Home' Australian Resources and Investment : March 2016 Contents Volume 10 Number 1 • Australian Resources and Investment • 73
OIL & GAS
the many advantages accruing to the
producing nations, it is inevitable that
the revolution will spread beyond the
We have assessed the prospects of
non–United States shale oil output in
2035, positing that the rest of the world
will by then exploit its shale resources
as successfully as the United States has
done in the revolution’s first 10 years.
With its 17 per cent share of global
shale resources, the United States in
10 years expanded its output by
3.9 million barrels per day. Assume,
then, that the rest of the world is equally
as successful as the United States was
between 2004–14 in exploiting its share
of the resources between 2015–35. This
would yield rest-of-world output of 19.5
million barrels per day in 2035, which
is similar to the global rise of all oil
production in the preceding 20 years – a
stunning deduction with far-reaching
implications in many fields.
Another related revolution is beginning
to see the light of day, but news about it
has barely reached the media. It is being
gradually realised that the advancements
in horizontal drilling and fracking can also
be applied to conventional oil extraction.
Several basins in the United States and
other countries are already experiencing
this new phenomenon, which we call the
conventional oil revolution. In a similar
fashion to the output projections for
shale oil, we assume that conventional
oil in the rest of the world is able to
benefit from the application of shale
extraction methods – just as United
States conventional oil did. This would
yield a further addition of conventional
oil amounting to 19.7 million barrels per
day by 2035.
The oil output increases are bound to
have a strong price-depressing impact,
either by preventing price rises from
2015 levels, averaging some $54 per
barrel (Brent spot), or by pushing them
back to these levels if an early upward
reaction takes place. Our optimistic
scenario sees a price of $40 by 2035.
The price implications of the revolutions
will, in turn, influence many other
conditions that shape human life, be they
economic, political, diplomatic or military.
Global implications for the macro
economy, the environment and
The global spread of the revolutions
and the ensuing price weakness
that we envisage for the coming two
decades will, on balance, provide
a great advantage to both the oil
industry and to the world economy
at large. Successful shale and
conventional oil developers could reap
benefits similar to those bestowed
upon the United States in its progress
in recent years.
Not surprisingly, there would be
important negative repercussions for
public income from oil in producing
nations that fail to compensate for the
effects of lower prices by expanding
output with the help of the revolutions.
Juxtaposed against this conclusion is
our supposition that the effects of the
resource curse will be ameliorated in a
The two revolutions will apparently
cement and prolong the global fossil
fuel dependence, with implications for
climate policy. At the same time, the
expansion and cheapening of natural
gas in consequence of the revolutions
will make it possible to reduce coal use
in power production, thereby decreasing
carbon dioxide (CO2) emissions, as is
already evident from the United States’
experience. The efforts to develop
renewables for the purpose of climate
stabilisation, however, will become more
costly, requiring greater subsidies, in
consequence of lower fossil prices.
The abundance caused by the
revolutions will lead to hard-to-fathom
changes in international political
relations. We assert that much of
the oil importers’ urge for political
intervention and control will dissipate
as the criticality of access becomes
less urgent with the normalisation
of profit levels, and a more ample
and diversified oil availability. For
instance, the heavy diplomatic and
military presence of the United
States in the Middle East is likely to
be questioned when the country’s
dependence on oil from the region
is further reduced. The growth and
geographical diversification of supply
would not only suppress prices, but
it would also promote competition
among suppliers and make it more
difficult for producers to use energy
sales in pursuit of political ends.
About the authors
Roberto F. Aguilera is an adjunct research
fellow at Curtin University, Australia, and
an associate of Servipetrol Ltd., Canada. He
has participated in numerous energy studies,
including with the World Petroleum Council,
US National Petroleum Council and UN Expert
Group on Resource Classification.
Marian Radetzki is Professor of Economics at
Luleå University of Technology, Sweden. He
has held visiting professorships at Colorado
School of Mines, and at Pontificia Catholic
University of Chile. In the 1970s, he worked as
Chief Economist at the International Copper
Cartel, and he has undertaken numerous
consultancies over the years.
Their new book, The Price of Oil, is published
by Cambridge University Press.
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014
*UN's Manufactured Unit Value Index (MUV) in US dollars used as deflator.
Sources: UNCTAD and UNSTAT on the web.
Figure 1: UN’s Manufactured Unit Value Index (MUV) in US dollars used as a deflator.
Sources: UNCTAD and UNSTAT on the web.
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