Business | Analysis

Shale oil is no threat to oil producers

World’s future will be shaped by scarcity of oil, not abundance

  • By Saadallah Al Fathi Special to Gulf news
  • Published: 12:56 February 10, 2013
  • Gulf News

While there is no doubt about the potential of shale and tight oil resources in the US specifically and the rest of the world to a lesser extent, it is felt that the potential has been overstated in the media to the extent that some reporters are really not interested in the facts as much as their interest in the hype.

The increase in US production in the last few years has driven some reporters and even analysts to go out of their way in tendering numbers and expectations that have no bearing on realities.

Take Patrice Hill in the Washington Times of

February 4, 2013 reporting about a “growing school of bullish analysts believe that booming production in the US will put energy independence within reach.” And “With oil production from shale rock, oil sands and deep-sea drilling booming in the US, Canada, Brazil and elsewhere, worries about Middle East-based oil cartels and vulnerable Gulf supply lines are close to becoming things of the past.”

Also Dan Denning in the Daily Reckoning recently said about US resources, “land contains enough recoverable oil and gas to make you forget about the Middle East for the rest of time.”

Another outlandish statement said that the US would instantly have the world’s largest oil reserves. And “we’d never have to worry about Saudi Arabia again, or Hugo Chavez, or the mullahs in Tehran.” And “we might see oil tankers lined up waiting to export America’s tremendous oil bounty to the rest of the world.”

Such unqualified reports are apparently more interested in bashing Opec, Saudi Arabia and other oil producers, in addition to propagating special interests. However, they are countered by more reasonable people and institutions whose reputation and responsibility to the public outweighs what might be popularly gained from over exaggerating resources.

As far as oil is concerned, shale oil at best will not be sufficient to make the US independent from imports. The Energy Information Administration (EIA), the research arm of the US Department of Energy, said in its Annual Energy Outlook 2013 early release that US oil import dependency fell from 60 per cent in 2005 to 45 per cent in 2011 and is forecast to reach 37 per cent in 2035. We have to remember that the sharp fall since 2005 is not entirely due to rising production but due to a sharp decline in demand in the aftermath of the financial and economic crises of 2008. The EIA clearly states that net oil imports were 8.82 million barrels a day (mbd) in 2012 and are likely to be 7.52 mbd in 2035.

As for shale oil reserves, there are no trillion barrels and hundred years of sustained production and EIA in 2009 commissioned Intek Inc., a specialised consultants firm, to independently estimate reserves of shale plays. The result is 24 billion barrels only or as much as current oil reserves from US conventional oil. Updates of this report cite the same numbers.

In spite of thousands of oil wells drilled in shale plays, production has increased from few thousand barrels a day in 2005 to just about 1.5 mbd now. Further increases are expected such that production of shale and tight oil supply is estimated by BP to reach 6.5 mbd in the US and 9 mbd worldwide in 2030. As good as these numbers are, they are not sufficient to counter the decline from currently producing conventional oil fields in the world.

Even these numbers may be uncertain due to the recent history of shale oil production and the lack of sufficient accumulated experience. At the same time depletion rates in shale wells are very high and estimated for the Bakken shale wells to be 69 per cent in the first year and 94 per cent in the first five years. This is a huge logistical problem as so many oil wells have to be drilled to stabilise production with its negative impact on costs and environment.

At the same time the development and production of shale oil fields is increasingly under intense pressure from environmental groups as intensive hydraulic fracturing and deeper horizontal drilling is seen as a potential source of pollution for water resources in addition to its high water requirement and energy needs. This type of drilling is also dangerous in a seismically active region like California. Such concerns may succeed in delaying or slowing down anticipated developments.

To conclude, I find nothing better than to quote Chris Martenson of the oilprice.com where he said recently that “there has been a very strong and concerted public-relations effort to spin the recent shale energy plays of the US as complete game-changers for the world energy outlook. The world remains quite hopelessly addicted to petroleum, and the future will be shaped by scarcity — not abundance, as some have claimed.”


— The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.

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