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Shale’s Comeback Could Be Better And Bigger Than Ever Before

Haley Zaremba

Earlier this month global oil prices fell more sharply in one day than they have in nearly 30 years. The cause was a snowball effect driven by a series of unfortunate events: as coronavirus stalled the global economy, oil demand fell sharply, which pushed Saudi Arabia and Russia, the two leaders of OPEC+, to meet to decide on a strategy plan, which failed spectacularly, ending in an oil price war. Now, nearly a month later, things are still looking grim. 

Oil prices have fallen so sharply that they have given coal the unexpected distinction of being the most expensive fossil fuel in the world. Instead of giving a boost to the competition, however, the failing oil market has brought biofuels down with it, and the renewable energy industry is begging for a bailout in the face of bankruptcy along with the rest of the energy industry. 

Most experts say that we shouldn’t expect a rebound any time soon. Here’s just a sampling of recent headlines: “Oil crash only a foretaste of what awaits energy industry” from the Financial Times, “Few U.S. shale firms can withstand prolonged oil price war,” from Reuters, “Shale plays, oil patch see tens of thousands of layoffs across the industry” from World Oil, and “Not Even The $2 Trillion Stimulus Package Can Save Oil Markets” from yours truly right here at Oilprice. Despite this echo chamber of doom and gloom, however, there are still some industry insiders who don’t take such a negative outlook. 

“The American shale industry shocked the world with its rebound after the 2014-2016 bust, setting records for output that pushed the U.S. to the top spot among oil-producing countries,” reported Bloomberg earlier this week. “A handful of experts is saying that will happen again.” 

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It wouldn’t be an easy comeback, however. The issues that led to the crash in the first place -- coronavirus and its economic destruction in conjunction with the glut still being exacerbated by Russia and Saudi Arabia -- are still very much in play. And this crash is simply much worse than its predecessors. “Everybody agrees U.S. production will take a bigger hit than last time [in the 2014-2016 bust], when it dipped before soaring,” says Bloomberg. “As many as 70 percent of the 6,000 shale drillers may go bankrupt, and one-third of shale-patch workers are expected to lose their jobs. Wall Street, which financed the last boom, has cut off the cash spigot.”

But there are still some experts who are keeping an optimistic outlook. While things won’t get better right away, they say, we will recover eventually. “They’re echoing a widespread view that’s mostly unspoken during the market meltdown: Yes, America can shock the world again. The boom-and-bust cycle will shift, and shale is in a position, with its infrastructure, its ability to ramp-up quickly and its plentiful reserves, to rise from the ashes stronger than ever.”

Daniel Yergin, a Pulitzer Prize-winning oil historian and vice chairman of IHS Markit Ltd. told Bloomberg that when U.S. shale does make a comeback, it will be better than ever. Think of it as natural selection. The oil companies left standing will be more efficient, more tech-savvy, more experienced, and more prepared for challenges and market failures than they are today. And the oil that gave the U.S. the great shale revolution will still be gushing. “Companies go bankrupt, but rocks don’t go bankrupt,” Yergin said in an interview with Bloomberg. “When this all shakes out, there will be other people to develop shale.”

Yergin doesn’t speak for everyone, however. Far from it. Even if shale does make an incredible comeback, with the best and the brightest companies reviving the shale patch, oil’s dominance as a fuel is facing continued demand side challenges as the world continues to diversify away from crude.

By Haley Zaremba for Oilprice.com 

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