oil demand, supply, and medium-term price prospects - a...
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World Demand and SupplyOther Supply Responses
Oil Demand, Supply, andMedium-Term Price Prospects
A Wavelet-Analysis Approach
Mahmoud A. El-Gamal & Amy Myers JaVe
Rice University University of California at Davis
June 12, 2013
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 0/30
Outline
1 World Demand and SupplySecular Business Cycle and DemandSupply Responses to High & Low Prices
2 Other Supply ResponsesIncorporating HotellingWars and Regime Changes
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
World GDP and Energy Demand – Weak Growth Ahead
IMF WEO forecast modest real GDP growth: 3.2%, 3.3%, 4.0%, 4.4% for2012–2015.
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015−3
−2
−1
0
1
2
3
4
5
6
7
World GDPGrowth
Rate (%)
World EnergyUse (kt oil equiv)Growth rate (%)
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 2/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Energy Demand – Declining Energy Intensity of GDP
IMF WEO forecast modest real GDP growth: 3.2%, 3.3%, 4.0%, 4.4% for2012–2015.
1980 1985 1990 1995 2000 2005 2010180
190
200
210
220
230
240
World Energy Use(kg of oil equiv)
per $1,000 of GDP(constant 2005 prices)
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 3/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Demand for Oil (millions of barrels per day)
BP data stops in 2011. PIW data shows declining oil demand in Asia by April2013, as growth in China and India has slowed down in recent quarters.
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 20150
10
20
30
40
50
60
70
80
90
Europe &Eurasia
NorthAmerica
AsiaPacific
World OilConsumption
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 4/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Real Price of Oil (Gold led in 1970s, Oil led in 2000s)
1970 1975 1980 1985 1990 1995 2000 2005 2010 20150
50
100
150
200
250
300
350
400
Gold PriceIndex (2005=100)
Oil PriceIndex (2005=100)
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 5/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
High Oil Prices and the Weak Recovery
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
−2
−1
0
1
2
3
4
5
6
7
Expensive oil −> recessioncheap oil −> recovery
WorldGDP
Growth (%)
mean ofgold price
of oil
MeanWorldGDP
Growth
1/50thOunce of Gold
per oil barrel
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 6/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Justification of Medium-Term (3-5 Year) Focus
Short-term “speculative” eVects (0-2years)
1970s & 1990s were partiallygold-led at very high frequencies
Long-term phase alignment(business cycle)
Near 2008 peak, oil-led at highfrequencies
1970 1975 1980 1985 1990 1995 2000 2005 2010
1
2
4
8
Perio
d (y
ears
)
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 7/30
Outline
1 World Demand and SupplySecular Business Cycle and DemandSupply Responses to High & Low Prices
2 Other Supply ResponsesIncorporating HotellingWars and Regime Changes
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Hubbert Curves and Supply Shifts
Time%(years)%
Prod
uc1o
n%(barrels%pe
r%day)%
Individual%Wells’%outputs%
Status%quo%Hubbert%Curve%
Technical%Advance,%Etc%!%Higher%Hubbert%Curve%
Well%mismanagement,%other%disrup1ons%! Lower%Hubbert%Curve%
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 9/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
US Hubbert Curve . . . So Far!
