Energy

US Shale Is Booming, But Is It Enough To Fuel The World?

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Michael Bastasch Energy Editor
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The U.S. is expected to dominate global energy markets in the coming years, but a major question is emerging that puts a damper on global energy optimism.

Experts are questioning whether enough is being invested to adequately meet projected demand for oil and natural gas.

“The United States is set to put its stamp on global oil markets for the next five years,” Fatih Birol, executive director of the International Energy Agency (IEA), said in a statement on the release of the latest oil market report.

U.S. production will make up 80 percent of oil supply growth over the next five years, IEA projects. Hydraulic fracturing and horizontal drilling unlocked vast oil and gas reserves.

“But as we’ve highlighted repeatedly, the weak global investment picture remains a source of concern,” Birol said.

Operating costs have fallen, but investment in upstream production operations hasn’t recovered a 2015 and 2016 when oil prices took a nosedive. U.S. companies have increased investments as shale oil and gas production surges, but the Organization of the Petroleum Exporting Countries (OPEC) and other countries have not followed suit.

Investments need to increase to meet forecast demand, Birol said. Adding to the confusion is chaos in Venezuela, a major OPEC oil-producing nation. Political instability caused production to plummet, offsetting gains made by other OPEC members.

“More investments will be needed to make up for declining oil fields – the world needs to replace 3 mb/d of declines each year, the equivalent of the North Sea – while also meeting robust demand growth,” Birol said.

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Global oil demand is expected to reach 105 million barrels per day by 2023, and production is forecast to reach 107 million barrels a day thanks to U.S. shale plays. That razor-thin margin between production and demand poses risks.

Overall, IEA’s report presents good news for President Donald Trump’s administration’s “energy dominance” agenda. The White House has been working to roll back restrictions on energy production.

U.S. production could reach 21.1 million barrels per day by that time, IEA reported.

Birol’s warning comes one week after Royal Dutch Shell reported the global liquefied natural gas market could face shortages in the mid-2020s due to underinvestment.

More flexible contracts were giving importers and exporters less incentive to underwrite infrastructure expansion, Shell said. Shipping liquefied natural gas (LNG) on tankers across the world is a complex process that requires specialized facilities.

Despite this, LNG is expected to be a growing market, led by Australia, Qatar and the U.S., according to Shell.

“The U.S. clearly enjoys many advantages, but our valuable supply stands at risk of being left behind if we don’t build infrastructure now,” Meg Gentle, president of the LNG exporter Tellurian, told Congress in February.

Gentle said $170 billion in infrastructure investments are needed to meet growing LNG demand. Tellurian plans $29 billion in infrastructure investments.

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