Kodiak Oil & Gas Corp (USA) (KOG), Chesapeake Energy Corporation (CHK): Is This the Biggest Threat to OPEC?

Last month, it reduced its forecast of demand for its crude oil this year by 100,000 barrels per day to 29.7 million barrels a day, citing growth in U.S. shale production as a major factor underlying the downward revision. If the new forecast turns out to be accurate, demand for OPEC crude would be 350,000 barrels a day below the 30.1 million barrel-a-day level that it was last year.

According to estimates by The Wall Street Journal based on historical data and OPEC’s forecasts, the organization would supply 33.1% of expected global oil demand this year, down from 35% last year. That would represent OPEC’s lowest share of the global oil market in more than a decade.

Less reliance on OPEC supplies
Already, the shale oil boom has dramatically reduced U.S. oil refiners’ demand for OPEC oil, as infrastructure improvements have allowed access to growing quantities of oil produced in major domestic oil plays.

For instance, Nigeria — OPEC’s most important African member — has seen its exports to the U.S. fall by almost half between 2011 and 2012, as refiners have substituted Nigerian light sweet crude oil with domestic supplies.

Final thoughts
Though OPEC’s influence on the world oil market certainly appears to be diminishing, there are some important caveats to consider.

For instance, though shale wells have produced copious quantities of oil and gas in their first few years, some experts argue that production from these wells will decline much faster than production from conventional wells.

According to a report by J. David Hughes of the Post Carbon Institute, shale oil wells decline so quickly, in fact, that more than 6,000 wells are required to be brought online each year just to maintain a flat level of production.

Moreover, shale production is plagued by exorbitantly high production costs and requires sustained high oil prices to remain profitable. Hence, a combination of falling global oil demand and sharp decline rates could lead up to a sharp reduction in shale oil drilling, thereby lowering non-OPEC supply growth and allowing OPEC to reaffirm its dominance in the global oil market.

The article Is This the Biggest Threat to OPEC? originally appeared on Fool.com is written by Arjun Sreekumar .

Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool has options on Chesapeake Energy.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.