Shale discoveries may end age of conventional oil

The discovery of massive quantities of share oil and gas in the US and Canada should prompt Gulf countries to closely watch such developments as they indicates an early end to the age of conventional oil, a UAE expert has said.

The issue of rapid growth in the production of shale oil and gas has changed the dynamic extent in the global energy markets, both in terms of their impact on future energy supplies and the prices of oil and gas, Mohammed Asumi said.

Citing international figures, he said shale oil output rose from 5 million bpd in 2008 to 7.5 million bpd in 2013, adding that some experts forecast it would rise to 10 million bpd in 2014 to turn the US into the biggest oil producer.

The US has also become the biggest gas producer in the world, by producing 20.4 percent of the global production and has in this period turned from an importer of natural gas into an exporter, Asumi said in an article published by the Abu Dhabi-based Emirates Centre for Strategic Studies and Research.

He said such developments have had clear implications for producers of oil and gas, especially in the Arab Gulf which heavily depends on its hydrocarbon resources and supplies a third of the world’s demand for petroleum.

Asumi said he believes that most Gulf States do not need to produce shale oil and gas today thanks to their large reserves of conventional oil and gas and the high costs that the shale oil production entails.

“However, they need to keep a close watch on recent debates regarding these recent developments, which might affect oil prices in the global market and substantially reduce the price of natural gas following a two-fold increase in the production of shale gas in the US,” said Asumi, former chief economist at the state-run Emirates Industrial Bank and ex-adviser at Dubai Executive Office.

“In wake of the rapid pace of progress in technology, the age of conventional crude may end sooner than expected. This requires serious rethink into many of the previously determined economic, political and strategic variables.”

Asumi said developing the potential of shale oil has its own advantages for oil exporting countries, including the OPEC, because the continuity of shale oil production necessitates consistently high price levels, in the range of about $100 per barrel due to the high cost of production which is currently estimated at $80.

“Thus, even if prices remain high it ensures good revenues for oil producing countries and provides them with the opportunity to diversify their economies,” he said.

“Meanwhile, meeting annual increase in demand for shale oil will reduce pressure on member countries of the OPEC, particularly Gulf states, to increase production in order to meet global demand. Their financial status would not necessitate such an increase because of their high surplus. This will preserve the fortunes of the Gulf region for a long time, taking into consideration the great potential for shale oil and gas in the Gulf region itself…after all, the production of shale oil and gas cannot completely upstage conventional oil and gas.”

Asumi expected conventional crude to remain the principal source of energy in the future but added that oil producers should take all economic and strategic developments into account and coordinate efforts to address recent challenges.

“The fierce debate over the use of this controversial technology is understandable as many countries are in dire need of diversifying their energy supplies to decrease dependence on foreign countries, especially on a turbulent Middle East,” he said.

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