Kemp: Forecasts For Higher Oil Prices Misjudge The Shale Boom

If oil wells were not extremely profitable, North Dakota and Texas would not be experiencing a drilling boom, with demand for both rigs and petroleum engineers at the highest level for three decades.

In focusing on decline rates, Hamilton ignores the ultimate amount of oil and gas recovered from shale wells, which in many cases is higher than from conventional wells.

The second section of the paper suggests that much of the increase in oil output since 2005 has in fact been "low quality" natural gas liquids rather than true crude, but then the fifth section acknowledges production from shale has increased U.S. crude output by a net 2.3 million barrels per day.

In fact, statistics from the U.S. Energy Information Administration show the shale boom has produced a dramatic increase in both natural gas liquids and true crudes. It is simply not true to imply that the oil industry is finding only "low quality" hydrocarbons.

One of the biggest problems of the paper is that it confuses the period between 2005 and 2008, when output was struggling to meet demand, with the more recent period from 2009 through 2014, when output from shale has grown quite quickly and global oil demand growth has slowed.

Price Forecast

Even if shale continues to boost overall U.S. oil production, "it is abundantly clear that it would not return real oil prices to their values of a decade ago", Hamilton argues.

According to the BP Statistical Review of World Energy, the real price of crude oil, adjusting for inflation, has ranged from as much as $120 per barrel to as little as $10 since 1861. (


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