development takes another 3-5 years. All in all, these 10-12 years require extensive investment. During the period of time when the oil price was high, when a barrel cost around $100 in 20129-2014, oil companies sustained a good level of production. However, when the oil price was high, shale oil and gas came into demand. Their production caused an oversupply on the oil market. In 2012 the oversupply reached 2-2.5 million barrels a day. The price dropped literally threefold. In 2015-2016 the global reduction of the oil price caused the reduction of investment into exploration and new fields’ development, that is the balance, which had been disrupted during the dawn of shale hydrocarbons, began to re-establish. However, regulating by means of price is not good for anyone. The longer the period of low oil price lasts, the less investment is made into the oil and gas industry. The decisions taken by OPEC and Russia will provide for the supply and demand balance due to the amount of production, not due to the price. Now the oil price should grow. I’d like to stress here that nobody is talking about $100 a barrel, the producers and consumers should be happy with $55-60 a barrel. This is a balanced price, which will sustain steady and proper investment into the industry, including the investment into exploration. The contracts are signed and they have to be abided by. The limitation in production will come into force around next April. So, the stabilization of the oil price at the level of $55-60 a barrel is possible at the beginning of 2017 the earliest”.