Saudi Arabia's oil minister told a crowd of U.S. oil executives in Texas on Tuesday exactly what they were afraid of hearing: that OPEC is more than happy to ride out cheap crude prices until higher-cost producers are pushed out of the market.
Ali al-Naimi, the man in charge of managing Saudi Arabia's vast crude oil industry, made the comments in a hotly anticipated speech at the IHS Ceraweek energy conference in Houston on Tuesday.
It was standing room only this morning as hundreds of energy executives, researchers and analysts came to hear what one of OPEC's most powerful voices had to say.
The speech was translated into Russian and Chinese, there were people from dozens of countries on hand, and they all had one key thing in common, their lives have been turned upside down by the man on the stage.
'Inefficient, uneconomic producers will have to get out, that is tough to say, but that's a fact.' - Ali Al-Naimi, Saudi oil minister
To be clear, the oil supply glut was not caused by Saudi Arabia, but by high prices that caused "every barrel on Earth" to be produced, according to Al-Naimi. That oversupply through the summer of 2014, led to a meeting between OPEC and non-OPEC producers.
"We met with non-OPEC producers, we asked 'what are you going to do?' They said nothing. We said the meeting is over."
It was after that meeting that Al-Naimi said he made his decision that Saudi would not cut its production to balance the market, walking away from the role it has traditionally played.
"We're going to let everybody compete."
That has turned out to be a brutal reckoning for Alberta, and Canada, as well as other oil producing nations. There is as much talk of layoffs in Houston as there is in Calgary.
High-cost producers need to get out
If there was a theme to the speech, it was that high-cost producers don't have much of a future.
"Inefficient, uneconomic producers will have to get out, that is tough to say, but that's fact," said Al-Naimi after the speech, in an on-stage interview with author Daniel Yergin.
Al-Naimi wasn't specifically speaking of Canada with that comment, but said earlier in the speech that $100 oil had unleashed investments in what were previously uneconomic oil fields such as the Canadian oilsands.
Al-Naimi said that he would prefer it if oil didn't continue to trade at the $20 level, but that he could live with it.
The Canadian question
"I cannot run my business or make investments based on something that OPEC may or may not do," said Brian Ferguson, chief executive of oilsands producer Cenovus.
"We are very focused at Cenovus on being one of the very lowest cost oil producers in North America," pointing out that costs came down 30 per cent in its oilsands operations in 2015.
Cenovus is one of the most efficient oilsands producers — there are many dealing with higher costs.
"The least efficient, the highest cost producers are going to struggle in a world when we do have abundance," said Kevin Birn, director of Canadian oilsands dialogue with IHS.
"It's going to be many years before we have prices as high as they were in 2014, so in that reality, you have producers that have to become efficient."
What about the freeze?
Al-Naimi was also asked about last week's announcement that Saudi, Russia, Venezuela, and Qatar has frozen production.
"There is a common sense and there is a need for more money, and I think those two things will cause maybe not all of the countries, but most of the countries that count to freeze."
Al-Naimi said that one meeting had been held, and that emissaries were sent to other countries and that he was hoping for another meeting in March.
But he said that there will be no cuts.
"Cutting low cost production to subsidize higher cost supplies only delays an inevitable reckoning."