The most popular letter in the FT today compared the review of Crude Volatility by Robert McNally (a Bush adviser) by the FT Energy Correspondent, Anjli Raval, to The Price of Oil by Roberto F Aguilera and Marian Radetzki. Basically, McNally argues we are in for a wild ride on prices and supply while Aguilera and Radetzki come in for shale and technology and permanently low prices. The writer agrees with fracking our way to salvation and permanently lower prices.
I read the read the review and admit McNally lost me with this:
But industry attempts to tame the market in the past have either had minimal success or been defied. The arrival of US shale in recent years has rendered Opec unwilling or unable to control the market, McNally says. With Opec’s power ebbing, “we are going to be unpleasantly surprised by chronically unstable oil prices”.
Come again? Normally getting rid of a cartel stabilises prices and lets market forces determine supply and demand? I couldn’t be bothered to read the book based on the review because it all sounded a bit contrived: you cannot control a cartel with that many players (as Opec is finding out), and as the famous Hunt Brothers (oil men to the core) discovered you can’t control a complex market like silver (or oil I’m betting on).
Using simple and reasonable methodologies, we estimate that the shale revolution outside the US will yield an additional 20 million barrels per day (mbd) by 2035 – nearly equal to the rise in global oil production over the past 20 years.
And look how much the cost curve for shale has changed since they published this in 2016:
The cynic in me naturally errs to favour technology over political market determinism in as much as I get concerned about these things. I guess that makes me long shale in my views. I still think offshore will be a major part of the energy supply mix (as the above chart makes clear), but perhaps less a part of the overall portfolio than we hoped in the near distant past.