Is shale a blessing in disguise for OPEC

How many times have I written about the implications of shale on oil? For an LNG guy I have a strange obsession with that but look at the fundamentals and the picture is clear.

Oil is still the big bully out there and it dominates the entire energy world hands down. So, anything that happens to oil produces severe ramifications in any other energy sector, especially one that is linked through oil price formulas such as LNG is.

But enough of that. I have beaten this horse to death in other blogposts.

You all know the mantra. Shale oil has collapsed oil prices from 100+ levels down to about half that and this is a major calamity for classical oil producers that have become accustomed to the easy pickings from a very high price.

So, in a sense, shale is an extremely serious threat that must be battled at all cost. I have made it abundantly clear in previous posts that this battle is a bit futile or even outright dangerous as it gives the shale drillers the workout of their lifetimes which in turn makes them stronger, more competitive and hence harder to beat which cannot be in OPEC’s long-term interest.

For the sake of simplicity I will use OPEC for all classical producers fully knowing that not all of them are members. Not even all the big ones. But it makes writing simpler so bear with me – will you?

And we thought we were empty …

Before shale – and I mean with that before shale became what it is today – peak oil was on everyone’s mind. Even the homeless understood that the planet was running out of the black glibber and that in turn, we must work hard on establishing something else that will energize our lives when the time of the smeary stuff would be over.

That was going on for quite a while already but it really picked steam around the year 2000 when the peak oil madness peaked. Alternative energy was on everyone’s mind and there were plans to clear out of oil use over the upcoming decades. No matter how hilarious those plans may have appeared and no matter how realistic or not their implementation was, they were there and there was widespread consensus that something would have to be done about the situation.

Oil reserves were dwindling and production had peaked at major fields.

Then came shale and ended all this hubris about oil scarcity. Suddenly there was plenty of it and the world was drowning in a sea of oil. Those opposed to oil and its environmental consequences quivered, and rightly so.

The predictions of the Club of Rome and many others had been exposed at its frail underbelly – once again.

Let’s look at this dispassionately. I always argue that certain things, once unleashed cannot be stuffed back under the rock anymore. When Pandora’s Box it’s open, you only have to learn living with the consequences. Shale is such a thing. The monster is out now and it won’t go back.

But that’s not the only potential monster lurking in the shadows. If alternatives to oil continue to get the simultaneous pounding they got from a combination of high oil prices, ever tightening environmental rules and the specter of the planet running dry of oil, what you think is going to happen in the long run?

Exactly right. Other disruptive technologies would rear their head eventually and they would slaughter oil mercilessly. People, animals, even plants shy away from pain. You hold a flame under ones hand, the hand will want to move away if it can. You put a gun on someone’s forehead, this someone will want to get out of harm’s way and if someone gets heckled and treated poorly, this person will get active browsing job ads.

Clock is ticking …

That’s the way we are. We take a certain amount of pain as laziness and the urge not to do anything about a problem keep us in some sort of stasis. Apply pain to that situation and the stasis goes away. High prices are such pain and the multi-year high oil price environment was a potent stasis buster. I cannot remember a time in my life when so many people and companies got active in alternatives to oil. The prospect of profits was at the core of their activities.

Shale has taken out two problems. Prices are much more palatable to the average consumer today and they already show some signs of slumbering off again and also the constant fear of an empty gas pump has gone with the winds. Infinite oil is the new mantra now.

This keeps environmental protection as the last big driver for oil alternatives and this is not to be underestimated. Eventually, oil is going to disappear. But the timeline has been stretched out significantly into the future. When before 5 years it was assumed that oil might do its last gasps in mere decades, there is a feeling now that it might be around for another century.

OPEC countries take note. If you have not worked hard on getting in shape for the non-oil world so far you have been handed a last chance of sorts. You will be able to thrive on for some more decades on oil income and as it will be less than expected just 12 months ago, you will have pain and resources to turn yourself around.

Get ready for the new energy world as there will be no more grace period next time. Because the hounds of new energy are out there and they wait for the next round of price madness and then it’s not good to stand in their way.

As Victor Hugo has said – no army on earth can stop ideas when their time has come.