Study on shale oil and gas raises some important questions
A study by the US Energy Information Administration (EIA), the information and statistic arm of the department of energy, released last week on shale oil and gas, sends strong message on both the potential and dangers that could engulf the energy market.
The study, which came two years after an initial one, shows that there are more shale oil and gas resources than what have been thought initially. Thanks to an enlarged coverage this time. The research covered 95 basins in 41 countries around the world against 48 basins in 32 countries that were surveyed back in 2011, according to the study.
Of the 345 billion barrels shale oil reserves and 7.3 quadrillion cubic feet gas worldwide, the study puts Russia on the top as the country that sits on the most "technically recoverable" shale oil resources with its estimated 75 billion barrels, almost close to its reserves in conventional oil. The United States comes second with 58 billion barrels. On the shale gas side, the top five countries are China with 1.1 quadrillion cubic feet, Argentina 802 trillion cubic feet (tcf), Algeria 707 tcf, the United States 665 tcf and Canada 573 tcf, according to the study.
However, these figures continue to be preliminary and could be registering higher levels in future as research methods improve and more basins and countries are added. For instance, the current study does not include any assessment of large oil field formations in a rich region like the Middle East and the Gulf in particular.
Despite these shortcomings, the study raises a number of important questions. The first to surface is how to define the term ‘technically recoverable’ used in the study and what it actually means in real terms, and how to reach the stage of recovering. Moreover, the economic viability of exploring, developing and producing shale oil comes as a pressing issue, and at what oil price level will such an operation become viable.
These two questions bring to the fore OPEC in the sense that it emphasizes the need for cooperation from various angles. An agreed upon definition on the term ‘technically recoverable’ reserve will help all those in the industry, including the producing ones like OPEC members. After all, there is much need to have as much information as possible on both supply and demand, real and potential, which in itself is needed to further the cause of having market stability that benefit all players.
Moreover, the issue of price prevails and here OPEC plays a crucial role. Being the supplier of the last resort, it is the corner of price and supply stability. Initial studies show that if it is not for the current high prices, shale oil on commercial basis in the United States and Canada would not have seen daylight.
And this consolidates the view expressed many times by the Saudi officials on the need to agree on a price level for the barrel of oil that meets the needs of the producing countries in terms of their budgetary requirements and ability to fund oil projects expansion as well as curtailing rising consumption and providing incentives to tap new sources of energy.
This new stride of the shale oil and gas seems to give a shot in the arm to the supply side of the equation in the oil market and probably lays to rest the long debated issue of the oil peak theory. For quite long time, debates were raging whether the world has reached its limit in terms of reserves and how long that will last.
There is no conclusive knowledge yet on the amount of shale oil reserves or how they could be extracted aside from the United States and Canada. But clearly a new ground has been broken and it is simply a matter of time to know the impact on the market scene of additional investments and efforts in the area of shale oil and gas. It will be interesting to know the impact on the geopolitical aspects given the central strategic role energy and oil in particular has been playing all along.
Shale oil may have an impact on conventional oil, but not necessarily on producing countries as some of them may be producing shale oil and gas. Already countries like Algeria and Libya have been singled out as potential producers adding to their conventional production abilities. The whole untapped Gulf states are yet to be explored and a giant company like Saudi Aramco can play a leading role in this and help provide a better picture and map of proven or probable shale oil and gas reserves and the potentialities of producing it.
The bottom line is how all producers and consumers can make of the new opportunity a case for cooperation, rather than continue the old tradition of trying to use it as a tool to undermine OPEC.
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