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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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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 and rennerpetey like this

The growth of computation is doubly exponential growth. 



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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. 

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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