Shale Oil: The Next Energy Revolution?

A new report by the UK branch of PriceWaterhouseCoopers assesses the future of shale oil in the United States and globally.

In the United States, the report concludes that shale oil production has grown at a rate of 26% annually, reaching 553,000 barrels per day in 2011. It is projected the shale oil production in the United States will rise to anywhere from 1.2 million barrels per day  to 3-4 million barrels per day by 2035, with total shale resources pegged at 33 billion barrels. As such shale oil could displace a whopping 35-40% of waterborne crude oil imports to the United State. Moreover, beyond substantially reducing U.S. dependence on imported oil, it could also result in substantially lower oil prices.

The report also pegs global shale oil resources at between 330 billion and 1.4 trillion barrels, with significant recent discoveries in many countries, including New Zealand, Australia and Argentina. Based on scenarios projecting oil prices of $127-133 per barrel, PWC projects that global shale oil production could rise to up to 14 million barrels of oil per day in 2035, comprising 12% of total oil supply. Depending on OPEC’s response (i.e. whether it chooses to lower production to maintain prices), oil prices may range from $83-100 per barrel in real terms. The study concludes that this could result in global GDP increases of 2.3-3.7% by the end of 2035, translating into a $2.7 trillion boost in global income. .Of course, there would be winners and losers in this scenario, with India and Japan doing particularly well, and Russia and the Middle East suffering the most from the decline in oil prices.

However, the report also cautions that oil price declines associated with shale oil production may substantially reduce investments in renewables. To avoid this scenario, countries will have to develop policy responses, e.g. keeping fossil fuel taxes higher and recycling proceedings into R&D for low carbon technologies. Moreover, major oil producing nations may have to consider substantial limitations on supply to maintain oil prices.

Some of the class discussion questions that this reading could generate would include the following

  1. Is it realistic to believe that countries will use oil taxes to artificially elevate petroleum prices to prevent the displacement of renewable energy?;
  2. What would be the optimal way for governments, from a climate policy perspective,  to spend the tax windfall associated with shale oil production?
  3. What are the environmental implications of shale oil production in terms of climate change?;
  • Associated with this question might be parsing out the arguments of proponents that higher GHG emissions associated with shale oil production might be more than offset by displacement of coal production and production of energy from more environmentally sensitive areas, e.g. the Arctic and Canadian tar sand regions.

 

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