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Shale Oil, Geopolitics, Environment Of The Next 3 Years

China Oil Geopolitics Energy Enviroment Shale Oil Russia Saudi Arabia Coal Natural Gas

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Poll: Global Energy (5 member(s) have cast votes)

Will the United States dominate the global energy industry of the next 3 years?

  1. Yes (3 votes [60.00%])

    Percentage of vote: 60.00%

  2. No (2 votes [40.00%])

    Percentage of vote: 40.00%

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#1
TranscendingGod

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The United States was, for the majority of the history of commercial petroleum, the number one producer of Oil. During WWII as much as 90% of the petroleum used by the Allies originated from the United States. As the war ended and petroleum was extracted from places like the Middle East the United States gradually lost its place as the top producer of this precious commodity.

Now thanks to fracking, something that Obama actually implemented policies in order to help its growth, we have the capability and have had the capability to extract copious amounts of petroleum from shale rock. While the technology and process were expensive a couple of years ago and non-competitive at anything but the highest prices it is not capable at competing, according to some estimates, at 40 dollars a barrel. With the prices of Oil as they are now we are seeing an enormous resurgence of shale oil production which is set to place the United States as the top producer of Oil one again.  https://www.cnbc.com...l-producer.html

 

Now this is great news for the United States and not so great for OPEC and Russia. As you know markets are finite and market share is a large determinant of revenues. OPEC and Russia cannot continue to cut production without the United States increasing production further and encroaching on more markets. The United States gains have in large part come from the collapse of Venezuelan petroleum production.  https://www.bloomber...news-worse-news

Now of course OPEC has also been cutting production and looks to extent that paring through this year. 

 

It is evidently clear that with the collapse of petroleum production or its functional equivalent, loss of markets, is fatal for a country such as Venezuela where it is largely dependent upon these revenues in order to function. Now the question is twofold:

  • Can Russia and OPEC compete with with the rise of American shale production and thus avert a loss of market share by pricing out the Americans?
  • If not can these countries sufficiently diversify their income streams in order to avert at best general economic malaise and at worse collapse?

As for the first question I think we already have a partial answer and it seems to be a resounding no. American shale production is becoming more and more economical at lower and lower prices. Saudi production has been some of the lowest cost source of petroleum in terms of the cost of extraction. Yet even this has a threshold and with the lowering of prices into the 30s and 20s as we just saw even they are strained. The real question is perhaps how far can shale production go? How low cost can it be? How much can they consistently produce? 

 

So in my view Saudi Arabia and Russia will, unthinkably, be priced out of many emerging markets especially in the western hemisphere. We are already seeing this with regards to Mexico and how they are receiving vast amounts of Oil and Gas from the United States. China is of course expanding their consumption and their available sources. They will continue to receive vast amounts of supplies from Russia and so I think that Russia may be a bit better off than Saudi Arabia but nevertheless US shipments of LNG to China will occur and thus Russia will have real competition. In my opinion the only real question is how far will these countries fall? 

 

Now I think it is fairly evident how far Saudi Arabia will fall especially considering the time frame which we are talking about here. Shale's rise has been meteoric. I simply do not see how this country can diversify sufficiently in order to avoid some catastrophic consequences. Russia is a bit more complex but I do not think that anyone can argue that the export of these natural resources is absolutely vital to their economy. They simply don't have a robust enough economy to absorb such a large impact. If the United States were to experience such a drop in production or market share then it would inevitably affect the economy so with all the more reason an economy like the Russian one. 

 

There is also of course the role that petroleum products plays on national security even today. The energy independence of the United States is arguably what won WWII and so their continued energy independence greatly strengthens their position on the global stage. Now let me unequivocally state that what I have so far mentioned does not mean that Saudi Arabia and Russia will become fringe producers or that they will not have considerable market share but merely that they will clearly be playing second fiddle to the American energy behemoth. 

