Over the course of the past decade the United States, following decades of relative stagnation in oil production, has surprised many to become the largest oil producer in the world, exceeding Russia as well as Saudi Arabia. Latest daily production is just above 12.1 million barrels a day. In November 2018 for the first time in decades the US became a net oil exporter. The geopolitical implications to this energy boom in a world where oil determines the growth of entire economies, would appear to be great. Almost all the increase owes to the exploitation of what is called shale oil, unconventional oil found in shale rock formations. The US Department of Energy projects a rise to 8.8 million barrels daily from US shale oil alone, a new record. Now though, we are seeing the first clear signs that the “shale boom” could implode even faster than it rose. The implications for American foreign policy and global geopolitics and economics are significant.
The ‘Fracking’ Revolution
The idea of extracting oil or natural gas embedded in shale rocks has been known for years. However shale oil, or tight oil as it is known, first became economical with introduction of new horizontal drilling techniques combined with oil prices of $100 a barrel or more. This was about two decades ago.
In hydraulic fracturing or fracking, oil embedded in shale rock thousands of feet down is injected with a high pressure mix of water, lots of it, mixed with chemicals and sand. The de facto sand blasting creates fissures where oil can flow into the oil pipeline. The actual drilling of a shale well is only about 30-40% of the total cost. Up to 55-70% are from completion which includes actual fracking. The independent oil consultancy, Wood Mackenzie, recently estimated that the USA held an impressive 60% of all world shale reserves that are economically viable at oil prices of $60 per barrel or less.
Now it begins to get interesting. The current price for the West Texas Intermediate marker grade of oil is around $58 a barrel, where it has been for months. The price has not shot up as many expected despite the disruptions in Venezuela, in Iran and around the Persian Gulf.