Low oil prices is an issue for global oil diversification as it leads to countries' dependency on a single oil producing region, Fatih Birol, the executive director of International Energy Agency (IEA) said Thursday.
'If the price [of oil] remains at $50 per barrel for 10 years, this is good for oil consuming countries. This provides economic benefits to oil importing countries like Turkey,' Birol said, speaking at the seventh annual Atlantic Council's Energy and Economic Summit in Istanbul.
Birol said low oil prices could lead to a decline in projects in many high-cost oil production regions in the U.S., Russia and Brazil, since such projects would not be profitable.
'Then, our reliance on some major [oil producing] countries would increase,' he said, pointing to Arab nations.
'The Middle East is now, and will be, the major oil supplying region in the world,' he added.
Birol argued that if low oil prices continue, Middle Eastern countries' total share in global oil supply could jump from the current 50 percent to 75 percent in the next decade.
'So, from a security of supply point of view, $50 per barrel is a problem for global oil diversification,' he said.
Amos Hochstein, special envoy and coordinator for International Energy Affairs at the U.S. Department of State talked about OPEC's strategy in the current low price environment and its effects on the domestic oil output in the U.S.
'Wherever I went around the world, I heard from analysts about not 'if' but 'when' OPEC countries will cut production. That has not happened, and, in fact, some OPEC countries increased [their] production,' he said.
OPEC has not cut its production in its last two biannual meetings during last year, and the cartel is unlikely to do so in its next meeting on Dec. 4. But, the long-term Saudi strategy has worked until now, which is to keep prices low for a long-period of time, so that the high-cost producers in the U.S. will make less profits, lower their investments and decrease their oil output.
However, Hochstein was optimistic about U.S. oil producers, and their rapid reaction to low oil prices.
'Cost of production is lower than what it was before in the U.S. The producers are able to react more quickly [to low prices], compared to a year ago,' he explained.
'The U.S. market is far more resilient as a result of efficiency rates going up. Most efficient [oil] projects will be developed,' he added.
- Sanctions on Iran and oil exports
Hochstein also spoke about the possibility of Iran increasing its oil exports in the post-sanctions era.
'Iran is already in the oil market today. Once Iran fulfills its commitments on JCPOA [the nuclear deal], we will lift the sanctions. Their crude exports will rise,' he said.
However, Hochstein stressed that Iran's return to the oil market comes at an unfavorable time.
'When you look at the price environment we are in, Iran is clearly entering the market in a difficult position,' he said.
Birol reminded that Iran, which has huge oil and natural gas reserves, has 'strong decline rates' in its oil and gas wells.
'Iran will need substantial investment and technology to return to the market. Big increases in their oil and gas production depends on that,' he said.
'If sanctions are lifted, Iran can increase its oil production by 500,000 barrels per day from its existing fields within six months,' he added.
By Ovunc Kutlu
Anadolu Agency
ovunc.kutlu@aa.com.tr