Is the American shale oil revolution over? Kemp

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LONDON — « OPEC is back in the driver’s seat, » John Hess, chief executive of the eponymous oil company, told an investor conference in Miami on Nov. 17, tacitly acknowledging that America’s shale revolution followed. his courses.

For a decade between 2009 and 2019, the surge in American production of oil and other liquids transformed the availability and price of oil around the world, marginalizing other producers:

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* U.S. oil and other liquids production more than doubled to 19.5 million barrels per day in 2019 from 9.1 million bpd in 2009, according to the U.S. Energy Information Administration (EIA). United.

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* US production grew at a compound annual rate of +7.9%, five times faster than the +1.6% annual growth in global oil consumption (“Short-Term Energy Outlook”, EIA, 8 november).

* US production growth eclipsed producer increases in the rest of the world, where production grew at a compound rate of just +0.5% per year.

* U.S. marginal production (+14.5 million bpd) captured almost all of the increase in global consumption (+14.8 million bpd) between 2009 and 2019.

* U.S. producers captured all additional global consumption in three out of 10 years during the decade (2014, 2018 and 2019) and at least two-thirds of additional consumption in six years (2011-2014 and 2018-2019) .

* As a result, US producers increased their share of global production and consumption to over 19% in 2019 from less than 11% in 2009.

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In 2022, however, US production is expected to be only +0.7 million bpd higher than in 2019, the last year before the pandemic, despite prices well above the long-term average in real terms, a deceleration significant for growth.


In a narrow sense, the shale revolution refers to the widespread application of horizontal drilling and hydraulic fracturing techniques to increase the production of shale and other tight rock formations.

Hydraulic fracturing had been practiced on a small scale since the 1950s and horizontal drilling had been introduced in the 1980s (“Drilling sideways: a review of horizontal well technology and its domestic application”, EIA, 1993).

But the techniques have increasingly been used in combination to increase production, starting with gas-rich formations from 2005-2006 and then oil-rich formations from 2008-2009.

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Chartbook: US oil production Both techniques have since improved, showing learning curves, allowing wells to be drilled deeper, faster, with more and longer side sections, and with more sophisticated pressure pumping to break formations more precisely.

“Fracting,” as the combination of horizontal drilling and hydraulic fracturing has become colloquially known, has evolved from a small-scale experimental technology in 2009 to become the mainstream production approach by 2019.

Shale revolution technology has become mainstream, leading to a long-term increase in production, and in doing so, it has lost its revolutionary character.


In a broader sense, the shale revolution describes the transformation of the entire US onshore oil and gas industry with an extraordinary boom in investment, drilling, pressure pumping and investment.

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The first phase, centered on gas, lasted between 2005 and 2008, when it was interrupted by the global financial crisis and the subsequent recession.

The second focused on oil and lasted between 2009 and 2019, punctuated by a short-lived slump and recovery between late 2014 and early 2016.

In this broader sense, the revolution transformed onshore oil and gas exploration and production, including the oilfield supply chain, and some communities in Appalachia, North Dakota, and the southwestern United States. United.

Like other new technologies, including railroads and the Internet, in its early days, the shale revolution involved significant overinvestment, cost inflation, duplication and waste, leading to low returns for many shareholders.

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Like other technologies, however, shale production has finally settled into a more mature and conservative phase, accelerated by the traumatic shock to oil and gas markets during the coronavirus pandemic.

In the breakthrough stage, shale producers were pioneers, innovators and disruptors, focused on rapid growth, securing more investment, increasing market share at the expense of rivals and transforming the industry.

In the post-revolutionary phase, shale companies have become historic companies, focusing on consolidation, eliminating excess capacity, preventing overproduction, controlling costs, increasing profit margins and restoring capital to shareholders.

US shale industry executives now talk about their investment and production strategy using language almost identical to that of Saudi Arabia and other members of the OPEC⁺ group of major oil exporters.

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U.S. oil production is at least 10-11 million bpd higher than it would have been without horizontal drilling and hydraulic fracturing, but it appears to have settled into a slower growth trajectory.

In 2022, the Biden administration tried to coax domestic oil producers into increasing production, with little success.

In this sense, the global oil market has returned to conditions much more like the world before 2009, ending a decade of deep disruption.

U.S. shale producers are expected to account for a much smaller share of global growth in oil production and consumption over the next few years.

If this is true, OPEC (actually Saudi Arabia, to some extent the other Persian Gulf producers) will be able to wield significant market power, as it did before 2009.

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OPEC’s market power will persist unless and until horizontal drilling and hydraulic fracturing are applied in new geographies, either in the United States or internationally, or some other new rupture does not happen.

On the consumption side, the most likely disruptor is the large-scale deployment of electric vehicles, which has the potential to significantly reduce oil demand in the medium to long term.

On the production side, given the long gestation of most major technical innovations, disruption is likely to arise from the application of one or more existing technologies, separately or in combination, in new ways or in new ways. new areas.

By then, OPEC and its allies will be back in control.

John Kemp is a market analyst at Reuters. Opinions expressed are his own (Editing by Tomasz Janowski)



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