As an oil cartel, the Organization of Petroleum Exporting Countries is a fixture of the world’s energy system – not particularly liked, but begrudgingly accepted. The national oil companies within the sphere of OPEC, with their opaque accounting practices and byzantine corporate structures, monopolize vast reserves of easy oil and repatriate to their home treasuries gargantuan stores of western currency. In an increasingly global, transparent and unconventional energy age, OPEC goes against the grain. The untold mineral riches of its member nations, most of which are Middle Eastern, has given them a sense of confidence – some might say arrogance – that lets them, by and large, ignore energy developments elsewhere in the world and continue on with business as usual.
“If trends persist the [Saudi] kingdom could become a net oil importer ’20 to 30 years down the line,’”
During and immediately following the oil crises of the ‘70s, OPEC was at the height of its geopolitical and geoeconomic influence. The cartel’s extreme power, however, soon showed signs of weakening. In fact, it was precisely the high level of commodity prices stemming from OPEC’s market rigging that actually stimulated highly effective large-scale non-OPEC exploration and production around the world. But while the increased competition from these other supply sources such as Alaska or the North Sea may have bent OPEC, they certainly didn’t break it. Today, another kind of “oil crisis” is underway – not for the West, but for OPEC. And this latest threat has a name: fracking.
Far away from the powers of Middle Eastern sheikhdom, North America has emerged as the promised land for the shale revolution. Investors from around the world, including France, Norway, China and Poland, have been busily acquiring interests in North American companies to get into the game.
Whether in Canada or the U.S., the revolutionaries are petroleum companies who apply directional drilling and hydraulic fracturing to hydrocarbon-soaked source rocks that had hitherto not been targeted because of their extremely low porosity and permeability. In Canada, plays such as the Bakken, the Montney and the Horn River, or latterly emerging ones like the Duvernay, the Muskwa and Exshaw, are delivering impressive production rates. The catch is that these unconventional wells are much more expensive. So wouldn’t rich OPEC national oil companies who need the technology be ideal investors for Canada’s capital-hungry, prospect-rich junior and intermediate oil and gas sectors?
Restrictions on foreign direct investment flows may appear to be the issue, but likely are not. The Canadian government tightened restrictions on foreign investment in the energy sector in early 2013, but the purpose was to restrict state-owned enterprise “acquisitions of control” of oil sands projects. Other unconventional hydrocarbon assets therefore remain fair game for SOEs of all stripes. Canada has kept its doors wide open for investment in shale gas and tight oil plays, but Middle Eastern companies aren’t plying their petro-dollars for Canuck fracking-smarts. What’s going on?
“The letter was couched in assuring language, but an alarmist message shimmered through.”
Last year, Prince Al-Waleed Bin Talal, a high-ranking member of the Saudi royal family, submitted a secret 14-page memorandum to his country’s energy ministry in which he warned about the threat of fracking. The highly oil and gas dependent – that is, the highly undiversified economy of Saudi Arabia – was at risk of being side-swiped by a paradigm shift in petroleum industry practices, especially on the gas side: “In addition to the many discoveries of oil and gas in the U.S., Canada and Australia,” the prince wrote, “there are also great discoveries of shale gas, which will lead to a reduction of consumption of our oil.”