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Page added on September 16, 2014
The US shale oil boom is saving the world almost $5 billion a day
Oil prices continue to plunge today despite the beheading of another western hostage by the Islamic State, tensions between Russia and the West, and mayhem in Libya. As Quartz has reported, one of the main reasons is surging US oil production, which has made up for supply disruption almost barrel for barrel—and is also a bad sign for the leaders of petrostates.
Now we have an estimate of where oil prices might have been absent the American oil boom—a sobering $150 a barrel, former BP CEO Tony Hayward told the Financial Times (paywall).
That’s 55% higher than the current benchmark price of $96.27 that was trading in Asia this morning. If Hayward’s number is right, it means that the US boom is saving the global economy about $4.9 billion a day in oil spending. Global consumers currently demand about 92 million barrels of oil a day, and without the extra US supply the market would be about 3 million barrels short, sufficient to send traders into a frenzy bidding up the price.
Since 2011, US oil production has soared by about 3 million barrels a day, to about 8.5 million barrels, thanks mostly to the technique of hydraulic fracturing in shale oil fields. That is just a bit less than the volume of oil production that has been persistently off line since the 2011 Arab Spring ushered in the three-year wave of unusual oil disruptions the world has experienced. When you add in a 1-million-barrel-a-day rise in Canadian oil production in the same time period, North America as a region has swamped the lost barrels.
Hayward, who now chairs UK-based Genel Energy, has no obvious stake in talking up American shale—his company’s investments are in frontier markets like Somaliland, Iraqi Kurdistan, and Morocco. The main point of the FT interview was a warning that western sanctions on Russia, where he made some of his biggest bets while with BP, could ultimately backfire and send prices racing back up.
Although Hayward is the most prominent industry observer to put a price tag on US shale, he is not the first: In May an analyst with IHS Energy gave the same estimate of $150 a barrel if all that fracking weren’t taking place. The ultimate costs and benefits of fracking, meanwhile, are a much more complicated question.
24 Comments on "The US shale oil boom is saving the world almost $5 billion a day"
rockman on Tue, 16th Sep 2014 3:54 pm
“Now we have an estimate of where oil prices might have been absent the American oil boom—a sobering $150 a barrel” Absolute bullshit. Had oil prices stayed at $35/bbl no one but us nerdy geologists would even know about producing oil from fractured shales. Production from the shales hasn’t brought done prices. The inability of the world to continue consuming large volumes of oil at the higher prices has eventually brought down consumption. Which is the motivation behind oil producers lowering prices: to spur consumption. Again it’s the profound inability to appreciate the time lag of the hydrocarbon production dynamics that confuses some folks. Just as the time lag between lower oil prices and the eventual decrease in shale production will confuse them. In the meantime the spinmeisters will gladly take advantage of that ignorance IMHO.
Plantagenet on Tue, 16th Sep 2014 4:15 pm
Rockman—I’m surprised at you. Of course production from tight oil has helped bring down prices. Yes, its true that the EU is in a recession again, and growth in China is slowing. But global oil consumption has NOT DROPPED—check the numbers. China is still increasing its consumption, albeit at a slower rate then seen over the last few years. If oil consumption is still going up, then the price drops must reflect increased oil supply.
Perk Earl on Tue, 16th Sep 2014 4:30 pm
Many of these articles on the benefits of US shale are outlandish with this one taking the cake, claiming oil would otherwise be selling for 150 a barrel.
I understand many want to feel and act patriotic, but getting so carried away about shale oil that it causes them to make foolish statements doesn’t in any way help our energy predicament.
When one of these authors relates one of their experiences as having become emotional, dropping to their knees in thanks to God for the US’ exceptionalism in regards to fracking shale oil, I’ll know the peak is near.
MSN fanboy on Tue, 16th Sep 2014 4:52 pm
Plant, you do realise the supply v demand curve you speak of assumes were logical.
Demand is also psychological.
Propaganda LOL
Northwest Resident on Tue, 16th Sep 2014 4:55 pm
Plant — I think we both agree that the one of the only things that makes fracking possible (other than vast amounts of accumulated debt, zero percent interest rates and plenty of investors being lead to believe they can make a buck in shale oil investments) is the HIGH price of oil. Without sufficiently high prices, shale oil doesn’t get extracted. Since that is the case, how can you think that “tight oil has helped bring down prices”. How does shale “tight” oil bring down prices when the only way to get shale out is to significantly raise prices? Can you explain your “logic”?
ghung on Tue, 16th Sep 2014 4:59 pm
Here’s a pretty good synopsis on oil production/consumption through 2013 from Rapier:
h ttp://www.energytrendsinsider.com/2014/07/10/world-sets-new-oil-production-and-consumption-records/
2014 looks to be interesting when all the numbers settle in.
shortonoil on Tue, 16th Sep 2014 5:03 pm
The US is presently producing from shale about 2.5 mb/d of condensate, and LTO. That is now selling for $75 to $95 per barrel. $95/b times 2.5 mb/d = $237 million per day. How Hayward can get $5 billion out of $237 million in product is a bit confusing. Small wonder he almost put BP under!
