Don't the non-Opec producers, eg in North Sea, Alaska, Canada hv enuf oil to counteract supply cuts by Opec?

Question

It seems that, w/ Kuwait & Iraq possibly excludible, OPEC now has less margin to play with in decreasing total production; most members won't reduce production below a certain ceiling, or else imperil their "minimum projected income" despite increased prices. In case of OPEC supply reduction, can't producers like Britain, Ireland, Norway, Canada, Alaska & perhaps even Russia get together as a counter-consortium to take up the slack (if Iraq & Kuwait are removed from equation) ?

Answer 1

The non OPEC countries have very little spare capacity. In the long term, development of the Canadian oil sands could increase supply at a higher price, but the production facilities are not now in place.
http://www.cattlenetwork.com/content.asp?contentid=128060
"The growth in global oil consumption from 2006 through 2008 is expected to be roughly double the growth in non-OPEC oil supplies. Non-OPEC production (excluding Angola) is expected to grow by roughly 0.8 million bbl/d in both 2007 and 2008. Output growth from non-OPEC countries reflects strong gains from new projects in the Caspian Sea, Sakhalin Island in far-eastern Russia, Africa, Brazil, and the United States. However, declining production from mature basins in the North Sea, the Middle East, Mexico, and Russia will offset the growth potential from these new projects."

Answer 2

Though OPEC does have a lot of power in terms of their share of the oil market, oil price is still set in a world market (taking into account all producers, not just OPEC). Having these other producers create a consortium would solve little. It would not give to them any bargaining power (at least of any use), and OPEC would still be able to cut supply for whatever reason they desire.

There is a few reasons that OPEC isn't doing anything silly any time soon of course, chief among them that many of the countries depend on their oil revenues exclusively for their economies. Yes they would restrict supply and drive up price, but there are diminishing returns to that. The world does need it's oil, but if you cut your supply too much, the higher price doesn't offset the fact they lose units sold. Think the extreme, they cut production to zero, it doesn't matter how high the price goes, they make nothing (and as soon as they re-enter, the price would fall again).

Oil prices are rising more these days from increased demand world-wide than any lack of supply from OPEC - with China being the driving force there. I am no fan of OPEC but you can't really fault them for their supply controls at the current time. And even if they did increase supply and drive down the price a bit, refinery capacity (at least in the U.S.) is pretty much at max anyway, so it wouldn't affect gas prices too much anyway (same demand for same supply of the refined product).

Answer 3

Hello,

The problem is that the countries you do mention have even more oil reserves than the middle east; even the Athabaska Tar Sands in Westen Canada has more oil than Saudi or Iraq.
The only catch is that the cost of producing a barrel is about 4x more than what it costs in the middle east. Last I checked Saudi could do it for about 4 dollars a barrel and Athabaska about 25.00 a barrel. Offshore costs far exceed those in the middle east for production also, Thus in a military pinch we are all self sufficient if need be but in global economic terms the OPEC could drastically lower their prices, still make good profits and put us out of business unless we are willing to pay the high prices.

Michael Kelly