Bloomberg | Dec 27, 2017

Thursday, January 25, 2018

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Three years after causing an oil-price crash, the shale boom may not be enough to meet rising global demand because the industry has cut back so sharply on higher-risk mega-projects.
Discoveries of new reserves this year were the fewest on record and replaced just 11% of what was produced, according to a Dec. 21 report by consultant Rystad Energy. While shale wells are creating a glut now, without more investment in bigger, conventional supply, the world may see output deficits as soon as 2019, according to Canadian producer Suncor Energy Inc.

“Tight rock is not going to solve the global supply-demand issue,” said Adam Waterous, chief executive officer at the Calgary-based Waterous Energy Fund, which invests as much as C$400 million (US$265 million). “It’s going to take a long time for those mega-projects to come back on.”

Hydraulic-fracturing technology made it possible to squeeze crude from tight-rock formations and turned the U.S. into the world’s top producer. But it also sent the global benchmark for oil tumbling from $115 a barrel in 2014 to less than $55 in October. That’s eroded the incentive for companies to invest billions of dollars on new reserves that take years to develop but can produce for decades.

Oil prices would need to climb to $80 and remain at that level for two years to justify the costly deep-water projects off the coasts of West Africa or Brazil, Waterous said. And even then, it could take a decade before crude from those investments would arrive on the market, he said. Prices topped $66 this week.

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