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Editorial comment

It’s no exaggeration to say that the North American shale industry has fundamentally altered the shape of the global oil and gas business. Indeed, the shale ‘boom’ took pretty much everyone by surprise; spurred on by the ~US$100/bbl prices of the early 2010s, shale oil and gas production soared. This surging output sent shockwaves throughout the global market and even managed to weaken OPEC’s control over oil prices.


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The shale industry’s continuous drive to get more out of the ground for less money has driven the development and implementation of new technologies. Operators are making increasing use of digital systems, nanotechnology and advanced chemistries – some of which are covered in this issue of Oilfield Technology. So successful have these advances been that breakevens for shale wells have dropped from nearly US$70/bbl to under US$50/bbl over the last few years.

Even though the downward pressure on oil prices – driven in part by surging shale production – has caused difficulties for many in the upstream sector, the success of the shale business has helped drive growth in other areas. Indeed, the US chemical industry has benefited greatly from an abundance of feedstock, such as ethane, which is produced from shale gas.1 According to the American Chemistry Council, 294 new chemical industry projects had been announced as of March this year, all of which were made possible due to shale gas. When combined, these projects promise a total of 462 000 new jobs, US$294 billion in economic output, and US$25 billion in tax revenue.2 As a specific example, The Dow Chemical Company, which made significant job and plant cuts back in 2008 - 2009, has recently announced additional US investments worth US$12 billion. And, to complete the cycle, this same chemical industry is helping shale producers extract oil and gas more efficiently by formulating new frac fluids and developing proppants.

Whilst the shale industry, along with the rest of the upstream sector, continues to adapt to a world of lower oil prices, there are (yet more) rumours of an imminent recovery. According to a recent survey by CNBC, analysts suggested that prices were now more likely to rise than fall over the coming months. There have also been further reports that the current oil price doesn’t reflect the reality on the ground. Analysts have argued that the physical market (the actual oil moving around the world) is heading increasingly towards balance as oversupply begins to ebb. Helima Croft, Global Head of Commodity Strategy at RBC Capital Markets, was quoted as saying: “We thought this market was actually a bit oversold. We think the fundamentals are better than where the price was earlier.” Croft also went on to state that the market is also currently undervaluing geopolitical risk, citing the increasingly tense diplomatic standoff between Qatar and a Saudi-led coalition as a “very, very dangerous situation” that could send prices higher.3

Financial services firm, Raymond James, put the blame on what it described as a “negative feedback loop” caused by unnecessarily gloomy headlines. In a statement, the firm said: “[The] simple reality is that we think some oil price headlines have been misleading, or outright wrong, and they have distracted investors from what we believe is fundamentally a bullish overall picture for oil.”4 Does that mean the downturn is just a case of ‘fake news’?

References

  1. ‘U.S. Shale Just Triggered A Chemical Industry Renaissance’ – http://oilprice.com/Energy/Natural-Gas/US-Shale-Just-Triggered-A-Chemical-Industry-Renaissance.html
  2. ‘New Manufacturing Projects Are Growing Our Economy & Creating Jobs’ – https://www.americanchemistry.com/Policy/Energy/Shale-Gas/Infographic-Shale-Gas-and-New-US-Chemical-Industry-Investment.pdf
  3. ‘Oil prices are more likely to make a big move higher than lower in second half, analysts say’ – http://www.cnbc.com/2017/07/03/oil-prices-break-out-second-half.html
  4. Ibid.

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