Global Investing Hot Spots

The 'sweet spots' fueling the US shale oil boom 'will not last forever,' Saudi Aramco CEO says

Key Points
  • Saudi Aramco's CEO says he does not worry about the booming U.S. shale oil output.
  • The "sweet spots" that American frackers are focusing on will eventually deplete, forcing them to tap less lucrative acreage, Amin Nasser says.
Saudi Aramco CEO: Shale boom has 'barely offset demand'

Saudi Aramco's Amin Nasser, CEO of the world's largest oil company, says he does not spend much time worrying about booming production from U.S. shale fields.

One reason, says Nasser, is that shale drillers will eventually deplete the low-cost, high-quality "sweet spots" they've focused on throughout much of the three-year oil price downturn. American energy companies have driven down the cost of producing a barrel of crude, staved off bankruptcy and prevented output declines by tapping their best oil fields first.

"The concentration that we are seeing today is on the sweet spot of shale, and this will not last forever," Nasser said in an exclusive interview on CNBC's "Squawk Box."

"You can concentrate for some time on the sweet spots and produce more oil. But ultimately you need to venture downward, and that's where you have less quality and you require more cost to produce these barrels," Nasser said Sunday from the command center at Saudi Aramco headquarters in Dhahran.

Shale oil will contribute additional barrels, but it will all depend on the price of crude.
Amin Nasser
Saudi Aramco CEO

American drillers use expensive advanced methods like hydraulic fracturing to free oil and natural gas from underground shale formations.

A surge in U.S. shale production is one of several factors that has frustrated the Saudi-led effort to drain the world's stockpiles of excess crude. OPEC and several other exporting nations, including Russia, have agreed to keep 1.8 million barrels a day off the market in a bid to boost oil prices.

The cost of U.S. crude rose to about $55 a barrel in January after OPEC struck the deal in December, allowing more frackers to break even on production from new wells. U.S. output has grown by 467,000 barrels a day this year through July, the last month for which final data were available.

While Saudi Arabia is cutting its oil exports, U.S. shipments have filled in the gap and surged to record highs.

Nasser said the market can absorb the bump in U.S. output, given the International Energy Agency's forecast that global oil demand will grow by 1.6 million barrels a day in 2017. Production from the world's existing wells also declines by about 5 percent, or roughly 5 million barrels a day, he added.

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Further, the recovery in U.S. drilling activity has stalled recently, Nasser notes. The number of oil rigs operating in U.S. fields rebounded to a total of 768 in August. The count has since ticked down to 736, as U.S. crude prices consolidate at about $52 a barrel.

"Shale oil will contribute additional barrels, but it will all depend on the price of crude," Nasser said.

As for Saudi Aramco's influence on oil prices, Nasser said the market — and not his company — will determine the price of oil.

"Even the production currently is dictated by the Ministry of Energy rather than Aramco," he said.

"When there is an agreement within OPEC, we will adhere to whatever the ministry asks for. But whatever is put on the market, in terms of supply-demand balances, will dictate the price."

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