How much shale oil is there

All of which suggests that, with higher oil prices now prevailing, there is a significant possibility that shale drilling and production will resume its growth.

How Saudi Arabia in particular will react to a resumption of shale oil production growth will determine prices over the next year. I spent nearly 30 years at MIT as a student. I've been president of the US Association for Energy Economics, I serve on the editorial boards of two publications, and I've had my writing translated into six languages. This is a BETA experience. You may opt-out by clicking here.

More From Forbes. Currently, only the United States and Canada are producing shale oil and shale gas in commercial quantities. Unlike an earlier EIA-sponsored study that focused exclusively on natural gas, the new world shale assessment includes shale oil, which has recently been produced in significant volumes in the United States. In addition, more and better geologic information has become available for shale formations located outside the United States, in part because the earlier report stimulated new work on shale resources in many countries e.

These shale oil and shale gas resource estimates are highly uncertain and will remain so until they are extensively tested with production wells.

This report's methodology for estimating the shale resources outside the United States is based on the geology and resource recovery rates of similar shale formations in the United States referred to as analogs that have produced shale oil and shale gas from thousands of producing wells.

Two factors drove the U. That was enough to allow shale exploration and production to be profitable. Second, low-interest rates gave banks and private equity investors a strong incentive to lend to shale oil companies. The sudden jump in oil production created an oversupply that sent prices plummeting. That's almost as low as the bottom during the Great Recession. Shale oil producers kept drilling. They became better at cutting costs the more they drilled. Their bankers kept rolling over their debt as long as interest rates remained low.

Many producers had previously sold their oil at higher prices on the futures market. That hedged their income. To maintain market share, OPEC also kept pumping oil. Normally, it would cut production as oil prices fell. That situation could not continue for long. Banks used oil reserves as collateral.

As oil prices fell, so did the value of the collateral. As a result, many drillers became " upside-down. As a result, drillers didn't add rigs as fast as they previously did. In December , the Fed began raising interest rates.

Lenders became less willing to roll over debt. As a result, many shale companies desperately pumped enough oil to make their monthly debt payments.

They did this no matter how low prices got, even sacrificing profitability. Smaller companies, such as Sandridge Energy Inc. Investment in these improvements and the application of new extraction methods, however, depends on oil prices, which, in turn, depend on numerous factors. And while it may sound counterintuitive, low oil prices tend to spur greater improvements in oil extraction as companies strive to boost the efficiency of drilling while maintaining—or even lowering—costs.

This is what we saw during the oil price crisis. It was also a time of innovation as those still afloat struggled to make more with less. Many industry observers today argue the so-called second shale revolution was to a great extent fuelled by that innovation drive. It is precisely these improvements in exploration and extraction that make it hard to pin down exactly how much crude oil is left in the world. In , for example, the U. Geological Survey estimated there were up to 20 billion barrels of undiscovered, technically recoverable crude oil in the Wolfcamp Basin.

Part of the Permian shale play. Two years later, the USGS revised this estimate to In just two years, the extraction methods used in the U. Yet, prices can also discourage technical improvements in oil exploration and extraction. They can deter exploration growth in general, which is another thing that happens when the industry cycle reaches a low point, and we witnessed it relatively recently during the crisis.

Every oil company keeps an eye on its reserve replacement ratio. That is the ratio between new oil the company discovers through exploration and the oil it produces. As a result, energy consultancy Wood Mackenzie in warned the world might face an oil shortage of as much as 4. To date, reserve replacement is at a year low, according to Rystad Energy data ; oil companies are replacing just one in six existing barrels with new discoveries.

There is also another metric related to the reserve replacement ratio that has a bearing on estimates of global oil reserves. This is reserve life: the period that an oil company can continue producing a stable amount of oil from its existing reserves. That was up from 1. In , the world had 1.

So, as demand has continued to grow consistently over the last 20 years, so has production and, counterintuitively, so have global oil reserves.

Yet in that same statistical review, BP said these higher reserves would last us for just another 50 years: another metric oil companies use to measure their business sustainability. Called reserves-to-production ratio, this simply means the oil reserves of a company—or a planet—at the end of any given year, divided by the production of oil during that year.

In other words, the world would have enough oil for another 50 years if production remains at million BPD , which it averaged in This is unlikely to happen.

Energy demand has been growing as consistently as oil production. While at the moment, demand is lagging behind supply, most forecasters expect this to change as the global population grows fast, and this leads to an equally rapid rise in demand for energy.

While a lot of the additional generation capacity will come from renewables, oil will continue to feature heavily in the global energy mix, which makes it safe to assume production will continue growing for some time.

As this happens, the work of oil companies will become more challenging because recoverability of oil reserves will worsen. This is yet another facet of oil exploration and production that has a bearing on the answer to that fascinating question: how much oil do we have left?