LONDON, Nov 22 (Reuters) - OPEC is back in the drivers
seat, John Hess, chief executive of the eponymous oil company,
told an investor conference in Miami on Nov. 17, tacitly
acknowledging the U.S. shale revolution has run its course.
For a decade between 2009 and 2019, the surge in U.S.
petroleum and other liquids production transformed the
availability and price of oil around the world, marginalising
* U.S. production of petroleum and other liquids more than
to 19.5 million barrels per day in 2019 from 9.1 million bpd in
2009, according to the U.S. Energy Information Administration
* U.S. production grew at a compound annual rate of +7.9%,
times faster than the +1.6% annual growth in global petroleum
consumption (Short-Term Energy Outlook, EIA, Nov. 8).
* U.S. output growth dwarfed increases by producers in the
the world, where output increased at a compound rate of just
+0.5% per year.
* U.S. marginal production (+14.5 million bpd) captured
the increase in global consumption (+14.8 million bpd) between
2009 and 2019.
* U.S. producers captured all the incremental global
in three out of 10 years in the decade (2014, 2018 and 2019) and
at least two-thirds of incremental consumption in six years
(2011-2014 and 2018-2019).
* As a result, U.S. producers boosted their share of global
production and consumption to more than 19% in 2019 from less
than 11% in 2009.
In 2022, however, U.S. production is expected to be only
+0.7 million bpd higher than in 2019, the last year before the
pandemic, despite prices well above the long-term average in
real terms, a significant deceleration in growth.
In a narrow sense, the shale revolution refers to the
widespread application of horizontal drilling and hydraulic
fracturing techniques to increase output from shale and other
tight rock formations.
Hydraulic fracturing had been practiced on a small scale
since the 1950s and horizontal drilling had been pioneered in
the 1980s (Drilling sideways: a review of horizontal well
technology and its domestic application, EIA, 1993).
But the techniques were increasingly used in combination to
boost production, starting with gas-rich formations from
2005-2006, then oil-rich formations from 2008-2009.
Chartbook: U.S. petroleum production
Both techniques have since improved, showing learning curves,
allowing wells to be drilled deeper, faster, with more and
longer lateral sections, and with more sophisticated pressure
pumping to shatter formations more precisely.
Fracking, as the combination of horizontal drilling and
hydraulic fracturing became colloquially known, evolved from a
small-scale experimental technology in 2009 to become the
dominant production approach by 2019.
The shale revolutions technology has become mainstream,
resulting in a long-term increase in output, and in doing so it
has lost its revolutionary character.
In a broader sense, the shale revolution describes the
transformation of the entire onshore U.S. oil and gas industry
with an extraordinary boom in investment, drilling, pressure
pumping and investment.
The first phase, focused on gas, lasted between 2005 and
2008, when it was cut short by the global financial crisis and
the ensuing recession.
The second focused on oil and lasted between 2009 and 2019,
punctuated by a short-lived slump and recovery between late 2014
and early 2016.
In this broader sense, the revolution transformed onshore
oil and gas exploration and production, including the oilfield
supply chain, and certain communities in Appalachia, North
Dakota and the southwestern United States.
Like other new technologies, including railroads and the
internet, in its early stages the shale revolution involved
significant over-investment, cost inflation, duplication and
waste, resulting in poor returns for many shareholders.
Like other technologies, however, shale production has
eventually settled into a more mature and conservative phase,
hastened by the traumatic shock to oil and gas markets during
the coronavirus pandemic.
In the revolutionary stage, shale producers were pioneers,
innovators and disruptors, focused on rapid growth, securing
more investment, boosting market share at the expense of rivals
and transforming the industry.
In the post-revolutionary phase, shale firms have become
incumbents, focused on consolidation, eliminating excess
capacity, avoiding over-production, controlling costs,
increasing profit margins and returning capital to shareholders.
U.S. shale industry leaders now talk about their investment
and production strategy using almost identical language to Saudi
Arabia and the other members of the OPEC group of major
END OF THE REVOLUTION
U.S. petroleum production is at least 10-11 million bpd
higher than it would have been without horizontal drilling and
hydraulic fracturing, but it appears to have settled onto a
slower growth trajectory.
In 2022, the Biden administration has tried to cajole
domestic oil producers to increase their output, without much
In that sense, the global petroleum market has reverted to
conditions that look much more like the pre-2009 world, bringing
to an end a decade of profound disruption.
U.S. shale producers are expected to account for a much
smaller share of global growth in petroleum production and
consumption in the next few years.
If that proves correct, OPEC (in reality Saudi Arabia to
some extent the other Persian Gulf producers) will be able to
exercise significant market power, as they did before 2009.
OPECs market power will persist unless and until the
horizontal drilling and hydraulic fracturing are applied in new
geographies, in the United States or internationally, or another
new disruptive technology arrives.
On the consumption side, the most likely disruptor is the
large-scale deployment of electric vehicles, which has the
potential to reduce petroleum demand significantly in the medium
and long term.
On the production side, given the long gestation of most
major technical innovations, disruption is likely to come from
the application of one or more existing technologies, separately
or in combination, in new ways or to new areas.
Until then, OPEC and its allies will be back in the driving
John Kemp is a Reuters market analyst. The views expressed
are his own
(Editing by Tomasz Janowski)