Winton Dong

    dht620@sina.com

    THE Organization of the Petroleum Exporting Countries (OPEC) recently held a meeting in Vienna and agreed to cut its oil supplies by 1.2 million barrels per day starting from Jan. 1.

    It is the first such joint effort by the organization since 2008 to push up sluggish oil prices. Some non-OPEC oil exporting countries such as Russia also joined rank to cut supplies.

    The price of international crude oil was once very high, reaching US$147 a barrel in July 2008. It drastically dipped below US$30 a barrel at the beginning of last year, and has risen to around US$52 a barrel recently. According to insiders, oil producers’ unanimous announcement to cut supply will surely give a further boost to oil prices.

    However, analysts also express doubt about the sustainability of the supply cut policy. “Although it still produces about one-third of global oil, the influence of OPEC in the global energy landscape is weakening,” said Liu Ligang, chief China economist of Citi Group.

    Moreover, reduction of oil supply is itself a double-edged sword. On one hand, it can increase oil prices for the time being; on the other hand, it will also lower the income and severely hurt the economies of those countries which rely heavily on oil exports.

    From my point of view, international oil price fluctuations in recent years has taught every country, no matter oil exporters or oil importers, a good lesson. That is we cannot put all the eggs in one basket. For oil exporters, they need a more balanced economy other than relying solely on oil production. For oil importers, they need more diversified energy sources other than depending heavily on oil imports.

    For many years now, Saudi Arabia has been a rich and enviable country in the world just because of its abundant oil reserves. According to statistics, as one of the world’s major oil producers, earnings from oil exports accounted for 72 percent of the country’s fiscal revenue in 2015. Heavy dependence on the oil industry makes Saudi Arabia sensitive and even vulnerable to international oil price fluctuations. It is estimated that the country’s fiscal deficit was as high as US$87 billion in 2016 due to the downturn of international oil prices. Based on the recent OPEC agreement in Vienna, Saudi Arabia has agreed to cut its daily supply by 486,000 barrels a day from the beginning of 2017, more than 40 percent of the organization’s total reduction. Such a move will surely further weaken the country’s already fragile economy.

    As the world’s biggest oil consumer, the United States has been looking ahead and trying its best to find shale gas and other forms of energy as oil substitutes. Shale gas is a kind of natural gas that is found trapped within shale formations. It has become an increasingly important energy source in the U.S. since the start of this century. In 2000, shale gas provided only 1 percent of U.S. natural gas production. By 2010 it was over 20 percent and the U.S. Energy Information Administration predicts that by 2035, 46 percent of the country’s natural gas supply will come from shale gas.

    Shale gas exploitation will not only help lower the price of petroleum in the United States, but also solve the oil shortage problem in the country. Meanwhile, as oil prices rise, more international consumers will turn to other substitute products. Instead of buying oil from the Middle East, more and more oil importers, especially EU member nations and other U.S. allies, will shift to U.S. shale gas in the near future.

    China is also a big oil consumer and importer. If international oil prices continue to rise, China’s industries especially the transportation and chemical sectors will suffer a heavy blow. However, the overall influence of OPEC cuts on the Chinese economy will be limited since oil accounts for only 18 percent of its primary energy use at present.

    Coal is still the main source of energy for the Chinese economy. As we all know, the burning of coal seriously pollutes the environment and causes smoggy weather. To curb serious environmental pollution and upgrade its industrial transformation, China can also learn from the U.S. and quicken the development of shale gas and other cleaner energy sources. According to a recent Reuters report, China has about 134 trillion cubic meters of shale gas in its reserves, accounting for more than 20 percent of the world’s total.

    (The author is the editor-in-chief of the Shenzhen Daily and guest professor of Shenzhen University with a Ph.D. from the Journalism and Communication School of Wuhan University.)