MKohnen on Tue, 16th Sep 2014 5:20 pm
The US is preparing for war, and for that they need a lower oil price. It hurts Russia and helps the US, if only psychologically. Of course, it also hurts SA, and to me that is the key spot right now.
No doubt, the US bearing down on IS will affect it. It is a race against time for both the US coalition and IS survival. If the IS is allowed to grow further, it will undoubtedly take SA. But if IS takes SA, the US and Europe are in a horrible bind. Let’s see if fracking could save the world then! I doubt it. And what is the US going to do about it? Bomb SA oil facilities to shut down IS funding? I don’t think so.
So I think the draw-down of oil prices is a prelude to the US starting a new war, and has little to do with actual economics.
rockman on Tue, 16th Sep 2014 6:40 pm
Plant – You shouldn’t be surprised. I’ve my position clear before: I consider the boom in shale production to be one of the strongest indicators supporting the PO dynamic. Without the POD we wouldn’t have high oil prices (and $90/bbl oil is still high IMHO). And if it weren’t for high oil prices we would not have had the shale boom. If that weren’t true we would have seen the Eagle Ford boom when oil was $35/bbl. We knew the oil was there at that time and also knew how to drill and frac horizontal wells then.
All those folks who think the shales will still be booming with low oil prices raise your hand. I thought so. LOL.
Nony on Tue, 16th Sep 2014 6:41 pm
Rock, the same insight that 100 is worse than 30 holds that 150 is worse than 100. It is a supply and demand situation. And in the face of continued Chinese demand growth along with declines ex-US, the US growth has staved off 150 oil.
You may know the mudlogger and have drilled a lot of wells, but don’t think that you are an expert in economic analysis.
Dave Thompson on Tue, 16th Sep 2014 7:22 pm
Once again the “Islamic State” in the first sentence is the tell. My guess more corporate media hype to rattle the uninformed. I do not see an “Islamic State” I see people in their own country taking back what belongs to them from the USA of corporate greed.
Davy on Tue, 16th Sep 2014 7:39 pm
Great read G-man, thanks.
http://www.energytrendsinsider.com/2014/07/10/world-sets-new-oil-production-and-consumption-records/
MKohnen on Tue, 16th Sep 2014 9:13 pm
This is too funny. The cornucopians scoff when a PO’er says oil will go to $150, but they are all too willing to quote the number ad nauseam to support their “the fracking miracle has saved us all” story, even when the numbers don’t add up.
And Nony, you criticize Rock as not being an “expert in economic analysis”, but you don’t refute Short’s numbers. If Short is wrong, let’s see how you arrive at “$5 billion a day.”
rockman on Tue, 16th Sep 2014 9:54 pm
MK – Now, now. Nony is correct…I’m not an expert in economic analysis. But I am one of the few here with intimate knowledge of the dynamics of oil/NG development and production. But even with my 40 gears of experience working in the trenches I would hesitate calling myself an expert in that matter. But it does mean me and a few others here can speak from practical experience unlike other who have only their imagination to fill in the blank spots. To butcher an old saying: Those that have done it think they understand it a bit. Those that haven’t often think they understand everything completely. IOW some of us know what we don’t know. And some others don’t realize what they don’t know and thus think they have all the right answers.
Poordogabone on Tue, 16th Sep 2014 10:02 pm
“consumers currently demand about 92 million barrels of oil a day, and without the extra US supply the market would be about 3 million barrels short, sufficient to send traders into a frenzy bidding up the price.”
Not so because consumers would walk away from 100+ oil. you can take 10 Mb/d off line, same thing (beside short term knee-jerk hike). welcome to the peak oil paradox.
The more oil is taken off the market the poorer people become.
shallowsand on Tue, 16th Sep 2014 10:31 pm
I think it is impossible to be certain of much of anything concerning future oil prices, future production or the price on a future date that will cause X amount of demand destruction. It is fun to read the debates about it though. 12 years ago had you asked I would have said I will never see $100 oil in my lifetime. Just six years later I not only saw it hit $147, but then saw it drop over $100 in 3 months. I have since seen it climb back up over $100 again. It amazes me to hear business news guys talk about how far oil has fallen when its still over $90 WTI. It was 1/3 that price 5 years ago and 1/10 15 years ago. I never thought it possible for US production to approach and possibly pass the 1970 peak either. And for that matter that it would result in large part from oil booms in ND and South TX, the type of which haven’t been seen since the early 1980’s. Predictions on oil are usually wild and uninformed guesses. Best bet is to read as much as you have time to, keep an open mind and be aware of what you don’t know. Usually when someone talks about something in the oilfield being a sure thing it’s time to hide your wallet.
