The fast-growing industry in the US is proving doubters of its sustainability wrong
The latest short-term outlook for US oil production published by the Energy Information Administration shows output rising to 13.2m barrels a day by the end of 2020. If this is achieved (and the EIA is traditionally cautious), the US will be the largest producer in the world, by a clear margin over Saudi Arabia and Russia.
Two-thirds of that production will come from “tight oil” — that produced by fracking shale rocks. Ten years after the shale business began, the revolution is as dynamic as ever.
Commentators who said shale was a marginal short-term phenomenon that would be killed off by falling prices, or rapid reservoir depletion, have been proved wrong. What began as a gas play now supplies the US with the bulk of its oil and gas needs.
Threatened by the downturn in prices after 2014, the shale industry has achieved a remarkable reduction in costs. The current outlook is for output to continue to rise until at least the mid 2020s even at current oil prices.
The impact on the global market and trade has been profound. The US is now a net exporter of both oil and gas, and recent figures from the International Energy Agency suggest that exports will continue to grow steadily.
That means US production growth is absorbing most of the annual increases in global oil demand (around 1m b/d), leaving Opec and Russia little or no scope to increase their own exports or revenue.
US export growth is the main reason why, despite the falls in production in Venezuela and Iran as a result of sanctions and social disintegration, the oil price at just over $60 for a barrel of Brent crude is below what it was 40 years ago in real terms.
US exports are also reshaping the world market for natural gas. The latest surge in gas exports, built on the growing volumes of that produced as a byproduct of oil extraction, is adding to a global glut. Prices can only fall further and expectations of a price surge in the early 2020s now look misplaced.