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How the US shale gas industry has changed the global economy

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The year 2014 will be remembered for an unprecedented juxtaposition of events. Two oil-producing countries in the Middle East were in a state of crisis. Relations between the West and Russia slumped to a new Cold War low. And oil prices have slumped, to $66 a barrel for Brent Crude this morning, half its recent peak. This didn’t used to happen. The modern history of oil prices is characterised by a series of spikes, each one coinciding with a crisis in the Middle East. It is a mark of how US shale gas and oil production has changed the oil market – and thus the prospects for the global economy.

Never has a theory collapsed so quickly as Peak Oil, the idea that fossil fuel prices would rise inexorably as supply failed to keep track of demand. Even as late as 2011 the US had a trade deficit in oil and gas of $354 billion. In a year’s time the US will begin to export liquefied natural gas (LNG). It is expected to become a net exporter of energy in 2018/19.

So quickly have oil and gas fallen that it is beginning to question one of the assumptions made just a few months ago: that the UK could look forward to a bonanza in shale gas production, once the issue of Nimbyism could be overcome. Now, it looks as if we may have missed the boat, for now. According to Dr Aldo Flores-Quiroga, secretary-general of the International Energy Forum, the shale gas boom in the US has been a victim of its own success, with gas producers struggling to make money. Shale gas may transform Britain’s energy economy, and undermine even further the economics of renewables, but at the moment it is more likely to be LNG from the US.

The Spectator



26 Comments on "How the US shale gas industry has changed the global economy"

  1. eugene on Mon, 1st Dec 2014 9:10 am 

    Once more the America rides forth (white horse of course) to save the planet (universe in some minds). I’ll tell ya, makes an old man’s heart sing for the simple joy of it all.

  2. louis wu on Mon, 1st Dec 2014 10:08 am 

    “Never has a theory collapsed so quickly as Peak Oil, the idea that fossil fuel prices would rise inexorably as supply failed to keep track of demand.”
    Who are these numbnuts?The “theory”, based on actual observations, has always been about extraction rates.The price will always be the outcome ultimately of what the majority can pay.

  3. coffeeguyzz on Mon, 1st Dec 2014 10:11 am 

    I just re-read Mr. Hughes’ section on the Marcellus from his recent ‘Drilling Deeper’ analysis over the weekend.
    For any sincere, open minded fact seeker, his stunningly inaccurate predictions hold many lessons. The fact he predicted a peak of about 15 bcfd output in 2018 when the Mighty Marcellus has ALREADY reached 16 bcfd (shortly to surge billions sfd higher as several pipelines are coming online right now), might prompt a widespread reevaluation amongst many observers of this industry.

  4. Plantagenet on Mon, 1st Dec 2014 11:11 am 

    @wu

    The extraction rate is rising and the price of oil is falling. Neither of those things fit with the prediction that global oil production (“peak oil”) occurred in 2005.

  5. Apneaman on Mon, 1st Dec 2014 11:54 am 

    Conventional Plant. That was always conventional and it has been stated that way in hundreds of articles, many which have appeared on this site.You have been accused of poor reading comprehension skills by more than one person around here, but I do not think that is actually your problem.

  6. Apneaman on Mon, 1st Dec 2014 12:08 pm 

    I’ve noticed how the reality deniers keep changing the definition of peak oil depending on the situation. When price is high they say we will never run out because brand spanking new technology (decades old)will always extract more. When price drops they say how can we be anywhere near peak production if it is cheaper? Different definitions, different framing of peak oil depending on the current situation.
    Rationalization-101

  7. rockman on Mon, 1st Dec 2014 12:15 pm 

    P – True. Of course some like to point out the distinction between crude oil peaks and liquid hydrocarbon peaks as the metric has been redefined. But I still think your point is equally valid.

    So we had extraction rates increasing…when oil was selling for 25%+ more than it is now. So are you expecting extraction rates, especially from the US shales, to keep rising as they have been? Of course there’s always a time lag. So if oil prices stay at current levels (or even decrease some more) how much increase US oil production rate would you expect to see by 1 Dec 2015?
    Or, given the high decline rates existing wells, how much of a decrease if the number of new wells decrease significantly?

    My predictions aren’t more valid then anyone else’s. But for a while some folks were predicting a new US oil production peak higher than the one Hubbert accurately predicted for 1971. I suspect if oil prices stay at the current level for the next year or so the predictions of a new US PO date will not come to pass.

    Makes one wonder if 2015 will be the year of GPO…global peak oil. Of course we’ll only see that proven years down the road if it is the case. And then there’s the potential for another surge should oil prices shoot back up eventually. As some would describe as a bumpy plateau. But rather significant “bumps”. So as promised I’m going to steal someone’s term and claim it as my own: we are not so much running along a bumpy plateau as we are stumbling along a sawtooth ridge.