1970 1980 1990 2000 2010
4000
5000
6000
7000
8000
9000
10000
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 10/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Isolating Medium-Term Cyclets: DWT Decomposition
1970 1980 1990 2000 2010
4000
8000
US Production
USA
1970 1980 1990 2000 20105000
8000
Object of Study (Smooth + Detail 5)
DWT$
D5
+ DW
T$S5
1970 1980 1990 2000 20105000
8000
Wavelet Smooth
DWT$
S5
1970 1980 1990 2000 2010
−300
030
0
Wavelet Detail 5 (32−64 months)
DWT$
D5
1970 1980 1990 2000 2010
−300
030
0
Wavelet Detail 4 (16−32 months)
DWT$
D4
1970 1980 1990 2000 2010−300
030
0
Wavelet Detail 3 (8−16 months)
DWT$
D3
1970 1980 1990 2000 2010
−300
030
0
Wavelet Detail 2 (4−8 months)
DWT$
D2
1970 1980 1990 2000 2010−400
040
0
Wavelet Detail 1 (2−4 months)
DWT$
D1
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 11/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Isolating Medium-Term Cyclets Example: Venezuela
1970 1980 1990 2000 2010
500
2500
Venezuela Production
x
1970 1980 1990 2000 20101500
3000
Object of Study (Smooth + Detail 5)
DWT$
D5
+ DW
T$S5
1970 1980 1990 2000 20101500
2500
Wavelet Smooth
DWT$
S5
1970 1980 1990 2000 2010
−200
100
Wavelet Detail 5 (32−64 months)
DWT$
D5
1970 1980 1990 2000 2010
−300
0
Wavelet Detail 4 (16−32 months)
DWT$
D4
1970 1980 1990 2000 2010
−600
0
Wavelet Detail 3 (8−16 months)
DWT$
D3
1970 1980 1990 2000 2010
−600
060
0
Wavelet Detail 2 (4−8 months)
DWT$
D2
1970 1980 1990 2000 2010−400
040
0
Wavelet Detail 1 (2−4 months)
DWT$
D1
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 12/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Technology-Driven Supply Response to Rising Prices: UK
1970 1980 1990 2000 2010
0500
1000
1500
2000
2500
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 13/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Technology-Driven Supply Response to Rising Prices: Mexico
50100
150
200
1970 1980 1990 2000 2010
500
1000
1500
2000
2500
3000
3500
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 14/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Technology-Driven Supply Response to Rising Prices: Brazil
020
4060
80
1970 1980 1990 2000 2010
500
1000
1500
2000
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 15/30
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World Demand and SupplyOther Supply Responses
Secular Business Cycle and DemandSupply Responses to High & Low Prices
Technology-Driven Supply Response to Rising Prices: Angola
02
46
810
12
1970 1980 1990 2000 2010
0500
1000
1500
2000
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 16/30
Outline
1 World Demand and SupplySecular Business Cycle and DemandSupply Responses to High & Low Prices
2 Other Supply ResponsesIncorporating HotellingWars and Regime Changes
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World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Gold Price (Gold led in 1979)
1970 1980 1990 2000 2010
0500
1000
1500
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 18/30
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World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
WTI Price (Oil led after 2003)
1970 1980 1990 2000 2010
020
4060
80100
120
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 19/30
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World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Saudi Production Response to Price
Prod Detail 1 (2–4 months) Prod Detail 2 (4–8 months)DWTID1 1.60
(8.42)DSP500D1 0.84
(0.67)DGoldD1 3.36⇤⇤⇤
(0.58)DUS10yrD1 -1.23
(81.72)DPMID1 -5.31
(8.84)DWTID2 16.86⇤⇤⇤
(5.97)DSP500D2 1.42⇤⇤⇤
(0.53)DGoldD2 2.11⇤⇤⇤
(0.47)DUS10yrD2 -23.13
(51.47)DPMID2 -17.83⇤⇤
(8.01)R2 0.33 0.39Adj. R2 0.32 0.38Num. obs. 566 566
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 20/30
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World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Saudi Production Responses 2
Prod Detail 3 (8–16 months) Prod Detail 4 (16–32 months) Prod Detail 5 (32–64 months)DWTID3 11.72⇤⇤⇤
(4.20)DSP500D3 0.53
(0.61)DGoldD3 3.22⇤⇤⇤
(0.39)DUS10yrD3 -46.47
(53.79)DPMID3 -5.40
(7.66)DWTID4 5.13
(3.72)DSP500D4 0.99
(0.63)DGoldD4 3.23⇤⇤⇤
(0.45)DUS10yrD4 149.40⇤⇤⇤
(50.59)DPMID4 -31.46⇤⇤⇤
(5.32)DWTID5 40.52⇤⇤⇤
(5.18)DSP500D5 -1.06⇤⇤⇤
(0.37)DGoldD5 2.42⇤⇤⇤
(0.37)DUS10yrD5 202.59⇤⇤⇤
(29.30)DPMID5 14.11⇤⇤⇤
(4.12)R2 0.38 0.45 0.62Adj. R2 0.37 0.44 0.61Num. obs. 566 566 566
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 21/30
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World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Saudi Arabia: Responding to Economics (Mexico & UK)To Prevent Prices from Falling Too Fast
2040
6080
1970 1980 1990 2000 2010
2000
4000
6000
8000
10000
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 22/30
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World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Kuwait: Responding to Economics (Mexico & UK) + War
510
15
1970 1980 1990 2000 2010
01000
2000
3000
4000
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 23/30
Outline
1 World Demand and SupplySecular Business Cycle and DemandSupply Responses to High & Low Prices
2 Other Supply ResponsesIncorporating HotellingWars and Regime Changes
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Unintentional Supply Disruptions?
