Petropredictions
Saudi Arabia Underestimates US Shale

Call it a skeptical opinion of a chief rival or simply wishful thinking, but the Saudi Arabian energy minister is pouring cold water on the idea that American shale producers are about to embark on a significant rebound. The FT reports:

Khalid al Falih, speaking at the World Economic Forum in Davos, said that while US output has rebounded in recent months he did not believe the US could add 2-4m barrels a day to keep up with demand growth any time soon.

“What has been tapped recently is the most prolific areas,” Mr Falih said of the US shale industry. “As demand rises they will go to the more expensive, more difficult, less prolific areas in the shale and they will find that they need higher prices.”

Al-Falih is correct in his statement that U.S. producers are going to target the cheapest, most productive shale formations first, and eventually be forced to tap the more expensive options—that’s just how this business works. But just as the geology will get more challenging over time, so too will the technology underpinning these projects improve. Future predictions based on the technological capabilities of the present are rarely accurate, but it seems that the Saudi minister is falling into that trap here.

We’ve already seen that very mistake made by market analysts observing these very same producers two years ago when they assumed that sub-$75 crude would sink the upstart shale industry. That kind of thinking was wrong then, and there are plenty of reasons to be skeptical of shale’s naysayers this time around, too.

After all, the American oil industry added enough oil over the past three months to cover more than a quarter of the cuts that OPEC and its eleven other petrostate partners are taking off the market during the first half of this year. That’s an extraordinary achievement, and the 482,000 barrels per day the U.S. has added since mid-October suggests that this is just the beginning. The entire shale industry was born out of creative problem solving, and that spirit helped producers to reduce costs quicker and to a greater degree than anyone believed they could over the past 30 months.

We’ve said it many times, and we’ll say it again: underestimate American innovation at your own peril.

Features Icon
Features
show comments
© The American Interest LLC 2005-2017 About Us Masthead Submissions Advertise Customer Service