PwC: Shale Oil Could Revolutionize Global Energy Markets And Transform The World Economy

Includes: FRAK
by: Mark J. Perry

In a new report from PricewaterhouseCoopers (PwC) titled “Shale oil: the next energy revolution”, the global consulting group predicts that worldwide shale oil production could soar to 14 million barrels per day over the next several decades and account for 12% of the global oil supply by 2035 (up from only 1% currently). As shale production spreads globally from the U.S., the increased global supply of crude oil could reduce oil prices by as much as 40% by 2035, relative to the EIA’s projection of $133 per barrel that assumes low levels of shale oil production. By lowering oil prices, worldwide shale oil production could increase world GDP by between 2.3% and 3.7% in 2035 (see chart above), which would expand the size of the global economy by $1.7 to $2.7 trillion per year. Here are some highlights from the report’s Executive Summary:

• Shale oil is rapidly emerging as a significant and relatively low-cost new unconventional resource in the U.S. There is potential for shale oil production to spread globally over the next couple of decades. If it does, it would revolutionize global energy markets, providing greater long-term energy security at lower cost for many countries.

• Our analysis suggests that global shale oil production has the potential to reach up to 14 million barrels of oil per day by 2035; this amounts to 12% of the world’s total oil supply.

• We estimate that this increase could reduce oil prices in 2035 by around 25%-40% ($83-$100/barrel in real terms) relative to the current baseline EIA projection of $133/barrel in 2035, which assumes low levels of shale oil production.

• In turn, we estimate this could increase the level of global GDP in 2035 by between 2.3% to 3.7% (see chart above). At today’s GDP values, this is equivalent to an increase in the size of the global economy of around $1.7 to $2.7 trillion per year. This could imply a rise by 2035 in average annual global GDP per person of between $230 and $370 (at today’s prices) relative to the EIA baseline case with minimal shale oil production.

• The potential emergence of shale oil presents major strategic opportunities and challenges for the oil and gas industry and for governments worldwide. It could also influence the dynamics of geopolitics as it increases energy independence for many countries and reduces the influence of OPEC.

• There are significant strategic implications along the value chain. Oil producers, for example, will have to carefully assess their current portfolios and planned projects against lower oil price scenarios.

• Lower than expected oil prices could also create long-term benefits for a wide range of businesses with products that use oil or oil-related products as inputs (e.g., petrochemicals and plastics, airlines, road haulers, automotive manufacturers and heavy industry more generally).

As Robin West, chairman and CEO of PFC Energy, commented last year, “This shale gale, I describe it as the energy equivalent of the Berlin Wall coming down. This is a big deal.” He was talking about just the shale gale in the U.S., but the shale revolution is about to go global, and could transform the world economy, according to the PwC report.