Shale Wars: The most expensive energy battle of all time 

Posted: May 19, 2017 by oldbrew in Energy, fracking, shale oil


Thanks to ever-improving technology, one shale CEO said earlier this year about U.S. oil production: “We’ve doubled it. We can double it again.”

So far it has cost Saudi Arabia something like $200 billion to undertake one of the most expensive experiments of all time, says the GWPF.

The Saudi government has been draining its massive $2 trillion sovereign wealth fund to cover revenues lost from the petroleum price collapse over the past couple of years.

What we’re witnessing is a two-part test. The first question is how much damage have low oil prices caused America’s shale industry. Then the second and far more critical part of the test: As oil prices rise, will the shale industry limp or roar back? If it roars back, high oil prices are history.

Odds are now that in 2017 we will witness—along with the oil princes of Arabia—the outcome. However it goes, the economic and geopolitical implications are enormous. And the outcome has more to do with technology than with politics.

Nothing is Bigger Than Oil

But before delving into all that, some underlying realities: This is no small battle. Oil is the world’s biggest traded commodity, bigger than all the minerals and metals combined, bigger than agriculture.

And despite decades of hype, hope and subsidies, petroleum fuels 95 percent of the machines used to move all people and all goods for all purposes, trade included. The world today uses more oil than at any other time in history, and every forecast—including a recent lamentation about this reality from the International Energy Agency—predicts demand will increase for the usefully foreseeable future.

And of deep geopolitical relevance, of the world’s five economic regions that account for 75 percent of global GDP—Europe, China, India, Japan and North America—four of them will see rising dependency on petroleum imports. North America, especially the United States, is the outlier with exactly the reverse trend.

As for the Saudi experiment, it distills to answering a basic question: Was the astonishing growth in American shale oil production a one-time artifact of high oil prices then and new ‘discoveries’ (i.e., a bubble), or was it the sign of a permanent secular shift in petroleum technology?

If the first answer is correct, those who hope for, or need, a world in which oil is expensive will take comfort. That camp includes the oil producing oligopolies and kleptocracies around the world as well as many Western governments, some businesses and green lobbies that are betting on alternatives to oil (from biofuels to batteries) that can only compete at high oil prices.

Continued here.
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From Oil Industry News: In America’s Largest Oilfield, Whir of Activity Confounds OPEC

  1. Tim Hammond says:

    The Saudis, Russians and others seem to have fooled themselves, perhaps because of how their own economies work. Once capital is spent, there’s no need to repay it, so all that then matters is cash operating cost. Sure the owners may go bust and creditors take over, but they have every incentive to keep an asset going provided it isn’t cash negative. They also have every incentive to reduce costs and increase production. The history of just about everything is that what starts as expensive becomes much cheaper over time, and if the incentives are powerful, over a very short time. $100 oil got shale started, now $40 oil will make it cheap. Costs are not fixed, and never will be.

  2. oldbrew says:

    ‘it has cost Saudi Arabia something like $200 billion to undertake one of the most expensive experiments of all time’

    For far less money they could have bought all the US shale drillers and shut them down 😎

  3. Robert Doyle says:

    Bakken oil has traded at a $5.00 discount when compared to West Texas Intermediate. This was due to the rail and truck shipping costs. So, the oil exploration companies suffered more than the Texas firms. The Dakota Access pipeline is online. The XL pipeline, when completed will pick up 300,000 barrels a day of North Dakota Bakken crude. So, going forward, Bakken will pick up.

  4. The sooner the West gets fracking and weans itself off oil produced by terrorist dictatorships- the sooner there will be (relative) peace.

  5. oldbrew says:

    Date: 20/05/17 Robin Pagnamenta, The Times

    OPEC may make further production cuts and extend an existing deal to curb oil output for a further nine months as it battles to prop up global prices in the face of a resurgent American shale industry.