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Three Reasons Why US Shale Isn’t Going Anywhere

Three Reasons Why US Shale Isn’t Going Anywhere

Have you ever noticed that during extreme economic cycles, when trends are roaring on the upside, or conversely crashing back down to earth, there often appears an air of extremism in news headlines? Take America’s most recent shale oil boom, and bust, for example. On the way up, you may have seen – Why OPEC Could Be Dead in 10 Years. Conversely, now you may have read, Why It Might Be ‘Game Over For The Fracking Boom’.

In the end, the answer lies somewhere in-between. OPEC, although often plagued with internal discord, will still remain the global defacto 900-pound gorilla of crude, and US producers will continue to find ways to crack shale rock cheaper and more efficiently, immunizing themselves to nail-biting commodity roller coaster dips like what was just experienced. And in 2008 (-55%). And in 2001 (-32%). And in 1998 (-38%)….

BP, in its recently-released “Energy Outlook 2035”, predicts OPEC’s market share will return to approximately 40 percent of global demand within 15 years, up from 33 percent today, which is what all this fuss is about anyway. Related: No Real Oil Price Relief Until Q3

Here are 3 reasons why America’s shale will continue to produce going forward:

1. Oil companies, both large and small, have seen what is possible.

In 2004, Texas oilman George Mitchell made hydraulic fracture stimulation commercially viable by unlocking the right combination of water pressure and lubricants to allow oil and gas to predictably flow from dense shale to the wellbore. A decade ago, producers believed shale held vast oil and gas resources, but to what extent they could be developed had not been determined. Until now.

Last year for example, the Energy Information Administration (EIA) announced there could be up to 75 billion additional barrels of oil in the Permian Basin, a field believed to be mostly dried up. The EIA also forecast over 100 years of natural gas supply from shale resources, mostly flowing from the vast Marcellus and Utica formations in the Northeast.

One of the biggest reasons America’s shale revolution will continue is producers have seen the potential. As with any industry, technology should drive cost down, and drillers and producers are both mutually highly incentivized to find cheaper, faster, better ways of extraction.

2. Eventually, politicians might “Get It”.

The shale oil revolution that peaked in 2014 occurred mostly in spite of Washington, D.C., not because of it. With Capitol Hill and the White House mired in political gridlock for most of the last 6 years, oil and gas producers were thus free to explore, develop, and prove the concept that shale development was indeed commercially viable. Related: Could Oil Prices Plummet A Second Time?

In a perfect scenario, the next phase would involve political leadership who comprehends the benefit of an alliance between Canada, Mexico and the United States, creating a formidable energy superpower, ultimately likely leading to North American energy independence from any imported oil.

3. In spite of the current dip, global demand points up

BP and ExxonMobil, in their long-range forecasts, both allude to the same conclusion - the macro trend for oil consumption worldwide is up. BP predicts a 41 percent increase in demand over the next 20 years, with China and India accounting for half the growth.

ExxonMobil concurs. Basing their forecast on a continued population explosion to 9 billion people by 2040, Exxon theorizes GDP will grow parabolically, and in spite of energy efficiencies that will certainly be realized along the way, demand for all forms of energy will continue to increase. In their Outlook for Energy: A View to 2040, Exxon confirms the “all of the above” theory to meet global demand.

Thomas Hood, English poet, author and humorist was quoted to say, “Extremes meet, as the whiting said, with its tail in its mouth.” Oil producers have work to do. They must reduce costs, continue to solve environmental concerns over extraction techniques, and scale efficiencies. This bust has offered plenty of incentive to accelerate that. But there is still an abundance of oil and gas to be extracted, with ample incentive to figure out the most efficient ways to develop it.

By Thomas Miller for Oilprice.com

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  • Nobody on March 05 2015 said:
    What a BS article!

    It doesn't show any real numbers on the costs per rig, the average production profile data for Eagle Ford, for example, etc., etc.

    Us Peak Oilers knew this day would come. It just came faster than even we predicted, based on the financialization of these shale plays, since below $90.00 / bbl, there is no way they can profit, on a cash-flow basis.

    It's no wonder the Saudis wanted to shake out the market. You'd be pissed too if your competitor was allowed to squeeze you out of a market, just because somebody kept lending them money, as they continued to produce said product at a loss.
  • gman on March 05 2015 said:
    the problem isn't a lack of oil - it's everywhere - the problem is the cost of obtaining it. the economies of the world have all the petroleum they could ever need for a thousand years - if they pay $100, $200, $1000/bar. can they? would they? that is the issue.
  • oil expert on March 05 2015 said:
    Basics 101 - How to create an oil bubble.
    ----------------------------------------------------------

    - STEP 1: As per EIA, U.S. commercial crude oil inventories increased by 10.3 million barrels. -> Ignore it , its bullish

    - STEP 2:Stocks at cushing, OK rose only 500k barrels. It looks like people are deliberately using other storage instead of Cushing because they know prices will drop like a rock for any other build up there. -> Ignore it , its bullish

    - STEP 3:As per AIP only 2 million inventory was reported to them. they rely on voluntary reports to them. -> Ignore it , its bullish

    - STEP 4:Saudi are raising prices just to appease their weaker OPEC members. -> Ignore it , its bullish

    - STEP 5:Traders knows everything but playing in the direction of prices to make profits. -> Ignore it , its bullish

    And your new bubble is ready ... enjoy it.

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