Thanks to its shale oil
extraction technology and benefiting from shale resources, the US has sketched
out a positive economic perspective for itself. Entering the oil market, the US
is able to change global energy equations. That would leave significant
political, economic and security impacts on the market and would affect the
OPEC and non-OPEC deal for cutting oil output. Therefore, it would be important
to study the current conditions of shale oil production and make forecasts for
its future in light of the impact of OPEC and non-OPEC decisions on world
When OPEC and non-OPEC
partners like Russia reached a quota cut deal and extended it, they temporarily
realized their objective of causing reduction in the shale oil output.
The US Energy
Information Administration (EIA) reports indicate that American oil production
declined for some time. The major impact of the OPEC decision was seen in
reduced investment in shale oil fields due to the decline in oil prices. That
affected the oil production levels of the US, which is the most important
producer of shale oil in the world.
circumstances, some countries like Saudi Arabia felt the threat of increase in
the shale oil production. They believed that when OPEC countries cut their
production, shale oil production will have to decline. However, the turn of
time showed that such a thing had not happened because as soon as oil prices
edged up, some idle rigs were reactivated in shale oil plays. That would not
only drive oil prices further down, but also would pose challenges to the oil
production cut deal.
According to the EIA
outlook report, the average oil production in the US was at 9.2 mb/d in 2017,
which will reach a record 9.9 mb/d in 2018. OPEC estimates show that the US
will continue to boost its oil production. According to OPEC, the US will have
increased its output by 3.8 mb/d in 2022. The figure equals 75% of total oil
supply increase by 14 non-OPEC oil producers that account for one-third of
crude oil production.
Shale oil will be
definitely instrumental in the US output growth. What strengthens speculation
on this issue is the recent oil price hikes that could positively affect
investments in shale oil fields. In fact, when prices are close to $60 a
barrel, the US oil output could go beyond expectations because in most
estimates about shale oil extraction, the new technologies used for recovery
are forecast to cost $60 to $80 a barrel. Therefore, shale oil and gas
production in the future will have economic ground in case oil prices go beyond
$100 a barrel.
Key Factors in Shale Oil
As far as the future of
shale oil and its impact on world markets is concerned, several key factors
must be taken into consideration:
1. There are no
precise estimates about how much shale oil will be supplied on markets; most
estimates vary between 500 tb/d and 2 mb/d
2. The raid
growth of shale oil production will remain an exclusively American phenomenon
and other regions in the world do not have such a perspective for a significant
3. Despite the
increase in shale oil production over recent months, extraction and production
of this source of energy remain costly, and high cost prices could push many
major oil companies towards extracting and producing conventional oil.
4. Oil price
hikes in world markets are not unfavorable for shale oil producers because in
light of high costs of shale production, low oil prices would not be
cost-effective. Therefore, the US and other countries involved in shale oil
production do not favor any significant drop in oil prices.
5. The OPEC
non-OPEC deal on reducing oil output continues to remain an effective tool for
regulating oil market and prices; however, the US is largely expected to use
shale oil industry as a tool to control prices. Depending on circumstances, the
US is likely to either increase or decrease its shale oil output.
6. In light of
the regulatory role of shale oil and US energy policies, shale oil production
could significantly influence OPEC decisions in the future. For instance, the
duration of extension of the OPEC-led quota cuts in the future may depend on
the estimates about shale oil supply by the US and rival producers.
7. Estimates show
that US shale oil production has seen an upward trend over the past decade.
Therefore, even periodical decline in oil prices could not prevent the US from
pushing ahead with its plans for oil production increase. Nonetheless, despite
the fact that Eagle Ford and Bakken shale oil fields can help the US boost its
production capacities, shale oil production in other fields is largely
difficult. Meantime, developed fields are likely not to be profitable forever
as in the past Royal Dutch Shell put its assets in Eagle Ford for sales due to
lack of profitability.
8. The US shale
oil entry into global markets could trigger a "supply shock" which
would engulf all markets. However, estimates provided by the International
Energy Agency (IEA) show that this objective would be achieved only if it is
supported by Canada's crude oil supply. Therefore, any increase in US oil
output could not make this country independent of world oil. Furthermore, it is
still unclear if Canada would be able to carry oil to South America refineries
in the Gulf of Mexico.
Many believe that shale
oil and gas could change energy equations in the world; however, these changes
would not be as important as many may imagine.
The US energy strategy shows the most important objective sought by this
country is to wean itself off oil imports. Therefore, even if shale oil
extraction turns out to be uneconomical due to low oil prices, the Americans
will continue to safeguard this industry through paying subsidies and applying
tax exemptions. Consequently, even if the shale oil influence on global markets
remains trivial, the Americans will go ahead with their strategy of enhancing
shale oil output.
by Shuaib Bahman
Courtesy of Iran Petroleum