Imagine a world where war or turmoil in oil producing nations has little to no effect on the price? Is that world today? (Emphasis mine.)
Even as the U.S. rig count has retreated like Napoleon from Russia, shale remains the key to understanding the global oil landscape. Consider that despite all of the turmoil in key oil-producing regions, namely the Middle East, oil prices have not spiked. Nothing — not Russian intervention in Syria, not ISIS attacks on Libyan oil infrastructure, not the torching of the Saudi Embassy in Tehran — has been able to stop the oil price collapse. What is going on here? Does turmoil in the Middle East suddenly no longer matter? The American shale oil model has changed the world oil marketplace for the foreseeable future. Shale producers’ ability to quickly throttle down or ramp up upstream investment spending, drilling and production, as oil prices change, is viewed as an effective shock absorber against any potential oil price spikes.
Production may have declined but the R & D has not. Technological advances continue, as investors look for ways to make it cheaper and safer to extract shale oil. As the tech catches up with the price, or the price with the tech, shale operations will be switched back on by investors looking to put foreign oil on notice. That we need oil, but not necessarily their oil.
And we do need oil, and will need it for a very long time. We use it for everything from heating and transportation to plastics and synthetics and there is not one “alternative” that can replace oil. There isn’t even an alternative I can think of that could replace oil in the production of green energy technologies.
We need it, so why not strive to keep the cost curve down so that it does not make everything else in the world we need cost more?
Shale oil 1.0 changed the global oil game. The Saudis responded by increasing production. That increase has forced shale production down but the US shale-oil industry isn’t idle. It is getting ready for round two. Round two will come the moment the Oil Producing nations back off just enough, and Shale ramps right back up.
Does it mean that oil spikes will be less volatile and shorter in the future? It could. With Shale-oil looking for a way to turn the spigot on an off as demand requires, price spikes and production shortages could become a thing of the past. Shale deposits could become part of our affordable energy future, and act as an in ground strategic reserve.
Imagine New Hampshire’s on-again-off-again Congresswoman Carol Shea-Porter, or some other Democrat nit-wit, saying “lets tap our strategic reserves to keep energy prices stable for hardworking American families.” In the modern Shale-oil economy that would be the same thing as saying ‘Drill Baby Drill!’
H/T WUWT.
