– This is the script of CNBC's news report for China's CCTV on December 2, Wednesday.
Welcome to CNBC Business Daily, I'm Qian Chen.
OPEC's plan to shake up the world oil market may have backfired for now.
Just a year ago, the Organization of the Petroleum Exporting Countries decided to let market forces determine the price of oil, rather than its own production quotas.
Conventional thinking then was that the U.S. oil patch would be littered with bankruptcies, and production would collapse.
As for Russia, the world's largest energy producer would be forced to cut back production by hundreds of thousands of barrels this year due to both the weakness in oil prices and the impact of Western financial sanctions.
But the results have turned out very different. Instead of falling off, production increased from where it was last year, and the world is still swimming in oil. The three biggest producers - Russia, the United States and Saudi Arabia - have in fact been adding more than 1 million barrels a day more to the market in the past year.
To deal with the new reality of persistently cheap oil, Saudi Arabia has been tapping the debt market, issuing bonds for the first time in seven years to help cover budget shortfalls. Analysts say they expect Saudi Arabia to continue issuing debt, and the sense in the kingdom seems to be that it's better policy to issue debt when it can be done, than when it is really needed.
Russia, meanwhile, has surprised the market on several fronts, managing to keep production growing for now even with super-low prices.
"The Russian view is they will pump as much oil as they can all of the time and deal with the financial consequences after," said Chris Weafer, senior founding partner at Eurasia consulting firm Macro-Advisory. "They will never voluntarily cut production or reduce supply in order to manage oil prices.
That is simply not going to happen." As in the U.S., Russia's oil producers have improved efficiency by using new technologies to improve production for some of their old wells. But Russia has been hampered in developing new Arctic, deep-water or shale projects because of the financial sanctions placed on it by the West after it invaded Ukraine.
"They've been forced to deleverage across the board," Weafer said. But because the companies are becoming more efficient, he does not anticipate a big drop in oil production.
But another factor has kicked in as well, and that has proven the key for Russian production. The Russian central bank's policy of letting the ruble float with oil prices has helped keep costs down.
Russia's success with letting its currency devalue seems to be in part behind the speculation that Saudi Arabia and other Gulf producers could seek to de-peg their currencies from the U.S. dollar. But analysts do not see a high likelihood of that for now.
Now, let's take a look at the US. There have been bankruptcies, and indebted companies are expected to increasingly have trouble getting financing.
Unlike other producing countries, the U.S. has no state ownership of oil companies, and the industry is a collection of hundreds of companies large and small that can produce oil at an estimated cost of $30 to $60 per barrel, compared with $10 of Saudi and $20 of Russia.
Citigroup estimates that production costs for shale producers will fall by 25 to 30 percent through 2016 and offshore costs will fall slightly less. But even with cheaper costs and greater efficiency, the industry has been feeling the pinch.
The worst could be ahead for the U.S. industry if oil prices stay low. For one, financing could become a problem, particularly for companies with high-yield or "junk"-rated debt. Analysts say it's becoming clear that some companies did not hedge in the derivatives market against such a steep and long-lasting downturn in oil prices.
"Hedges roll off in Q1. When they get to Q2, they'll have more naked exposure to the oil price. We expect more consolidation in the industry in the U.S. Whether or not it's looked at as a reduction in production, it will be looked at as bullish by the financial markets. We think the combination of the high-yield universe of companies seeing their hedges roll over by Q2 and certainly the redetermination of reserved-based lending in April, producing more of a hit on the financial stability of these companies," Morse said.
As for the future, in a world where prices ultimately stabilize, the big three producers are all seen playing a large role, but perhaps somewhat differently.
CNBC's Qian Chen, reporting from Singapore.
L-A MAY BE A DESERT, BUT IT STILL RAINS ONCE IN A WHILE...AND WHEN IT DOES ALL THAT STORM WATER RUNS OUT INTO THE OCEAN. IT DOESN'T HAVE TO. YOU COULD TRY TO CAPTURE IT.
sot: Deko: David Crawford, Rainwater Management Solutions CEO from :11-:16) you know ten inches doesn't sound like a lot, but if you take it off a million square foot building, it's millions of gallons of water.
DAVID CRAWFORD FOUNDED RAINMWATER MANAGEMENT SOLUTIONS, AN INDUSTRY HE ESTIMATESIS WORTH 100 MILLION DOLLARS BUT GROWING,, FOR ONE THING, THE FEDERAL GOVERNMENT HAS NEW RULES DEMANDING STORMRUNOFF BE CAPTURED AND REUSED TO STOP CONTAMINATION OF GROUNDWATER WITH POLLUTANTS. BUT OUT WEST, EVERYONE FROM INNDIVIDUALS TO CITIES TO BIG COMPANIES NOW SEE IT AS A WAY TO HOLD ON TO THE DELUGE EL NINO MAY BRING.
SOT (me) what's the biggest system you've installed so far? (crawford) probably a six million gallon hospital, million gallon at the gates foundation.
VO#3 IN FRESNO, FOR EXAMPLE, RATHER THAN SPEND BILLIONS AND WAIT YEARS TO BUILD A NEW DAM, THE IRRIGATION DISTRICT IS SPENDING 20 MILLION DOLLARS TO BUILD NEW PONDS TO CAPTURE ELNINO'S RAINS NOW.
STANDUP (Jane Wells, Fresno, CA from 1:00-1:09) when full, this ponding facility will hold about 1000 acre feet of water ,, all of which would trickle into a massive underground aquifer.
VO#4 IN THE PRIVATE SECTOR, SEAGATE TECHNOLOGY HAS INSTALLED A MASSIVE ROOFTOP SYSTEM TO KEEP AS MUCH WATER AS EL NINO WILL BRING, THEN FILTER IT TO USE FOR THE COOLING SYSTEM...OR
NATS: toilet flush
IN COMPANY BATHROOMS.
sot: (DEKO: Steven Deason, Seagate Exec. Dir. Facilities from 1:24-1:32) our real goal was to reduce the demand and have an environment that we could actually sustain our operations for a long period of time.
FOR COMPANIES IN THE BUSINESS OF SELLING THE EQUIPMENT, RAINWATER CATCHMENT IS STILL A SMALL NICHE... BUT GROWING.
SOT: (Deko: Shad Kazerooni, Home Depot Sr. Mgr from 1:39-1:49) over five years we've been doing rain harvest and really developing it, we've carried 50 products online, now we carry over 200 products online.
OF COURSE, WHETHER YOU SPEND 98 BUCKS ON A RAIN BARREL, OR HUNDREDS OF THOUSANDS OF DOLLARS ON A ROOFTOP SYSTEM, TO GET A RETURN ON THAT INVESTMENTIT NEEDS TO RAIN. FOR CNBC BUSINESS NEWS, JANE WELLS, LOS ANGELES