• Jun 3 2018 - 11:57
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Shale Oil Competition with OPEC, non-OPEC

Shale oil and gas extraction in the United States has commanded headlines in recent years.

Shale oil and gas extraction in the United States has commanded headlines in recent years.

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 markets.

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.

Under such 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 Future

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 growth rate.

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


  • Newsgroup : International
  • News code : 12437
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