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Following the Shale Gale

Reduced costs mean tight oil is now the second cheapest source of new oil volumes globally.
This article appeared in June, 2019

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Following the Shale Gale

A drill rig in the Fayetteville shale gas play, Arkansas. © Bill Cunningham, USGS. We all know about the revolution in oil and gas production in the United States that has come from extracting hydrocarbons from shale, and the resulting upheavals in the markets for these commodities. In 2018 US oil production showed the biggest yearly increase in output since records began in 1859 and America has moved from being a net importer to an exporter of energy. From being one of the most expensive sources of new oil in 2015, Rystad Energy say that reduced costs mean tight oil is now the second cheapest source of new oil volumes globally; its breakeven price is only a few dollars less than that of the giant Middle East onshore fields.

According to the British Geological Survey, shale makes up 35% of the world’s surface rocks – so why is the rest of the world not following the ‘Shale Gale’? The answers are many and varied. 

There are few cities in North Dakota near the Canadian border, but the Bakken Formation is aglow with brightly-lit drilling equipment. © NASA. Geology is a major factor. Not many parts of the world have the huge swathes of relatively undisturbed homogenous layers that characterise the great US shale basins. And if the geology is satisfactory, few places have the access and ownership situation prevalent in the US – not to mention the political will. There are bans on fracking in several countries in Europe, and the idea produces considerable public disquiet in many others. 

With plentiful proven untapped conventional resources, countries like China, Saudi Arabia and those in the Former Soviet Union have little motivation to exploit shale. Russia, for example, has as much as 24,000 Tcfg of unconventional resources, according to Gazprom, but it also holds vast conventional reserves and is using techniques developed in the US shale patch, like horizontal drilling and hydraulic fracturing, to unlock these.

As discussed on page 72, there is a similar scenario in Latin America. Even in areas with comparable geology to the US shale basins, there are plentiful conventional resources to be exploited. With limited infrastructure, the improved cost implications noted by Rystad will not be as pertinent.

After the USA, Russia has the second largest shale oil reserves in the world, with China in third place. Should these two countries begin to actively exploit their shale resources, a very different balance in the oil market might emerge.

  • U.S. Field Production of Crude Oil. Source: U.S. Energy Information Administration.

  • U.S. Imports of Crude Oil and Petroleum Products. Source: U.S. Energy Information Administration.

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