National Post (National Edition)
Shale ready to rebound as oil price rises
Producers set to ramp up at US$60 a barrel
When the Organization of Petroleum Exporting Countries started its price war, the U.S. shale boom looked doomed.
Two years and one OPEC policy U-turn later, executives at the annual Oil & Money conference in London painted an upbeat outlook for shale, with giants like Exxon Mobil Corp. and ConocoPhillips saying the industry hasn’ t just survived the bust, but will continue to have a global influence.
“We have confirmed the viability of a very large resource base in North America,” said Exxon chief executive Rex Tillerson.
“Never bet against the creativity and tenacity of this segment of our industry.”
The consequences will reverberate through the energy industry and the world economy.
A cohort of shale producers ready to boost output when prices rise could cap any recovery at about US$60 a barrel for the next couple of years, regardless of any OPEC moves to cut production. Instead of falling victim to the Saudi-led battle for market share, Tillerson said the industry will provide the “spare capacity” to meet future demand.
It ’s a view that puts Tillerson at odds with some of the industry’s most powerful voices, including Khalid Al-Falih, the Saudi energy minister, and Patrick Pouyanne, the CEO of French oil giant Total SA. Both men warned that two years of low prices and investment cuts have left the global industry ill-equipped to supply enough oil by the end of the decade.
“Many analysts are now sounding warning bells about future supply shortfalls and I am in that camp,” Al-Falih said.
Whether a shortage arrives by the turn of the next decade is yet to be seen. Fatih Birol, executive director of the International Energy Agency, said that oil prices of about US$50 to US$60 a barrel can stimulate enough supply for short-term needs until 2020. The Paris-based adviser has also warned about the long-term impact of unprecedented cuts in spending.
In the meantime, the industry’s nearly unanimous view is that shale output can grow again.
The U.S. Energy Information Administration expects crude production to start rising again in the first quarter of 2017, reaching 8.8 million barrels a day by the end of next year from about 8.4 million now.
That would still be short of the 9.6-million-barrel-aday peak in June, 2015. Still, after a two-year price war the industry has emerged
Pbattle-hardened, with executives saying over panel discussions and cocktail parties in London that they are more optimistic now that they can weather low prices.
ConocoPhillips CEO Ryan Lance told the conference on Tuesday that U.S. shale output will “come back strongly” supported by lower costs. New oil wells are viable in the Permian, Eagle Ford and Bakken shale basins at just US$40 a barrel, he said.
“The oil price is essentially unchanged from the conference last year, but the tone from the companies seemed more optimistic,” said Lydia Rainforth, oil equity analyst at Barclays PLC in London. “Most speakers at the conference referenced US$50 to US$60 a barrel as a reasonable oil price for the oil market near term.”
In an unusually open speech, Andrew Gould, board director at stateowned Saudi Arabian Oil Co., said that a US$50-toUS$60 a barrel price would be “sufficient to develop the low-cost resources to provide increases that will be necessary over the next three to four years.”