Back in 1973 oil accounted for around half of world energy consumption, but now amounts to only about a third. But we are still very dependent on oil. Every ten dollars of world economic output requires something over a pint of oil to make it happen. And however optimistic one is about electric cars and fuel cells, our cars, trucks, ships and planes are going to be mainly fuelled by oil for long time yet.
So the price of oil is a topic of vital economic importance and, with the dramatic fall in oil prices since 2014, one which is rarely out of the headlines. “The Price of Oil” is an in-depth and timely analysis of the factors that drive the oil price, and which may drive it in the future.
Written by the economists Roberto Aguilera and Marian Radetzki, the book starts with an examination of the factors that determine oil prices. According to the authors, it isn’t OPEC, nor financial speculators, nor that we are running out of oil, nor that it is becoming more expensive to produce. It is, in fact, supply and demand in a world where production capacity is a lot lower than it might be owing, at least in part, to inefficiencies and greed in some of the producing countries.
But the shale phenomenon is changing all that, and the authors develop the view that this is a revolution has only just started. Not only will the shale revolution in North America continue, but other countries will have their own shale revolutions, with Argentina, Australia, China, Mexico and Russia potential big winners. Moreover, the technology improvements that the shale producers have made will spread to conventional oil production. Aguilera and Radetzki speculate that these two factors may add around 39 million barrels/day (bpd) to global oil production by 2035. Compared with current world oil consumption of around 92 million bpd, this is a lot of extra oil, and this will lead to low prices over the long-term – perhaps not as low as they are now, but 40% or so less than they were before the current oil price crash.
The idea that the shale oil and gas revolution has only just started is also central to Russell Braziel’s book “The Domino Effect”. While there have been several books tracing the history of the shale phenomenon and others which have focused on the environmental risks of hydraulic fracturing and horizontal drilling, this book seeks to outline, in considerable detail, the economic and market factors which have produced the shale revolution.
The dominos of the title make up the sequence of events triggered by increasingly cost-effective shale oil and gas production in the US. First gas production surged, which drove down the price of gas, which spurred producers to switch to oil production, which drove down the price of oil, etc. In fact, Braziel details some 30 individual “dominos” which have fallen so far, with more to come. Both these books make a convincing case for the thesis that we may be entering an age of abundant oil and gas. This, of course, is profoundly ironic given the current drive to reduce dependency on fossil fuels – but it may be a reality that politicians will have to face.