WorldWide Drilling Resource

10 NOVEMBER 2015 U.S. Shale Industry Could Impact Global Oil Prices Compiled by Bonnie Love, Editor, WorldWide Drilling Resource ® Over the past decade, the combina- tion of horizontal drilling and hydraulic fracturing has provided access to vast amounts of oil and natural gas in low- permeability formations composed of shale, sandstone, and carbonate (e.g., limestone) which were previously uneco- nomical to produce. This is challenging the conventional rules of the global oil market. According to Olivier Appert, presi- dent of the World Energy Council French Committee, shale drilling could become the new swing producer in setting the price of oil on global markets. “For the last 40 years, OPEC (the Organization of the Petroleum Exporting Countries) has been the major player in setting global oil prices because of its location within OPEC countries, most specifically in the Middle East. It has been the swing producer, increasing its production when markets are tight, and reducing quotas when there is over supply. However, in the last few years, with the advent of nonconventional shale oil and gas production in the U.S., the dynamics of the global market could be about to dramatically change,” he stated. Increased production in the U.S. due to shale development has caused oil supplies to surpass demand by one to two million barrels. Latest statistics indicate, every two years, oil production in the U.S. has increased by two million barrels per day, the equivalent of Norway, due primarily to increased shale supplies. This led to OPEC holding meetings in November 2014 and June 2015, where it decided to maintain its level of production to keep its market share, which has led to the price of oil dropping by 50%. Despite a significant reduction of investments by oil companies, production in the U.S. has remained almost stable thanks to the reduction of costs through increased efficiency in the production process. This is one reason, much to the surprise of many observers, shale oil production has not fallen sig- nificantly. “The question that these new market dynamics raises is ‘Are we entering a new paradigm of the oil market?’”, said Appert. “Up to the [1970s], the market was dominated by the famous Seven Sisters (Exxon - was Standard Oil of New Jersey, then Esso; Mobil - was Standard Oil of New York, which merged with Vacuum Oil; Chevron - was Standard Oil of California; Texaco; Gulf Oil; Shell - Royal Dutch Petroleum; and BP - British Petroleum), the well- known most important international oil companies. After the oil shock in 1973, OPEC took a leadership position, but today when we look ahead, it is possible to see that OPEC will no longer hold a dominant position. With the role of shale producers in the U.S. becoming more predominant, they may become the swing producers in setting global market prices.” According to the EIA (U.S. Energy Information Administration), the United States has approximately 610 trillion cubic feet of technically recoverable shale natural gas resources and 59 bil- lion barrels of technically recoverable tight oil resources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orldWide Drilling Resource ®