The global energy landscape has witnessed a revolution in the last few years with the discovery of shale gas reserves in US. Thanks to the vast shale gas supplies, the price of natural gas in US has come down significantly. Infact, the major oil and gas companies are selling their assets and reinvesting in US. If industry reports are to be believed, US is likely to surpass Saudi Arabia as the energy leader by the end of 2020. Under the current scenario, oil supplies and prices are to a large extent governed by OPEC that functions like a cartel. So if all that is said about shale gas is true, the future should witness higher supplies and lower fuel costs.
Not as per famous oil trader Andy Hall, who is hailed as God by his rivals for his successful bullish bets on oil in the past. As per an article in Financial Times, all this euphoria about shale gas is not destined to last long. This should come as a huge relief to countries like Saudi Arabia and other members of the OPEC cartel for whom oil is the main fuel on which economies rest.
As per Mr. Hall, while the initial shale oil well discoveries seem quite rich, the production will lose momentum overtime. He argues that each well captures a single pool of oil trapped in the rock and not entire reservoir. So while near term output will be high, as time passes and fields mature, further investments will be needed on a regular basis to keep the production going. And while shale exploration is already a capital intensive project, the costs of further production will be even higher. So much so that it might not be viable to produce from shale oil wells with selling prices at current levels. In short, it will not be possible to supply fuel from shale oil well at lower prices. Mr. Hall admits that he might go wrong if cost of production comes down due to technological breakthrough or with more experience in shale resource exploration.
One may call him a party pooper, but we believe what he suggests cannot be totally out ruled. Few years back, we had a similar experience. The discovery of natural gas in KG D6 basin was considered to be a game changer for India. However, it turned out to be a damp squib within few years. The bubble burst as the realization dawned that it is not viable to produce further gas at prevalent prices. Whether Mr. Hall's prediction comes true is something time will tell. For now, we wish India joins the shale gas revolution soon.