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.
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.
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.
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