 

Now you may be thinking as a future oriented person that none of this is of much importance given the electrification of transport and the greening of the grid. Well I would be inclined to agree and I myself have made some crazy predictions as to these very things but I would simply put two cautions on these ideas. Firstly in regards to transport we do not yet have any viable alternatives for petroleum driven boats and airplanes and may not have them for a couple of years. Seconly when it comes to cars, trucks, and other smaller transportation we obviously have companies such as Tesla already releasing marvelous products at the staggering pace of... 100k a year. Soon to be 200-300k this year. Now I laud this effort but considering the car market here in the United States is 17 mil a year and the one in China is 22+ million a year even exponential growth will not eliminate the petrol vehicle in 3 years. Furthermore we have India now producing 6+ million a year for its burgeoning auto industry. Combine this crazy growth in China, where car penetration per capita is less than the Ukraine, and India where the per capita penetration is even worse and you realize that Oil will not abade its growth in the next three years but rather it will surpass 100 million barrels per day without batting an eyelid. 

 

As for the electrification of the grid we first have to take into consideration that the majority of the carbon emissions reductions here in the United States have not been in large part due to the increases in solar and wind but rather due to the adoption of natural gas in place of Coal. Now something similar is happening in China where they are replacing much of their coal production with LNG from Russia and the United States in order to alleviate their pollution woes. Now while Wind and Solar will ultimately be our main methods of producing electricity I find it likely that in the next 3 years Natural Gas production levels and consumption will reach record levels. All of this means that the United States, if it continues to improve the shale technology and production processes- as it has, will be well poised to veritably conquer the world in terms of energy. Now this may sound delusional to someone like myself who has only know an OPEC dominated world and a world where Russia has vied with Saudi Arabia as the top producer of oil but the fact remains that this has been the natural state of things for the majority of the history of petroleum. 

 

Now when speaking in environmental terms this is obviously not a great thing but I am fairly confident that greenhouse gas release levels will actually decline as China and the United States continue to forsake coal. In the bit longer term I believe that China will become the energy powerhouse of the world with their production of photovoltaics and wind turbines. However this is in the 5+ year range. On a side note the fossil fuel companies are not all detriment as it was just announced that one of the top 10 supercomputers in the world will be used for exploration of underground oi/gas resources by an italian supermajor. https://www.top500.o...-supercomputer/

 

Which is just plain cool. 


  • Yuli Ban, Maximus, Outlook and 1 other like this

The growth of computation is doubly exponential growth. 


#2
TranscendingGod

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As an addendum to this post I would mention that this will highly benefit developing countries such as China, India, Indonesia, and others as high energy prices is detrimental to their economic growth. What this means in practice is that China will be able to maintain a 6%+ growth rate for the next 3 years and India will be able to increase their growth rate to maybe 8%. It will allow these countries to massively increase their energy consumption which is important for a basic reason. 

 

Without increases in energy those who do not have electricity will not acquire that electricity. Without low energy prices and commensurate increases in energy consumption then mobility will not increase. More Chinese will use autos and more Indians will use autos if energy prices remain low. What this means is that with their increased mobility and with their increased access to electricity among other essential things that energy facilitates then they will be able to do more things to grow the economy. A worker without mobility cannot really get where he needs to get to work, and he cannot get to the arcade, grocery store, etc. 

 

The low energy prices of the next 3 years will be a massive boon to these developing countries as they have already been for the last 3. This is evident in something like China's better than expected growth last year. Of course this is not the only factor when considering economic growth but it is perhaps THE enabling factor. 


The growth of computation is doubly exponential growth. 


#3
TranscendingGod

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11 months after this post it appears that the United States could already clearly be said to be dominating the energy industry of today. The American output of oil and gas are now at record levels. https://www.eia.gov/...il.php?id=37416 The Saudi's are now in full on panic mode to avoid another collapse of prices like the one precipitated by a glut in 2016. 

 

https://www.cnbc.com...ost-prices.html

 

Russia is still in an unprecedented state of cooperation with OPEC in an attempt to prop up oil prices. Time and time again pundits have been absolutely blindsided by the unprecedented growth in American energy production. Even predictions from a couple of years back when the shale revolution was already well underway did not predict the growth in American production to be this rapid. A prognostication by Russell Gold in his 2014 book "The Boom" read as follows "By 2020, America could be the largest global oil producer". This prediction proved to be too conservative by a pundit who was literally writing the book on this miracle. A book which does not purport to be neutral in the exaltation of this accomplishment nor conservative about its continued trajectory. 

