Oil Doomers Frustrated at US Shale Revolution

Global Oil Reserves
Rystad Energy via Geopolitical Futures

According to the oil doomers, the world’s oil was supposed to be used up by now. The scarce remaining dregs of oil would be beyond the reach of ordinary people, and only the ultra-wealthy would be able to drive the roads, fly the skies, or cruise the wide oceans.

But some things happened on the way to the “peak oil apocalypse,” and one of those things was the US Shale Oil Revolution. As seen in the graphic below, the US shale oil revolution helped to completely reshape the economics and geopolitics of global energy.

US Production Shot Up, Global Prices Dropped

Over time, global commodity prices are strongly influenced by both supply and demand of the commodity in question. In the case of crude oil, price manipulators can only hold back so much supply before markets are overwhelmed by excess production — if it exists. In the case of the US shale revolution starting in 2009, a definite global excess in oil production was palpable. Suddenly US imports of oil began to drop, and US exports of petroleum products began to rise.

Reduced US oil imports plus increased US petroleum exports created a “double whammy” on global oil prices. By the year 2014, US oil production was high enough to “lower the boom” on global oil prices — despite Russia’s provocative invasion of Ukraine. Imagine Putin’s shock when instead of raising global oil prices, his military provocation had no effect on markets. Putin was not the only one to be shocked that year.

Oil Doomers Have Predicted the Demise of US Shale Ever Since 2009

For oil doomers, the US shale revolution has always been just a “flash in the pan,” regardless of how long the bonanza continues to play out. The best projections show high rates of US production lasting through the year 2050 and beyond, but in reality no one knows how long global demand for oil will hold out. If demand holds up, the supply will be found.

US crude oil production does not have to continue at high rates forever. Eventually other sources of energy will be developed to shove petroleum out of the way. Advanced nuclear power is the most sustainable out of all the contenders, in terms of powering an advanced human civilisation.

No one predicted the US oil boom in the first place, so all predictions of its demise must be taken with more than a few grains of salt.

US Oil Production Projection Through 2050

Breakeven Costs for Russia and Saudi Arabia are Important

Governments that depend on oil sales for their day to day operation — such as Saudi Arabia and Russia — require certain “breakeven” oil prices to meet their budgetary goals. In a world of supply and demand, such economic requirements are not always met. This is particularly true when a new source of supply suddenly hits markets, as occurred with US shale.

As the [US shale oil] industry has grown and matured, the break-even price per well has come down. But some doubters claim that there are fewer gains to be made through technological advances. If true, this would mean that the break-even point will not come down much further, leaving little room for growth in the profitability of shale. This may be a valid criticism. But that still puts the profitable oil price for a lot of shale companies well below Saudi Arabia’s fiscal break-even point (the point at which the government can balance its budget), which the International Monetary Fund says is currently about $80-$85 per barrel. __ https://geopoliticalfutures.com/is-the-shale-revolution-here-to-stay/

Saudi Arabia runs its economy on oil, as does Russia. These nations put up a lot of brave talk in the face of global oil prices that are running below their breakeven needs. But under the surface both “oil republics” are being forced to scale back their ambitions. There is a limit to the deprivations the citizens of both nations will endure from their governments.

US Shale Reserves Expanding

As the technology improves, new US shale reserves have bloomed in exponential fashion. This is likely to continue as the technologies of exploration and discovery continue to emerge out of the stone age.

… in fact, new reserves are discovered often – even in the Permian itself. In December, the U.S. Department of the Interior reported that the Permian’s Wolfcamp and Bone Spring Formations contain the most oil and gas resources of any location ever assessed. Still, that was not an assessment of proven reserves – those that can be recovered using existing technology – but rather of undiscovered reserves – defined by the department as “resources postulated, on the basis of geologic knowledge and theory, to exist outside of known fields of accumulations” – and technically recoverable reserves – defined as “resources producible using currently available technology and industry practices.” For now, companies are poised to continue producing enough to fuel growth in U.S. oil production. __ https://geopoliticalfutures.com/is-the-shale-revolution-here-to-stay/

The US shale boom has been responsible for millions of new US jobs, and continues to support wages and economic growth in a cascading fashion — as long as the government in power allows the compounding effects of capitalism to operate without undue government constraint. Wise leaders promote policies that allow their economies to grow. Bad leaders promote policies that destroy their economies.

