Shale: The Unfinished Revolution

  • Date: 29/02/16
  • Nick Butler, Financial Times

If you live in Europe you could be forgiven for thinking that the shale revolution is strictly an American phenomenon. Casual readers could also easily get the idea that low oil and gas prices are driving down US production of shale gas and tight oil and that even there the revolution is over. All these impressions are mistaken.

Shale development in Europe is virtually non-existent. Fracking is banned in France and discouraged in Germany. In Poland, early results have been disappointing while in the UK, thanks to mistakes by the government and the industry, no drilling has taken place for several years. Starting operations in Balcome — a wealthy and vocal community with no economic imperative to give up its peaceful lifestyle was a mistake. Creating great expectations without putting in place either proper incentives or a clear regulatory framework was a serious policy error. There is talk of a few wells being drilled this year but probably only if local objections can be overridden by edicts from Whitehall — a crass process somewhat at odds with the government’s rhetoric about devolving power to local communities. The approach is not likely to win over hearts and minds and may well prove unenforceable in a number of areas.

But Europe’s failure to develop its shale resources is not typical of the story worldwide. In the US, despite much reduced levels of drilling, production of shale gas and tight oil has yet to see any major decline. The country’s industry is not monolithic and some regions face hard cost challenges. The level of new drilling has declined sharply. Nevertheless, given the scale of the price falls over the last 18 months, the resilience of production levels has been remarkable. The latest data for February suggest that tight oil production will average 5.02m barrels a day. The US shale industry has adapted very successfully and even if production falls over the next few months there is every chance of it increasing again in response to any price rise.

This view was confirmed by the long term energy outlook published by BP a couple of weeks ago. Its most distinctive forecast is that US shale gas output will rise over the next two decades to a plateau of about 80m b/d — almost double current levels, while tight oil production will increase to around 8m b/d in 2030 and beyond.

In addition, there will be significant shale development around the world — particularly in Asia.

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