 

It seems overwhelmingly clear that the United States is set to expand their dominance in the energy markets. It seems unimaginable today for the United States to have to go invade middle eastern countries in order to secure its access to petroleum. If anything this situation makes me think that countries like Saudi Arabia are going to be facing unprecedented austerity measures in the next 2 years in order to simply stay solvent. This is all happening without the effects of things like electric vehicle adoption being felt. Never mind the fact that electric vehicle adoption is an exponential process which in a few years will appear to come out of nowhere are slap these oil dependent countries in the face. https://www.bloomber...tric-car-future

https://qz.com/14654...-new-cars-sold/

 

So extending the outlook of this process out 5 years in time I would predict with a fair degree of confidence that the United States will be outproducing Saudi Arabia and Russia by at least 3 mbpd. In other words Canada could completely stop producing oil without a fall in supply. The only caveat to this is whether this massive increase leads to a collapse in oil prices and thus the industry writ large suffers including the American shale producers. Another possible way this could fail to pass is if the market begins to price in all the lost demand from the adoption of electric vehicles. 

 

By the end of 2020 expect a world where Saudi Arabia is a bit player in the oil industry (relative to the United States of course) and Russia's role is greatly diminished being propped up only by their massive gas reserves and production (as I expect continued robust demand for natural gas during this time period). Expect the United States and China to be monopolistic when it comes to Solar, Wind, Oil, and battery electric storage (take note that this prediction is actually quite conservative considering that by many definitions this is already the state of the world). 


  • Raklian, Yuli Ban and Erowind like this

The growth of computation is doubly exponential growth. 


#4
Erowind

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It all makes me wonder how long shale production lasts though. Fracking often costs more energy to extract than the energy output of the extracted oil itself. Not to mention that fracking actually becomes unprofitable around 50$ a barrel and we're really close to that price now. (Nearly 56$ a barrel at the time of posting.)

But of course, we're entering a neo-gilded age so the shale companies will keep being subsidized to continue an energy inefficient, environmentally destructive, community destroying and potentially even unprofitable industry.

https://www.investop...e-60-barrel.asp

The economic side of that article is a good analysis of market conditions assuming an uncorrupted market. It should only be taken as a source pointing out whether fracking is profitable or not. The article does not do a good job representing scientific inquiry. Fracking either is environmentally dangerous or it isn't. There's no, "partially poisoning the water table." Either the water people are drinking is tainted or it isn't. Maybe the degree to which it's tainted is debatable, but there's no inbetween not being poisoned and being poisoned. (Hint, scientific study points to fracking poisioning water supplies.) And Investopedia as always is completely oblivious to the corruption inherent to the industry, which should be expected from them. They are investment analysts after all.

Current status: slaving away for the math gods of Pythagoras VII.


#5
TranscendingGod

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Fracking has only become more competitive as time goes on. Of course the environmental impact of fracking, as you mention, has been of the biggest objections to fracking since its inception. Water table contamination, fresh water depletion, earthquakes, gas leakages, and a myriad other problems which are not given enough attention remain problems, but due to the undeniable progress since the first frack jobs on many of these problems, though not all,  I have been lead to think that the industry will continue apace regardless of whether this is a prudent decision as regards environmental impact.


The growth of computation is doubly exponential growth. 


#6
Erowind

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Fracking has only become more competitive as time goes on. Of course the environmental impact of fracking, as you mention, has been of the biggest objections to fracking since its inception. Water table contamination, fresh water depletion, earthquakes, gas leakages, and a myriad other problems which are not given enough attention remain problems, but due to the undeniable progress since the first frack jobs on many of these problems, though not all,  I have been lead to think that the industry will continue apace regardless of whether this is a prudent decision as regards environmental impact.


Environmental concerns aside, what are your thoughts on these points that I also made in that post.

Fracking is inefficient. It often costs more energy to extract the oil than the oil itself produces when burned.

Fracking is not very profitable, and soon might be unprofitable. The profitability mark is roughly 50$ a barrel. Current oil prices are 57$ a barrel.

Fracking is subsidized by a corrupt government despite clear bipartisan opposition (at least opposition on the constituency level. Representatives don't count as they are corrupt. But the people living in fracked communities clearly don't want them there.)