  8. Northwest Resident on Mon, 1st Dec 2014 12:27 pm 

    “we are not so much running along a bumpy plateau as we are stumbling along a sawtooth ridge…”

    Where one wrong step puts us over the edge and on a long fall to the bottom. And, given the fact that the ridge we are stumbling along on is becoming narrower with each step, combined with the fact that BAU’s legs are getting very wobbly from all the treacherous stepping, some might suspect that we’ll be leaving that sawtooth ridge rather abruptly in the near term future.

  9. rockman on Mon, 1st Dec 2014 12:38 pm 

    It just struck me that by the end of 2015 we might see a new story here:

    How the global economy has changed the US shale gas industry

    Consider that the EIA estimates the Eagle Ford shale was producing 1.6 million bopd. I don’t have a crystal ball but let’s say oil prices stay just $30/bbl lower then they had been and don’t drop any further. And that price stays there for the next 12 months. If so just the EFS players, and none of the other trends, would lose $17.5 BILLION of income over the next year.

    A %$17.5 loss of income in just 12 months: I would think that represents a “change” by anyone’s standard.

  10. rockman on Mon, 1st Dec 2014 12:38 pm 

    A $17.5 BILLION loss of income in just 12 months: I would think that represents a “change” by anyone’s standard.

  11. Plantagenet on Mon, 1st Dec 2014 1:50 pm 

    @Apneaman:

    #1 The prediction that peak oil would occur in 2005 has proven to be wrong. Why not admit it?

    #2 And the reason it has proven to be wrong is that unconventional oil production has grown far beyond anything that was foreseen at that time.

    Cheers!

  12. Plantagenet on Mon, 1st Dec 2014 1:53 pm 

    @Rockman: I wouldn’t be surprised if your prediction of a global oil peak in 2005 comes to pass.

    At the very least the decision in KSA to sell their oil cheap is dumb. The Sheiks in Araby don’t seem to have any better grasp of the concept of peak oil then the bureaucrats in DC do.

  13. marmico on Mon, 1st Dec 2014 2:07 pm 

    A $17.5 BILLION loss of income in just 12 months: I would think that represents a “change” by anyone’s standard

    Only for a Walter Mitty that fails to understand accounting identities. The Eagle Ford producers loss of 17.5 units of income is a consumers gain of 17.5 units.

    In any event the change (delta) is a rounding error. 17.5 billion divided by 18 trillion equals 0.1% of 2015 U.S. GDP. A switch of one tenth of a penny per dollar isn’t a change in my book.

  14. Northwest Resident on Mon, 1st Dec 2014 2:20 pm 

    marmico — I can’t help but notice how vigilant you are to point out math errors. What?! Do you carry one of those pocket calculators with you at all times, ready to pounce at the slightest hint of mathematical miscalculation?

    Hey, here’s some big numbers that might intrigue you. Your opinion on the following? No big deal?

    Amount Of Treasury Debt Issued In Last Eight Weeks——$1.040965 Trillion!

    http://cnsnews.com/mrctv-blog/terence-p-jeffrey/ponzi-treasury-issues-1t-new-debt-8-weeks-pay-old-debt

  15. GregT on Mon, 1st Dec 2014 2:45 pm 

    There’s no point NWR,

    The Marmicos of this world are still stuck at Econ101, even though it is completely obvious that this is a failed ideology that has no bearing on reality. They will cling to their beliefs while the entire global economy crashes down before their eyes, and will most likely try to tell you that all is well, even after they find themselves on the streets begging for food scraps. They continue to believe that GDP is a reliable indicator of economic wellbeing, even though this has been widely debunked since the 60s. Supply and demand, the markets will provide, and all of that nonsense.

  16. marmico on Mon, 1st Dec 2014 2:47 pm 

    Well NWR, I can’t help but notice that you are a moron.

    Now if bothered to derive your own data you would go to the The Daily History of the Debt Results website which is here and type in September 30, 2014 and November 26, 2014 you would calculate total debt outstanding of 17.82 minus 12.96. The difference is $140 billion not $1.04 trillion. That’s almost an order of magnitude.

  17. Speculawyer on Mon, 1st Dec 2014 3:07 pm 

    Shale oil has not provided the ‘energy independence’ that many wanted and it never will. As soon as we massively increased production, it caused prices to fall such that fracking will slow and we will import more oil because many foreign oil extractors can extract oil for much less per barrel.

    The only way we can really get energy independence is to get off oil.

  18. Northwest Resident on Mon, 1st Dec 2014 3:11 pm 

    GregT — You’re right. No hope. I just find the marmico to be a morbidly fascinating specimen of troll. I like to poke it with a stick every once in a while to see what insults and nonsense it spits out in response. I know, that’s a pretty lame variety of amusement, but when my head is deep into figuring out complicated programming specifications, any amusement will do for the sake of temporary distraction. This time around, marmico can’t help but notice that I’m a moron. That cracks me up. The marmico troll never disappoints!

