Why a Production Freeze Is Fruitless without Saudi Arabia

Neil Atkinson, head of the International Energy Agency’s oil industry and markets division, indicated that production freeze talks are “worthless” as far as crude oil prices are concerned. He pointed out that Saudi Arabia is the only country that can increase its output. Other countries that are willing to participate in the production freeze talks are already operating at maximum capacity.

According to data compiled by Rystad Energy in September 2015, the cost of production per barrel of crude oil is $17.20 in Russia—compared to $9.90 in Saudi Arabia. The cost only includes operational and capital expenditure.

Other oil exporting countries like Iran and Iraq have break-even costs of $12.60 and $10.60. Kuwait has the lowest production cost of ~$8.50. It takes a break-even cost of $12.30 in the United Arab Emirates to produce one barrel of crude. The above chart shows the break-even cost for different countries.

The data suggest that the cost to produce a barrel of crude oil in the US (SPY) is $36.20. In Canada, it costs $41 to produce a barrel of crude oil. Imperial Oil (IMO) and Suncor Energy (SU) are Canada-based integrated oil and gas companies. ExxonMobil (XOM) is a US-based integrated oil and gas company.

Saudi Arabia accounts for 15.7% of the world’s total crude oil reserves. Venezuela accounted for 17.5% of the world’s total proved crude oil reserves in 2014 according to BP’s (BP) statistical survey. In non-OPEC countries, Russia (RSX) accounts for 6.1% of the world’s total crude oil reserves. However, there are other reserves in the Arctic Circle. This could increase its share in the total crude oil reserves.