Quantifying the impact of shale

July 10, 2016

UNCONVENTIONAL PRODUCTION is controversial due to environmental concerns, including water safety and earthquake activity, but while shale exploration is sometimes regarded negatively, it is important to consider the positive impact the shale industry has had on the domestic and global economy.

Oil and gas production in the United States can be broken down into two periods: pre and post shale. The timeline of each period is observable in Figure [below], which shows the oil and gas production in the United States split by the source of supply along with the light oil content. Before the "shale era," US production was decreasing, where the main contributor to production was conventional fields. During this period, the US relied heavily on oil imports and had to take measures to secure a consistent supply of oil. The introduction of shale completely changed the picture; oil production grew from five million barrels to nine million barrels per day, which has reduced the US trade deficit. Oil imports now contribute to just 1/3 of the trade deficit compared to 2/3 of the trade deficit before the shale revolution, thus further strengthening the solidity of the US economy.

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Shale also provides benefits to society through job creation and royalties and taxes paid to landowners and authorities. Figure 2 shows the historical investments (development and exploration) for both oil and gas fields in the US. Over the past five years, shale investments made up 50% of total US investment levels. During the same period, the number of jobs associated with oil and gas activities increased by approximately 300,000, according to the Bureau of Labor Statistics. In addition to job creation, companies pay royalty, production tax, and income tax to the landowners and government for each barrel of oil produced. Government and landowner income from shale peaked in 2014 at US$120 billion and dropped to about US$31 billion in 2015.

In terms of the global economy, shale plays an important role as the marginal producer, where it currently has 6% of the market share. Without shale, the call on OPEC would have gone from 33 million barrels to 38 million barrels in 2016, which indicates shale is a stabilizing factor for the oil price.

Read entire article at Oil and Gas Financial Journal.


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