Shale production is booming as oil prices rise – Will it lead to less conventional investments?

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As long as the oil price is increasing to a level higher than $60 per barrel, shale oil producers will push for higher volume in order to earn more, satisfy their shareholders’ interests and objectives, and push for increased efficiency at all levels.

On the other hand, conventional producers will try to minimize investments out of concern for lack of grown and call for increase in demand for oils above one million barrels. Without creating shortage of oil under the current obligation to prolong the production cuts by 1.8 million barrels and beyond for balancing the current surplus of oil, they know well that shale oil can handle such growth volume at any time.

Shale oil production in the USA is at its highest level, hitting or perhaps surpassing its peak of more than ten million barrels per day, which is double the production volume of five million barrels. Perhaps it will not stop at this level when oil prices are surging above $70 a barrel. At such a high level, it will exceed the level of Saudi Arabia, and the USA will be positioned in second place below Russia.

Nevertheless, the USA is still an importer of oil, even though the import level which hit a peak of 13 million barrels in 2006 dropped to less than three million last year. US shale oil producers are cutting costs left and right, and working on improving efficiency and performance such that the production level per day per field has increased from 196 barrels to 630 barrels, and it is not stopping. The same applies to manpower to 70% compared to the previous years.

This achievement is raising concerns among the conventional oil producers whose revenues depend on the oil prices, but they cannot do much in the presence of shale oil. The demand must surge to reach above two million barrels with room for everybody, but the priority today will be for shale oil until further notice.

Both OPEC and non-OPEC countries should find ways to abstain from depending heavily on oil as their sole source of income. It must follow the example of shale oil producers by cutting costs, reducing subsidies and increasing productivity and efficiency. This can be done only through complete revamping of the current dependency system, education and culture, all of which it must start from home. Otherwise conventional oil producing countries will remain at the mercy of shale oil for many years to come.

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By Kamel Al-Harami – Independent Oil Analyst

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