Can Saudi Arabia and other major producers reduce output toaccommodate U.S.?
No, for fear of regime changes in the region. They need currentproduction level as well as high prices to meet budgetary andpopulist demands.
If prices fall, reducing revenues significantly, would regime changeresult in output disruption
As we will show, regime change by itself does not lead to jumps tolower Hubbert curve, although they may prevent jumps to higherones
War, on the other hand, destroys facilities and leads to supplydisruptions
Is the status quo with threat of spreading war (i.e. Syria) the bestscenario for major producers?
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 25/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Unintentional Supply Disruptions?
Can Saudi Arabia and other major producers reduce output toaccommodate U.S.?
No, for fear of regime changes in the region. They need currentproduction level as well as high prices to meet budgetary andpopulist demands.
If prices fall, reducing revenues significantly, would regime changeresult in output disruption
As we will show, regime change by itself does not lead to jumps tolower Hubbert curve, although they may prevent jumps to higherones
War, on the other hand, destroys facilities and leads to supplydisruptions
Is the status quo with threat of spreading war (i.e. Syria) the bestscenario for major producers?
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 25/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Unintentional Supply Disruptions?
Can Saudi Arabia and other major producers reduce output toaccommodate U.S.?
No, for fear of regime changes in the region. They need currentproduction level as well as high prices to meet budgetary andpopulist demands.
If prices fall, reducing revenues significantly, would regime changeresult in output disruption
As we will show, regime change by itself does not lead to jumps tolower Hubbert curve, although they may prevent jumps to higherones
War, on the other hand, destroys facilities and leads to supplydisruptions
Is the status quo with threat of spreading war (i.e. Syria) the bestscenario for major producers?
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 25/30
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World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
The EVect of War on Iran
010
2030
4050
1970 1980 1990 2000 2010
1000
2000
3000
4000
5000
6000
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 26/30
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World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
The EVect of Wars on Iraq
010
2030
40
1970 1980 1990 2000 2010
500
1000
1500
2000
2500
3000
3500
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 27/30
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World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Regime Change Did Not Disrupt Venezuela’s Production
2040
6080
100
120
1970 1980 1990 2000 2010
500
1000
1500
2000
2500
3000
3500
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 28/30
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World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Libya: Regime Insanity and Quasi-War
1020
3040
1970 1980 1990 2000 2010
01000
2000
3000
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 29/30
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World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Concluding Remarks: A Very Simple Story
Demand destruction will continue, somewhat similar to 1980sSluggish recovery, in part because oil prices never fell suYcientlyCommodity and asset prices have been artificially inflated by QE
+ Supply growing, also similar to 1980s:
June 10, 2013 7:53 pm
World has 10 years of shale oil,reports USBy Gregory Meyer in New York
Global shale resources are vast enough to cover more thana decade of oil consumption, according to the first-ever USassessment of reserves from Russia to Argentina.
The US Department of Energy estimated “technicallyrecoverable” shale oil resources of 345bn barrels in 42countries it surveyed, or 10 per cent of global crudesupplies. The department had previously only provided an
estimate for US shale reserves, which it on Monday increased from 32bn barrels to 58bn.
