Innovation Will Drive Shale Survival

Source: Getty Images.

That which does not kill us, makes us stronger.—Friedrich Nietzsche, 1889

The petroleum industry has seen up and down cycles. In the past, they have been driven by politics, such as in the case of the Arab oil embargo, or supply and demand imbalances, driven primarily by unrest and recessions. The creation of OPEC dampened the latter. But this time it is different. Shale, a new, abundant source of oil and gas has more than halved oil prices. It has kept prices low for nearly 3 years, and threatens to do so for many more. This threat will be realized if the industry can be profitable at sustained prices below $40/bbl.

History informs us that this is likely. The last long-lived drop in activity roughly spanned the decade from the mid-1980s to the mid-1990s. The rig count was more than halved from 1984 levels for well over a decade. This trailed the oil price drop, which nearly halved from 1980 to 1985, and stayed that low for over a decade. For the industry to survive, oil companies needed lower production costs and the service companies still needed to make a profit at low activity levels. This is precisely the situation today in shale oil and gas. On that occasion, the industry responded with innovation in technology and, to a lesser degree, in business models. This too will happen today.

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Innovation Will Drive Shale Survival

Vikram Rao, Executive Director, Research Triangle Energy Consortium

01 November 2017

Volume: 69 | Issue: 11

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