  19. Speculawyer on Mon, 1st Dec 2014 3:18 pm 

    “Never has a theory collapsed so quickly as Peak Oil” . . . I’m so tired of hearing this bogus statement. The only way you can debunk peak oil is to prove that oil is created faster than on geological timescales (i.e. Abiotic oil).

    Other than that, peak oil is just fact and we are arguing about the time frame. And people that did predict a peak at some time in the past were proven wrong. But but basic fact of a finite commodity that we literally burn up will eventually peak in production remains sound.

  20. marmico on Mon, 1st Dec 2014 3:37 pm 

    I just find the marmico to be a morbidly fascinating specimen of troll

    Thank you. Ready to rock and roll. Didn’t think so. Just cut and paste.

  21. Plantagenet on Mon, 1st Dec 2014 3:45 pm 

    The Peak Oil Theory will be proven to be 100% correct.

    The predictions that peak oil would occur in 2005 have proven to be 100% incorrect.

  22. GregT on Mon, 1st Dec 2014 4:15 pm 

    “And people that did predict a peak at some time in the past were proven wrong.”

    In the past, Hubbert predicted a peak in US oil production in or around 1970, the peak occurred in 1973. He was proven correct.

    Hubbert predicted global oil production would peak in or around 2005. Conventional oil production peaked again very close to when he predicted that it would. 100% correct.

    Unconventional oil production extended the peak for a decade more, but as it should now be clear, unconventional oil is not what runs modern industrial society.

    We are past peak of global conventional oil production. The economic fallout has been devastating. Now that unconventionals are being taken out of the equation, the situation is about to become much more ugly. I give it two years max.

  23. Apneaman on Mon, 1st Dec 2014 4:27 pm 

    Plant. There is nothing for me to admit since I was not defending the prediction itself, but rather pointing out how you consistently lawyer up the truth to reinforce your emotional position on peak oil and a very different future. I have never predicted dates on peak oil production, nor will I. Too many variables. It will happen when it happens. I am in no rush to suffer. A few years back when I realized we are/were incapable of not using energy from the day we discovered how fire works, I gave up on any idea of peak oil saving humanity from the worst of climate change. We have triggered the 6th mass extinction on this planet and I doubt we will escape it. If you want a prediction here is one. No country will stop burning oil or fighting for it until the last barrel or the last man standing.

  24. rockman on Mon, 1st Dec 2014 10:01 pm 

    Plant – “I wouldn’t be surprised if your prediction of a global oil peak in 2005 comes to pass.” Actually I don’t mind pushing GPO to today by counting the non-crude oil liquid petroleum. After all the economies run on ENERGY…not crude oil, biodiesel, chicken grease, etc. LOL. They either get the energy they need at an affordable price or they don’t.

    And to be typically oil patch crude: I still don’t give a f*ck about dates, oil production rates, drill rig counts, etc. in singularity.p LOL. To me it has always been, and always will be, about the POD. It’s the POD that brings great joy to some and great pain to other. And can quickly switch those rolls. It can lift economies out of great trauma or push them over a cliff to their deaths. It can bring peace and contentment as well as fill a tarmac in Dover with shiny aluminum boxes.

    It’s a swirling eddy in the ocean that can float some at the surface to bask in the warm sun while, at the same time, drag others down to cold harsh death.

    So yeah: Atlas shrugs and Dog didn’t give a sh*t. LOL.

  25. Perk Earl on Tue, 2nd Dec 2014 3:04 am 

    NWR, I’m not sure how they are figuring that amount in the last 8 weeks. I ck. in on national debt from time to time and it has been inching up from 17 trillion this past year and has now just tipped 18 trillion.

    “Amount Of Treasury Debt Issued In Last Eight Weeks——$1.040965 Trillion!”

    If you ck. the link below national debt is just over 18 trillion. If had gone up by a trillion in 8 weeks we’d be at 19 trillion. But maybe debt issued is different than debt accumulated?

    In any case, going over 18T is rather troublesome.

    http://zfacts.com/p/461.html

  26. Davy on Tue, 2nd Dec 2014 6:03 am 

    Rock, POD is especially useful to me as a doomer because it fits into the systematic side of my doom views. I use PO in conjunction with peak systematic entropy we see in our human structures. The peak in both dynamics for me is the key that points to macro descent. To put it simply the car is missing on two cylinders and many gas stations are closed. The combination of energy issues along with diminishing returns to the complexity needed to solve all the multitude of issues for industrial man is the killer.

    The issues I always get back to that really matters for humans is time. When will these currents turn the ship of man towards the shoals? I am a generalist so I am looking at many variables. I am not an expert on the oil sector. I spent several years selling equipment to pipeliners. My family has been doing that since the very beginning of pipelines. Energy is in our blood. Yet, being a generalist I am not interested in specialization. I am interested in determining which specialist know their ass from a hole in the ground. I have found several on this site that is why I hang around. I enjoy the friendship of many of you in this pursuit.

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