OPEC Has Failed to Stop US Shale Revolution Admits Energy Watchdog
Comment of the Day

February 23 2016

Commentary by David Fuller

OPEC Has Failed to Stop US Shale Revolution Admits Energy Watchdog

The current crash in oil prices is sowing the seeds of a powerful rebound and a potential supply crunch by the end of the decade, but the prize may go to the US shale industry rather Opec, the world's energy watchdog has predicted.

America's shale oil producers and Canada's oil sands will come roaring back from late 2017 onwards once the current brutal purge is over, a cycle it described as the "rise, fall and rise again" of the fracking industry.

"Anybody who believes the US revolution has stalled should think again. We have been very surprised at how resilient it is," said Neil Atkinson, head of oil markets at the International Energy Agency.

The IEA forecasts in its "medium-term" outlook for the next five years that US production will fall by 600,000 barrels per day (b/d) this year and 200,000 next year as the so-called "fracklog" of drilled wells is finally cleared and the global market works off a surplus of 1m b/d.

But shale will come back to life within six months - far more quickly than conventional mega-projects and offshore wells - once crude rebounds to $60. Shale output is expected to reach new highs of 5m b/d by 2021.

This will boost total US production of oil and liquids by 1.3m b/d to the once unthinkable level 14.4m b/d, widening the US lead over Saudi Arabia and Russia.

Fatih Birol, the IEA's executive director, said this alone will not be enough to avert the risk of a strategic oil crisis later in the decade, given the exhaustion of existing wells and the dangerously low levels of spare capacity in the world.

David Fuller's view

Here is a PDF of AE-P's article.

Long-term forecasting is more guesswork than analysis, not least as there are too many variable factors.  Additionally, most forecasts are influenced by an element of hopeful self-interest.  Considering these factors, what can we conclude about the International Energy Agency’s forecasts?

I think the chance of an oil supply crunch by the end of this decade is minimal.  We continue to hear that known oil reserves are eventually depleted but newer technologies make it easier to both discover oil and recover it more efficiently.

Also, the analysis appears to assume that the USA will remain the primary source of oil production via fracking.  However, while no two shale oil bearing properties are identical, most countries have sufficient reserves of this resource to be commercially viable. 

Yes, these countries may not yet have fracking technology but this is becoming more easily available.  Yes, fracking can be a ‘nimby’ issue in more densely populated areas or regions of outstanding natural beauty.  Nevertheless, wealth sharing in terms of profits from shale oil can incentivise populations.  Consequently, the main reason not to frack is the belief that cheap oil will always be readily available.  Meanwhile, the march of technology ensures that we can both produce and consume crude oil more efficiently.

This item continues in the Subscriber’s Area and considers other sources of energy. 

Technological innovation has also led to previously inconceivable strides in the development of renewables, from solar power to wind.  These are reducing dependence on fossil fuels for energy as they become more cost effective.  We are also in the era of new nuclear power, which is safer than earlier versions of this technology and can also smooth out the inconsistent flow of power from solar and wind.  New nuclear will presumably be a growth market until the holy grail of commercially viable nuclear fusion arrives.        

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