The pace of oil and gas production gains has consistently surprised forecasters since horizontaldrilling and hydraulic fracturing, better known as “fracking”, were pioneered in US shale rockformations about ten years ago. Only the US and Canada were producing oil and natural gas fromshale in commercial quantities, the department said.
Monday’s assessment indicated that Russia has the largest shale oil resource, with 75bn barrels.Russia and the US were followed by China at 32bn, Argentina at 27bn and Libya at 26bn.
The report said gas from shale formations increased world natural gas resources by 47 per cent to22,882tn cu ft.
The question of whether other countries can replicate North America’s success in drilling in shalerocks has captivated geologists and diplomats. US crude imports are at a 16-year low, reconfiguringthe map of global oil trade.
“Looking at shale resources has typically been understated by outside market participants becausethe geology is new and the technology is growing rapidly,” said Edward Morse, head ofcommodities research at Citigroup.
Production from shale has helped keep a lid on crude oil prices at about $120 a barrel, givingwestern countries leverage to impose sanctions on Iran, a key supplier. World oil demand is about90m barrels a day, suggesting the world shale oil resource covers 10.5 years of consumption.
©Getty
+ No voluntary output reduction, for fear of “Arab Autumn”
= Price will fall (by half?) if no war;rise (to double?) in case of war;stay the same only with continued QE and threat of war
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 30/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Concluding Remarks: A Very Simple Story
Demand destruction will continue, somewhat similar to 1980sSluggish recovery, in part because oil prices never fell suYcientlyCommodity and asset prices have been artificially inflated by QE
+ Supply growing, also similar to 1980s:
June 10, 2013 7:53 pm
World has 10 years of shale oil,reports USBy Gregory Meyer in New York
Global shale resources are vast enough to cover more thana decade of oil consumption, according to the first-ever USassessment of reserves from Russia to Argentina.
The US Department of Energy estimated “technicallyrecoverable” shale oil resources of 345bn barrels in 42countries it surveyed, or 10 per cent of global crudesupplies. The department had previously only provided an
estimate for US shale reserves, which it on Monday increased from 32bn barrels to 58bn.
The pace of oil and gas production gains has consistently surprised forecasters since horizontaldrilling and hydraulic fracturing, better known as “fracking”, were pioneered in US shale rockformations about ten years ago. Only the US and Canada were producing oil and natural gas fromshale in commercial quantities, the department said.
Monday’s assessment indicated that Russia has the largest shale oil resource, with 75bn barrels.Russia and the US were followed by China at 32bn, Argentina at 27bn and Libya at 26bn.
The report said gas from shale formations increased world natural gas resources by 47 per cent to22,882tn cu ft.
The question of whether other countries can replicate North America’s success in drilling in shalerocks has captivated geologists and diplomats. US crude imports are at a 16-year low, reconfiguringthe map of global oil trade.
“Looking at shale resources has typically been understated by outside market participants becausethe geology is new and the technology is growing rapidly,” said Edward Morse, head ofcommodities research at Citigroup.
Production from shale has helped keep a lid on crude oil prices at about $120 a barrel, givingwestern countries leverage to impose sanctions on Iran, a key supplier. World oil demand is about90m barrels a day, suggesting the world shale oil resource covers 10.5 years of consumption.
©Getty
+ No voluntary output reduction, for fear of “Arab Autumn”
= Price will fall (by half?) if no war;rise (to double?) in case of war;stay the same only with continued QE and threat of war
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 30/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Concluding Remarks: A Very Simple Story
Demand destruction will continue, somewhat similar to 1980sSluggish recovery, in part because oil prices never fell suYcientlyCommodity and asset prices have been artificially inflated by QE
+ Supply growing, also similar to 1980s:
June 10, 2013 7:53 pm
World has 10 years of shale oil,reports USBy Gregory Meyer in New York
Global shale resources are vast enough to cover more thana decade of oil consumption, according to the first-ever USassessment of reserves from Russia to Argentina.