Don’t depend on the “biters” of oil doom journalism. Inform yourself of the underlying dynamics that allow you to predict the news before it happens. That will require a good deal of reading on your part. The first part of Peter Zeihan’s “The Absent Superpower” provides a quick and useful primer for better understanding the ongoing US shale revolutions. For better understanding crude oil geopolitics before shale, Daniel Yergin and Leonardo Maugeri provide a sound springboard for gaining deeper insights into oil (before shale) than any of the decrepit oil doomers could provide.

More on contrarian fundamentals of geopolitics:

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8 Responses to Oil Doomers Frustrated at US Shale Revolution

  1. ROBERT SYKES says:

    The blog DeSmog claims that gas frackers as a whole are running huge cash flow deficits. I would appreciate an analysis if this is true. DeSmog claims that the deficits have been occurring for a few years, which seems unlikely.

    • alfin2101 says:

      The price of natural gas (methane) in the US is very low. This has led to bankruptcies for some producers, but other producers have been able to streamline costs and to breakeven or make small profits. Either way, it isn’t pretty. For other producers, however, natural gas production is an incidental consequence of oil production. For many of these producers, what they make from natural gas sales is an added bonus on top of oil sales. Then for others who produce “wet gas,” the more lucrative products of ethane, propane, butane, etc. give them better margins. The industry is a mixed bag, and it is wiser not to lump gas frackers into a “whole” which does not apply in general.

  2. Someone says:

    I read Matt Simmons book a few years ago. I remember him being on the Financial Sense podcast a few times. I’m wondering how Saudia Arabia is maintaining oil production if according to Simmons they have to put in a hell of a lot of water into the reservoir to get any output. This book is from the early 2000’s to.

    • alfin2101 says:

      A lot of people got carried away by the fantasies of the oil doomers of the late 1990s and early 2000s. Once they adopted those quasi-religious beliefs it was too much for their pride to admit that they had been wrong. We see the same thing in the climate apocalypse religion and in various other leftist echo choirs. Empty minds of today’s university educated are begging to be filled by vapid nonsense. It seems too much trouble for them to educate themselves.

      • Someone says:

        I have to admit at the time that Matt made some very reasonable assertions. I don’t think it was a matter of ‘running out of oil’ so much as a matter of economics for retrieval of it. I expected $4 gas prices for the remainder of my life.

        It’s too bad we can’t tap the methane hydrate resources yet. That would certainly make a number of nations more energy independent.

        • alfin2101 says:

          I cannot say anything about Matt’s assertions, but his predictions were excremental. Best to go by his failed predictions to judge his assertions, in hindsight.

          The oil doomer crowd was not predicting $4 a gallon gasoline. More like $40 a gallon, if you could even obtain gasoline in gallon quantities. It was going to be a genuine cataclysm by this time, if you go by the graphs they drew.

  3. yoananda says:

    I don’t think so.

    US shale oil is drowning in debt. Investments are plummeting since a year. Clamming technological revolution has been a bit exaggerated (fracking existed for a long time, horizontal drilling also ! But there have been some improvements for sure) – but, it has worked as a narrative to get investors attention (and money).

    I don’t think anybody (me neither) knows whats going on. We will see.

    So, there is only one question that matter : if you are so sure Shale is a revolution that will last, how many $ have you invested in it ?

    • alfin2101 says:

      Oil & gas production from tight rock formations (shale oil & gas) continues to climb regardless of debt. If investments are plummeting there is no indication of it from the oil & gas production figures! There have been a lot of bankruptcies among some less competitive producers due to the erratic price swings of the past several years, but if you watch closely the production figures continue to climb. Follow the actual production figures, not the propaganda in the junk media.

      You do point out an important factor, that shale petroleum production is highly debt dependent — just as the farming business is highly debt dependent, and the real estate development business, and most forms of businesses of a cyclic or “project” nature. Each new shale well system is a new business. But the “gambling” aspect of shale petroleum is being brought more tightly under control every year, with ever more precise methods of locating and tapping into new deposits.

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