Can history repeat itself? In 2014, the rise of American shale oil contributed to halving the price of a barrel in the space of a few months. With the war in Ukraine and the sanctions announced against Russia, the world’s second largest exporter of oil and gas, prices are panicking in a market already under tension.
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In Europe, the barrel of Brent has risen by more than 40% since the start of the year and is hovering between 110 and 120 dollars. In the United States, the WTI barrel exceeded 110 dollars, its highest level since 2011.
12 million barrels produced per day
These price levels become very attractive for operators. Oil production already stands at 12 million barrels per day (mb/d), twice as much as in 2020, according to the latest figures from the Department of Energy (EIA). It could approach 13 million barrels per day in 2023, a level never reached, which would consolidate the United States in its status as the world’s leading producer.
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This expected increase is largely linked to unconventional oil, which accounts for 65% of the country’s extractions, particularly in the Permian Basin, an area as large as a third of France, located in western Texas and south- east of New Mexico.
The sector has restructured
After cascading bankruptcies (more than 500 since 2015), such as that of Chesapeake, one of the pioneers, the American shale sector has been restructured. Many small players have been bought out by bigger ones. Debts were reduced and production costs lowered. A study by the Citi bank thus expects a 30% increase in oil investments in the United States this year.
It remains to be seen whether the trend can last for long. Experts are divided on the subject, especially for oil. “US shale oil producers have already tapped a lot of their best wells. They will not regain the growth they had between 2010 and 2015, unless they exhaust their reserves in a few years”emphasizes Benjamin Louvet, commodity manager at Ofi AM.
More than half of a well’s total production is obtained during the first two years of operation. We must therefore drill more and more.
Record gas production
On the shale gas front, activities are already at their highest in the United States. According to the EIA, American gas production could reach 104.4 billion “cubic feet” (the American unit of measurement) this year, compared to 101.5 billion in 2021. In 2023, it would be 106.6 billion cubic feet.
The world’s largest gas producer, the United States has also just taken first place for exports, ahead of Australia and Qatar. In January, a hundred ships carrying liquefied natural gas (LNG) at -161 degrees left American ports.
Two-thirds went to Asia, but a third headed for Europe, which has never bought American shale gas, presented as a new alternative to Russian gas. “Except for long-term contracts, the choice of destination is first dictated by the price the customer is willing to pay”, emphasizes Thierry Bros, professor at Sciences Po. But soaring prices in Europe are reshuffling the cards. The Rotterdam TTF index, which serves as a benchmark, reached a new record, at €213.895 per megawatt hour (MWh) on Friday 4 March.
A delicate subject for the Biden administration
This revival of production is nevertheless a delicate subject for the Biden administration. The US president had pledged during his campaign to freeze the granting of new permits on federal lands and waters as well as to toughen the rules on hydraulic fracturing.
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The exploitation of shale gas and oil is, in fact, highly contested for its impact on the soil, but above all for the leaks of methane, a powerful greenhouse gas, that it generates. In oil drilling, for example, the associated gas that rises to the surface is still too often burned, for lack of infrastructure to evacuate it.
According to a study by the International Energy Agency (IEA) published on Wednesday 23 February, methane emissions linked to oil, gas and coal have thus increased by 5%.