The world is not awash in oil yet


The past seven years were both very exciting, and very difficult for the global energy markets.
Today’s market faces two key challenges, both the product of human innovation and technological advancement.
The first is the challenge faced by oil producers to rebalance the market amid new supplies from unconventional sources due to new and improved techniques to unlock them.
The second challenge, one that is still developing, involves new automobile technology as world leaders race to ban combustion engines in favor of electrical vehicles.
The first challenge is the most immediate. The technological advancement that led to what is known as the “shale oil revolution” has made conventional exporters rethink how they plan their economic strategies for the future.
“For the first time in the history of oil, I see oil competing with oil,” said Abdullah Al-Attiyah, Qatar’s former minister of energy, at an industry conference in Istanbul last summer. “I saw renewables competing against oil but I never saw oil competing against oil.”
Al-Attiyah was pointing to the competition that has been seen between conventional and unconventional oil since 2011, which prompted the Organization of the Petroleum Exporting Countries (OPEC) and a group of independent producers led by Russia to cut their production and restore balance to the market.
The shale oil revolution in North America and the ability to unlock more oil from deposits in deep water have changed the assumptions of the oil market — with a view that there is now an abundance, rather than scarcity, of resources. The success of North American drillers gave hope that the world can unlock billions of barrels of oil trapped in challenging reservoirs over the course of many years. 
The latest assessment of technically recoverable shale oil resources released by the US Energy Information Administration (EIA) in 2015 estimates that there are 418 billion barrels of shale oil worldwide, including 78 billion in the US, 74 billion in Russia, and around 32 billion in China.
The revolution in shale oil led to the assumption that the world is awash in oil, and there is a view that both unconventional and conventional oil producers can increase production. Yet this might not be the reality for four key reasons.
First, the success in recovering shale oil seen in North America might not be easily replicated elsewhere given, for example, the complexity of the geological formations in China and harsh weather conditions in Russia. Even within the US, most of increase in shale oil production is coming from the Permian in Texas, while other plays such as Eagle Ford or the Bakken are lagging behind.
The second factor is the fact that the rise of shale was prompted by the high oil prices seen in 2011-2014. Although the cost of production in the US has fallen significantly since 2014, that might not be enough to spur another revolution elsewhere, given the high cost of extracting unconventional resources in Russia, China, and many other countries. 
Third, North American shale plays cannot continue increasing the rate they pump oil forever, with the EIA forecasting that production in the US will peak in the mid-2020s. So unless oil prices spike sharply or technology progresses, US oil production will plateau from the mid-2020s onwards. Therefore, today’s perceptions of abundance in the oil market is not the reality, given that global oil demand is increasing annually.
Fourth, conventional oil producers are struggling to increase production or make new discoveries given the relatively low oil prices. Rystad Energy, a leading upstream researcher in the industry, said on Dec. 21 that 2017 was yet another record low year for global discoveries of conventional oil.
The problem with conventional oil production is that it takes a long time to produce oil after a discovery, unlike shale, which can be produced fast. It is taking the UAE, Kuwait, Iraq and Iran years, and a lot of investment, to add to output. 
What does all this mean? If global demand for oil keeps increasing as it has — mainly due to the fall in prices — the level of supply will not be able to catch up. This means a tight market in the future and higher oil prices. However, over the short and medium-term, oil prices might stay “lower for longer” before they see another cycle of upward movement. Therefore, we shouldn’t confuse short-term abundance with long-term market tightness.

* Wael Mahdi is an energy reporter specializing on OPEC and a co-author of “OPEC in a Shale Oil World: Where to Next?” He can be reached on Twitter @waelmahdi