The US Department of Energy estimated “technicallyrecoverable” shale oil resources of 345bn barrels in 42countries it surveyed, or 10 per cent of global crudesupplies. The department had previously only provided an
estimate for US shale reserves, which it on Monday increased from 32bn barrels to 58bn.
The pace of oil and gas production gains has consistently surprised forecasters since horizontaldrilling and hydraulic fracturing, better known as “fracking”, were pioneered in US shale rockformations about ten years ago. Only the US and Canada were producing oil and natural gas fromshale in commercial quantities, the department said.
Monday’s assessment indicated that Russia has the largest shale oil resource, with 75bn barrels.Russia and the US were followed by China at 32bn, Argentina at 27bn and Libya at 26bn.
The report said gas from shale formations increased world natural gas resources by 47 per cent to22,882tn cu ft.
The question of whether other countries can replicate North America’s success in drilling in shalerocks has captivated geologists and diplomats. US crude imports are at a 16-year low, reconfiguringthe map of global oil trade.
“Looking at shale resources has typically been understated by outside market participants becausethe geology is new and the technology is growing rapidly,” said Edward Morse, head ofcommodities research at Citigroup.
Production from shale has helped keep a lid on crude oil prices at about $120 a barrel, givingwestern countries leverage to impose sanctions on Iran, a key supplier. World oil demand is about90m barrels a day, suggesting the world shale oil resource covers 10.5 years of consumption.
©Getty
+ No voluntary output reduction, for fear of “Arab Autumn”
= Price will fall (by half?) if no war;rise (to double?) in case of war;stay the same only with continued QE and threat of war
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 30/30
university-logo
World Demand and SupplyOther Supply Responses
Incorporating HotellingWars and Regime Changes
Concluding Remarks: A Very Simple Story
Demand destruction will continue, somewhat similar to 1980sSluggish recovery, in part because oil prices never fell suYcientlyCommodity and asset prices have been artificially inflated by QE
+ Supply growing, also similar to 1980s:
June 10, 2013 7:53 pm
World has 10 years of shale oil,reports USBy Gregory Meyer in New York
Global shale resources are vast enough to cover more thana decade of oil consumption, according to the first-ever USassessment of reserves from Russia to Argentina.
The US Department of Energy estimated “technicallyrecoverable” shale oil resources of 345bn barrels in 42countries it surveyed, or 10 per cent of global crudesupplies. The department had previously only provided an
estimate for US shale reserves, which it on Monday increased from 32bn barrels to 58bn.
The pace of oil and gas production gains has consistently surprised forecasters since horizontaldrilling and hydraulic fracturing, better known as “fracking”, were pioneered in US shale rockformations about ten years ago. Only the US and Canada were producing oil and natural gas fromshale in commercial quantities, the department said.
Monday’s assessment indicated that Russia has the largest shale oil resource, with 75bn barrels.Russia and the US were followed by China at 32bn, Argentina at 27bn and Libya at 26bn.
The report said gas from shale formations increased world natural gas resources by 47 per cent to22,882tn cu ft.
The question of whether other countries can replicate North America’s success in drilling in shalerocks has captivated geologists and diplomats. US crude imports are at a 16-year low, reconfiguringthe map of global oil trade.
“Looking at shale resources has typically been understated by outside market participants becausethe geology is new and the technology is growing rapidly,” said Edward Morse, head ofcommodities research at Citigroup.
Production from shale has helped keep a lid on crude oil prices at about $120 a barrel, givingwestern countries leverage to impose sanctions on Iran, a key supplier. World oil demand is about90m barrels a day, suggesting the world shale oil resource covers 10.5 years of consumption.
©Getty
+ No voluntary output reduction, for fear of “Arab Autumn”
= Price will fall (by half?) if no war;rise (to double?) in case of war;stay the same only with continued QE and threat of war
Mahmoud A. El-Gamal – Medium Term Price Talk – June 12, 2013 Oil Demand, Supply, and Medium Term Price Prospects — 30/30