Cautious times ahead for shale

Updated March 11, 2018


The biggest event of the oil and energy calendar, the CERAWeek, often dubbed as the annual pilgrimage of the industry was held last week in Houston.

Industry leaders, policy makers, ministers, CEOs of energy majors, all were in attendance, endeavouring to decipher the mood of the industry and its future trends.

While delivering his opening remarks, US Energy Secretary Rick Perry described the push to ramp up American exports, along with investment in the hydrocarbon industry, as the beginning of a “new energy realism.”

He emphasised that the vast resources unlocked by unconventional shale activity have boosted the US economy and such technological innovations could be duplicated in energy-starved regions of the world to increase energy security and quality of life in other nations.

America’s development of hydraulic fracturing technology has enabled a new wave of oil and gas abundance in the US, and that his country was in a position now to focus on maximising exports of its energy, as well as its technologies, he added.

Secretary Perry also attacked the climate change policy, arguing global efforts to shift away from fossil fuels were “immoral” by denying developing nations the plentiful, cheap energy needed to lift people out of poverty.

“Look those people in the eyes that are starving and tell them, ‘You can’t have electricity,’” he said. “Because as a society we decided fossil fuels were bad. I think that is immoral.”

A definite sense of cautious optimism was palpable at the conference, with many feeling that data analytics and technology, like machine learning, will improve efficiency in the oil patch and fuel further gains.

Not everyone, however, seemed to agree. John Hess of Hess Corporation, while referring to the worldwide obsession with shale, conceded that the growing oil production from the US is having a global impact, yet, he insisted there remain serious questions if the production rates would last for long.

Pioneering oilman Mark Papa, the CEO of Centennial Resource Development, also seemed cautious. Papa warned the audience that forecasts for booming US production growth would leave industry watchers disappointed in the coming years as drillers` burn through their best wells and tighten their purse strings.

“The impression of US shale as the big bad wolf is perhaps a bit overstated,” he told the Houston audience, adding that the best days were behind some of those fields.

“My theory is that you’ve got basically resource exhaustion that is beginning to take place. It’s no secret that you’ve only got three shale oil plays in the US of any consequence,” and, “the rest of them don’t amount to a hill of beans.”

About 80 per cent of the roughly 6.7 million barrels per day produced by America’s shale regions comes from three areas: the Permian Basin in Texas and New Mexico, the Eagle Ford in southern Texas and North Dakota’s Bakken Shale.

Drillers in the Eagle Ford and the Bakken will soon have to start plumbing lower-quality acreage, in Papa’s view. That will leave the burden of meeting growing global demand on the Permian. Papa believes Permian production will not be able to satisfy the world’s growing appetite for oil, and warned the underinvestment in new oil projects could lead to undersupply.

The future is definitely not clear yet. The head of the International Energy Agency (IEA), Fatih Birol also underlined that the global oil industry needs to add the capacity of one oil field in the North Sea each year in order to replace the declining oil fields.

Aramco CEO Amin Nasser was more specific. He insisted investor confidence would only come with the knowledge that oil is allowed to compete on a level playing field, highlighting the industry would need more than $20 trillion in investment in the next 25 years just to meet the expected growth in demand.

Continuing upon their meeting last year, Organisation of Petroleum Exporting Countries (Opec) leaders availed the opportunity to meet major shale producers. Nigerian oil minister Emmanuel Kachikwu also says it’s “time to reach out” to American shale drillers about pitching in to help “stabilise” the oil market.

After the meeting, the Opec Secretary General Mohammad Barkindo described the meeting as a friendly exchange where they “compared notes” with US producers. Timothy Dove, president and CEO of Pioneer Natural Resources, later said it was a congenial meeting. During the meeting, Barkindo stressed that Opec was confident of long-term oil demand growth, Dove said.

Industry mood has definitely improved over the previous years, one needs to concede at this stage.

Published in Dawn, March 11th, 2018