Guesses on long term impact of shale revolution

Just one of many thousands of reasons OPEC is in distress. Photo by James Ulvog.
Just one of many thousands of reasons OPEC is in distress. Photo by James Ulvog.

A guess on what price will keep the shale revolution going in the very short-term. Background discussions of the impact from the shale revolution:  cheap oil era is upon us, oil prices won’t hit $100 again, and OPEC has lost its pricing power. Interview with Daniel Yergin is a must read.

4/28 – The Million Dollar Way – Lifeline for Oil Companies – Here is a guess on the framework for oil pricing, courtesy of Rigzone:

  • $40 – lifeline for US shale oil
  • $50 – most shale companies survive
  • $60 – all thrive

5/4 – Reuters at Dickingson Press – DUCs in a row: Oilfield servicers to gain as more wells completed – Halliburton and Baker Hughes expect a number of Drilled but UnCompleted wells (DUC) to be fracked now that prices have recovered somewhat. They expect the gross number of DUCs to decline.

5/3 – Scientific American – The Age of Cheap Oil and Natural Gas is Just Beginning – Authors see two revolutions that will continue to spread.

They see the shale revolution (releasing oil and gas from shale) will spread around the world by 20 years from now. The fracking revolution which has currently released production from shale will be applied successfully to conventional oil.

The authors foresee increased production of 20M bopd from the shale revolution by 2035 and another 20M bopd from fracking by then.

Impact would be twofold:  dramatic increase in oil availability and severe downward pressure on prices.

5/23 – Associated Press at – Energy expert says oil prices won’t top $100 a barrel – An interview with Daniel Yergin. Oh, he is working on another book.

He thinks the worst of the oil price drop is over. Current prices of around $48 are not high enough to signal to the market that it is time to start increasing production. That means price will likely go a higher bit in order to provide long-term balance of supply and demand.

He does not foresee Saudi Arabia changing their strategy of high levels of production because any cut back in production would provide room for a rent increase their sales and revenue.

He sees the shale revolution as a biggest energy innovation in this century. It has had transformative impact in so many places. I seriously doubt we are even close to saying the full impact of the shale revolution.

He thinks the next big impact will be in storage or electricity. He thinks this will be a game changer for renewables.

A different way to look at that last comment – nobody has any idea what the breakthrough will be that provides radical transformation in storage for electricity. When some as-yet-unimagined breakthrough is invented, wind and solar might even become economical and reliable.

5/24 – Wall Street Journal – OPEC’s Ability to Ease An Oil Supply Shock is Now Fading – Deep background that stretches my brain.

Spare pumping capacity is defined as the amount of production that can be brought online within 30 days and which can be sustained for 90 days. The Saudi spare capacity is at its record low. That means Saudi Arabia, which means OPEC in total, does not have the ability to significantly increase production to smooth out a short-term shock in oil supply.

In the other direction, OPEC does not have the political consensus to cut back production.

Thus, OPEC could neither increase nor increase production in the short-term.

Leave a Reply

Your email address will not be published. Required fields are marked *