* Big deep water projects vulnerable to low price
* Shale oil adjusts swiftly to price volatility
* Saudi Arabia prepared for long haul on strategy
By Rania El Gamal
DUBAI, Sept 23 (Reuters) - After almost a year of painfully
low oil prices, OPEC members are beginning to believe they are
winning against upstart U.S. shale producers in a short-term
market share contest.
Yet insiders and experts say OPEC is looking for a
longer-lasting impact on other high-cost production oil field
plans, many in deep oceans, with bigger time scales, even if
that means a period of cheap oil prices lasting for years.
Privately, OPEC's core Gulf members say they have resigned
themselves to the idea that the U.S. shale industry's high-tech
flexibility means it will respond quickly when prices start
rising again, making the United States the new swing producer in
world oil, the role held for so long by Saudi Arabia.
ID:nL5N11N1CX
"The oil surplus is slowly being drawn from the market. U.S.
oil production is expected to fall to less than 9 million
barrels per day by the end of this year or early next year,"
said an OPEC delegate from a Gulf oil producer.
"But there is one point that no one is looking at which is
the delay in the longer-term oil projects, these are 4-5 year
projects. The postponement of these projects will impact the
overall supply in the market."
The short investment cycle of U.S. shale, where it takes
about few months before returns are seen, make it the most
sensitive to oil price fluctuation -- either way.
Thus the spike in oil prices in June where U.S. crude CLc1
was trading above $60 a barrel drew out more shale output but
the price drop in August will reverse that, OPEC sources say.
And even if rising prices pushed supplies up again, in the
long run, higher production from shale is expected to be offset
by lower production from conventional high-cost offshore
projects from countries such as Brazil and Mexico, the sources
say.
"Shale will be a new swing producer of sorts," said Yasser
Elguindi of economic consultants Medley Global Advisors.
"Because of its shorter investment cycle, when prices fall shale
producers will be the ones to cut first, but likewise when
prices go up, they will also be the first to bring up
production.
"This complicates life for those who are looking at
investments that have a 2-5 year investment horizon. But again,
the idea is to find the price level that slows down the rate of
growth considerably to something more sustainable -- and that
takes more than 2 to 3 quarters of lower oil prices."
BIG PROJECTS IN DEEP WATER
The drop in oil prices has forced companies to free up
capital to help balance their books at the expense of allocating
cash to expensive new projects. In some cases, investment
decisions have been delayed to allow more time to reset cost
structures on projects. ID:nL5N10G2W1
Companies such as BP BP.L , Total TOTF.PA and Norway's
Statoil STL.OL have postponed projects ranging from the Gulf
of Mexico to the UK North Sea, Nigeria and Indonesia and dozens
of other projects would be also likely delayed, according to
Norwegian consultancy Rystad Energy.
Consultancy Wood Mackenzie estimated around 10.6 billion
barrels of oil equivalent potentially retrievable from deep and
ultra-deep offshore projects has been deferred, followed by 5.6
billion barrels trapped in oil sands.
"We've slowed the pace in deep water." Ben Van Buerden,
chief executive of Royal Dutch Shell's RDSa.L , said in
January.
Global deepwater production reached 8.8 million barrels per
day in 2014, almost 10 percent of global demand.
Gulf oil sources believe that low oil prices have so far
been successful in stimulating demand for crude and will
gradually impact the oversupply which will start to be more
visible towards 2016 and beyond, a sign that Saudi Arabia's new
market share strategy was working.
In its new medium-term forecast, OPEC sees oil prices rising
by no more than $5 a barrel a year to reach $80 by 2020, with
higher demand for the group's oil and lower supplies from other
non-OPEC producers. ID:nL5N11N49W
Though the demand for OPEC is higher than expected before,
it is almost flat from current levels, suggesting that OPEC sees
slow economic growth over the next couple of years and oil
prices will remain depressed, OPEC sources say.
"Next year the oversupply will put pressure on prices, and
that's why no one is expecting $100 (a barrel) till 2040," said
one OPEC source.
Saudi Arabia is holding the line regardless of how low
prices may fall and is in it for the long haul, oil sources and
analysts say.
"Remember what the Saudi oil minister said last year, even
if prices fell to $20, OPEC will not cut," said one Gulf oil
source.