The Impact of the Shale Revolution

Oil is a global currency. It is the lifeblood of global commerce. Within 10 years, the U.S. has halved their oil dependency and became gas independent. This shale oil and gas revolution has enabled the U.S. to revive their industry (cement, glass, steel, petrochemicals), become one of the most competitive countries in the world but also reduce by 15% their greenhouse gas emissions due to the displacement of their power generation from coal to gas. The “shale revolution” has stimulated tremendous production of oil and natural gas in the United States. U.S. shale revolution means U.S. now produces more than 90 percent of its energy needs domestically, up from two-thirds a decade ago.

Energy independence translates into a crippling drop in demand for OPEC oil. U.S. output has nearly doubled over the past decade and America only trails Saudi Arabia and Russia globally. In January this year, the U.S. lifted the 40-year-old ban on exporting American oil, and the maiden shipments are finding their way to global markets allowing U.S. oil producers to take advantage of markets that provide higher setbacks. Since then, there’s been a sevenfold increase in America’s oil exports to destinations other than Canada, which was excluded from the ban. The U.S. exported 15.7 million barrels of oil in in just the first three months of 2016, with only 7.7 million of those barrels going to Canada. Japan and Italy were the biggest buyers, importing more than 1 million barrels of American crude apiece. In May 2016, the United States set a new record in crude oil exports, selling 662,000 barrels of crude per day or 2.8 million tons over the entire month. The largest buyer of US crude was Canada, importing 308,000 barrels of oil per day.

The U.S. oil boom, fueled by the shale revolution, has obviously taken a few punches from OPEC’s strategy of all-out pumping. On February 16, oil ministers from Saudi Arabia, Russia, Qatar, and Venezuela agreed to a tentative deal to freeze their production in an attempt to boost prices. This was a characteristic move. But the latest numbers show that American production continues to remain stubbornly high in recent months despite the crash in crude to as low as $26 a barrel in February. According to EIA, fracking has allowed the United States to increase its oil production faster than at any time in its history. Fracking now accounts for more than half of all U.S. oil output. Hydraulic fracturing technology, more commonly known as “fracking,” paved the way for drilling into America’s enormous shale deposits. It has fueled a dramatic boom in U.S. oil production. Back in 2000, there were just 23,000 fracking wells pumping about 102,000 barrels of oil a day. Now there are 300,000 fracking wells, churning out 4.3 million barrels per day.

A study conducted by Rystad Energy, an independent oil and gas consulting services and business intelligence data firm, estimates that the United States is sitting on more oil reserves than any other country. Surpassing Saudi Arabia’s 212 billion barrels and Russia’s 256 billion, the U.S. has 264 billion barrels of oil in reserve. This comes as American policy pushes for energy independence and the proliferation of fracking and shale oil extraction.

U.S. crude oil production averaged 9.4 million barrels per day (b/d) in 2015. Production is forecast to average 8.2 million b/d in 2017 according to the data from EIA. Brent, the global benchmark for oil is was down $3.09 to $46.45 a barrel, WTI Crude Oil slid $3.04 to $45.12 a barrel, down 6.3% on the week. During the April-through-September summer driving season of 2016, U.S. regular gasoline retail prices are forecast to average $2.27/gallon (gal), 36 cents/gal lower than last summer. U.S. regular gasoline retail prices are forecast to average $2.13/gal in 2016 and $2.27/gal in 2017.