Current status: slaving away for the math gods of Pythagoras VII.


#7
TranscendingGod

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  • Source?
  • Fracking seems to be as profitable as other oil extraction operations. Even the Saudis, with some of the lowest extraction costs around, suffer at lower prices. Fracking operations are as ready as ever to handle prices below $50 considering that with the last collapse in prices the only effect was a slowdown of operations and a shuttering of those operating on the edge of profitability as it stood. 
  • It would appear that fracking is no more subsidized than other resource extracting operations. It would not be fair to say that none of the people living in fracked communities want them there because it is often the case that companies pay them to lease the land so that they can frack on it. This is not to say that they do not feel pressured or that it is in their interest to lease the land because reservoirs cover several land plots so if they do not their neighbors will but that is besides the point. 

So if the question is whether fracking will endure I think the answer is a resounding yes. 


The growth of computation is doubly exponential growth. 


#8
Alislaws

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Excellent Article here: The Cost of Shale Oil Versus Conventional Oil 

 

In Summary:

 

The cost-per-barrel of conventional deposits varies, with Saudi Arabia able to produce oil the most cheaply, sometimes under $10 a barrel. The Middle East and North Africa are also very efficient, producing oil as cheaply as $20 per barrel down. Worldwide, conventional oil production typically costs between $30 to $40 a barrel.    

vs

 

Some shale oil wells may have a break even point of $40 a barrel over their production life despite the higher drilling and fracking costs. However, many sources put the average break-even point for a fracked horizontal well above $60 a barrel with the higher-cost wells coming in at over $90 a barrel.

 

There's a bunch more details. Not being an oil industry insider, i'm not sure how accurate this article is though. 



#9
TranscendingGod

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This is what happens when your product is no longer competitive in cost despite the fact that it is heavily subsidized. https://www.eia.gov/...il.php?id=37692

 

I'm not claiming that fracking is the cheapest oil source on the market but clearly it is competitive. https://www.eia.gov/...il.php?id=37416

 

From the link - "U.S. crude oil production has increased significantly during the past ten years, driven mainly by production from tight oil formations using horizontal drilling and hydraulic fracturing. EIA estimates of crude oil production from tight formations in August 2018 reached 6.2 million b/d, or 55% of the national total."

 

The vast majority of growth has stemmed from tight oil formations. The inability to abnegate a dirty fuel source by the industry can only account for a small portion of this growth. Basic economics dictates otherwise subsidies notwithstanding. 

Either way not even Saudi Arabia is producing their barrels at an average cost of anything near $10 a barrel. It would be closer to the mid to high 20s and the fact of the matter is that most major oil producing countries don't fall anywhere near this low cost of production. Combine that with the fact that entire governments are dependent on the revenues of their oil operations and you quickly realize that they don't just want to break even. There is no contest when it comes to the flexibility of the fracking industry and their ability to work on shoestring budgets as compared to the colossal vacuum that are oil dependent government coffers. 


The growth of computation is doubly exponential growth. 


#10
Alislaws

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I think the USA could lead the world in fossil fuel production (of various types) Essentially the recent incresasses are from Tech bringing down the cost of accessing more difficult deposits. 

 

If prices drop, some o the more marginal fields in the USA will be shut down till the returns are better, sure, but there will still be good money in bringing the costs down, so we should see a steady increase over time at all potential price levels as people get better at extracting it. 

 

I personally think the decision to limit the USA's exploitation of its own reserves, and instead import from OPEC etc. was a strategic one, by encouraging the other oil producing nations to produce lots of oil, their supply drops, also they use up the cheapest/easiest stuff first. 

 

This means after decades of the USA sitting back and letting the other nations take the lead the USA is more competitive (even without tech improvements) and the price of oil where no one can make a profit is steadily rising. 

 

Probably part of the reason that fracking etc. is needed is because the USA has led the world for so long in oil production, all their easiest reserves are used up so they need more tech to unlock what's left.







Also tagged with one or more of these keywords: China, Oil, Geopolitics, Energy, Enviroment, Shale Oil, Russia, Saudi Arabia, Coal, Natural Gas

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