JV on Wed, 17th Sep 2014 12:24 am
It’s seems to me that the biggest factor is Asian demand driving oil prices up higher, plus increasing use in producing countries (Brazil, Iraq, Saudi Arabia). The UK went from being a net exporter of fossil fuels to being an importer (2013) and that is quite a change. Then we have offshore, tar sands and light shale oil being more expensive to produce, so it’s a myriad of factors combining.
Davy on Wed, 17th Sep 2014 6:13 am
Rock’s old saying “Those that have done it think they understand it a bit. Those that haven’t often think they understand everything completely” We have lots of testosterone, hubris, and arrogance here on this site me included. We are a step above the rest in my mind. I ask you how many of your peers and family in your lives dig deeper with profound matters like we discuss here? Yeap, not many. Rock, it is quotes like yours that I use to remind myself of my need for humility. I find the cornucopians here a bit further into the huburis than the doomers. Maybe optimism does that sort of thing. A doomer must embrace a degree of despair and live by it. Call it the terminal illness syndrome complete mixed with the 5 stages. I categorize personalities here by their quality of comments. I hate naming names because there are several excellent posters here. Rock, your posts are high on my list especially for oil patch subjects. So when I see criticism of someone like Rock from a cornucopian I know someone’s bubble is popping.
rockman on Wed, 17th Sep 2014 7:17 am
Davy – Kind words. Gratitude. As far as optimists (as opposed to cornucopians) are concerned I live in a rather bipolar world. Unlike our wildcatter westexas I’m essentially a career development geologist. I’ll tease him about how ridiculous some explorationists are in the potential of the projects they present. But they have to take that attitude: they are trying to do something that will likely fail…find large oil reserves. How could they go about their task with potential failure on always on their minds?
The cornucopians are in something of the same boat. Except, of course, folks like westexas know what the probability of success really is. The Rockman, OTOH, isn’t expected to drill dry holes. After all, the exploration geologist found the grease so all he has to do is stick a few more straws in it…easy peazy.
Except it turned out to be not so easy a couple of weeks ago when I drilled a $5 million dry hole offsetting a discovery well that has been making 400 bopd for a year with no decline yet. So what went wrong in this adjacent fault block? Still trying to nail it down but the best guess is that the oil in the reservoir leaked across a fault and was produced by the wells there. I found the pay sands but they were depleted. Can happen when pressure is reduced as it was by the offsetting wells on the other side of the fault. It has happened before: Mother Earth has her little tricks she likes to use to screw with geologists. LOL.
So there’s the best explanation I can give for why I’ll slap the cornies around a bit while pointing out successes in resource development. It’s not that I’m schizophrenic…my mother had me tested. LOL
James on Thu, 18th Sep 2014 4:16 pm
Stupidity reigns:
Yes, we are experiencing a uptick in Natural Gas and oil. However, this so called boom won’t last as long as the conventional oil saga did. Remember, we are getting our oil and gas out of the ground from tighter rocks that have to be broken up to extract it. These rocks don’t have the same capacity that the old oil and gas wells did. They deplete faster, causing the drillers to frack more wells as the older ones deplete. The older wells were sunk into “pools” of oil in more permeable rock, not tight rocks. N.G. wells have a bad habit of depleting faster. They will be producing one day, and the next be dead. We should be using this “boom” time, to start learning how to get along without the oil and gas while we still have time to develop ways to do without it.
Nony on Thu, 18th Sep 2014 4:58 pm
Shale has done a lot more than doomers expected. I remember every year, commenters here and at TOD would talk down the Bakken and shale.
Northwest Resident on Thu, 18th Sep 2014 5:08 pm
Shale has bought us time and pushed out the ultimate death of BAU for “X” number of years, with “X” probably being less than or equal to about ten years. As I posted before, I am very thankful for the shale “boom”, and for the time it bought for me to pull my head out of the sand and realize where we are headed, and prepare for it. If TPTB had just let collapse go full steam ahead back in 2008 or so instead of taking dramatic measures to stretch out the ultimate demise of BAU, I would have been in very bad shape to deal with it back then.
Nony on Thu, 18th Sep 2014 5:37 pm
Were you still rooting for Shaun Alexander then?
Davy on Thu, 18th Sep 2014 7:32 pm
Noo, you would not be here if you didn’t entertain dark thoughts.