E Shale Oil Revolution: The Challenges Ahead

The rapid increase in supply from tight oil sources in North America, particularly shale formations in the United States, was largely responsible for a massive supply imbalance which is only now nearing a tenuous correction. While growth in supply by Organization of the Petroleum Exporting Countries, OPEC, over the past decade remained within a narrow band, that from the US and Canada rose steeply. From a modest level of 92,000 barrels per day (bpd) in 2008 for example, light oil additions (year-over-year) from US shale and tight oil liquids rose to a staggering 1.6 million bpd in 2018 according to Rystad Energy data.   By 2018, the US oil production had overtaken those of Saudi Arabia and Russia for the first time in decades to become the world’s largest.

The response from OPEC, led by Saudi Arabia and other Gulf producers was a laissez-faire supply ramp-up, a thinly-veiled attempt to drive the then higher-cost (shale) producers offline and secure greater market share. This “sheik-versus-shale” face-off, as it was then widely alluded to, only served to exacerbate the supply imbalance.