Tyler Priest’s review of my book is so generous, so intelligent in distilling the book’s central points, and so perceptive in its arguments beyond the book that there is little need for me to directly respond to it. Nonetheless, with all the humility of an undergraduate history major addressing professional historians, I thought that it could be helpful to provide some additional thoughts on Priest’s call for “rethinking the scarcity paradigm,” a running thread through his review, my book, and Marta Musso’s recent review of Steven Yetiv’s Myths of the Oil Boom, also on H-Net.
Whether the scarcity paradigm needs to be rethought depends on the duration of the shale revolution and its effects. From daily headlines emerges a sense that the contraction in US shale drilling activity since the 2014 oil price collapse proved that the shale revolution was just another localized oil boom and bust in a century and a half of the same. One can see that this is far from the case if one fully understands four aspects of the revolution: data on production and reserves, a reminder of why shale production is geologically different, the potential global expansion of shale development, and the timing of the shale revolution relative to global decarbonization.
Much of the talk of the US shale “bust” comes down to corporate bankruptcies and the screeching deceleration of oil and gas drilling—down about 80 percent in two years. Yet the pain for some in the industry is a function of economics: prices fell because of an oversupply caused mainly by the shale revolution. Shale oil and gas supply growth, however, is already at the cusp of restarting as prices recover. This is how markets work, and it is important to note that we have not yet seen the geological limit to US shale growth, or even an economic one at “equilibrium” prices. Analysts at RS Energy Group estimate that there are 159 billion barrels of oil and 1,674 trillion cubic feet of gas still extractable in the Lower 48 states—equivalent to thirty-one years of oil production and sixty-one years of gas production at current total US supply rates. Even at eighty dollars per barrel of oil, per RS forecasts, Lower 48 oil production can grow to 13 million barrels per day in 2021 from about 8 million barrels today. Natural gas production is projected to grow 42 percent under similar price scenarios.
The idea of the shale revolution as a sugar high, rather than a real change, also comes from applying the “oil boom” heuristic to something quite dissimilar from other booms. The shales are important because they are different, and they are different because they reversed a feature of the “resource triangle” that—geologically and conceptually speaking—underpinned the scarcity paradigm. Oil industry observers had long assumed an irreversible trend: As the world steadily depleted higher quality oil and gas reservoirs (and consumed the hydrocarbons), it would be forced to access lower quality and more expensive reservoirs—until a crunch point of acute scarcity demanded extreme consumer lifestyle and political changes. The shales are, indeed, wildly lower quality reservoirs by traditional metrics like permeability and porosity. But the revolution occurred because the US industry taught itself to extract oil and gas from these reservoirs more cheaply than “better” reservoirs. That is something truly new, particularly given the shales’ scale and advantages of capital flexibility.
In my book and in this essay, I compare the shale revolution to the dot-come “bubble” of the late 1990s and early 2000s: both were marked by almost unimaginable shifts in the underlying strategy and logic of industries; both attracted too much enthusiastic capital, leading to too much supply; and both saw periods of declining values and the un-survival of the unfit. But the bursting of the dot-com bubble in 2000-2001 hardly halted the spread of the Internet. I strongly suspect that the same thing will be said of the shale pause in 2014-16.
This is partly because of a third feature of the shale revolution: some of the most head-twisting effects of the shales have been in international relations. US oil and gas supply increases and shale-driven global energy price declines have altered the fates and interactions of the United States, Russia, Iran, Saudi Arabia, Brazil, Venezuela, and many other countries. There are political, cultural, infrastructural, capital, and geological reasons why the shale revolution happened “first and most” in the United States, but there are many places where industrial experience and, more important, political will could spark shale booms. One of the looming questions of shale history is whether the story will be contained to the United States and to a lesser extent Canada, China, and Argentina. If the shale revolution does not spread, the current political rebalancing of the world, reoriented on energy strength, will likely continue along the same lines. If shale extraction expands at similar costs and improvements, shale’s global phase could scramble international relations further and lead to even more fossil fuel abundance.
Finally, had the shale revolution occurred in the 1960s, one could see it as nothing more than an afternoon snack for the world’s insatiable hunger for hydrocarbons. But the shale revolution has come, by sheer coincidence, during a period of unprecedented global efforts to decarbonize the world’s energy sources—for the good of us all. Oil and gas consumption is still growing (and grew even faster than normal last year because of low prices), but the long-term growth path has moderated, particularly for oil. Oil consumption will likely reach a period of stabilization and then decline (as coal already seemingly has), barring a major acceleration of demand in China, India, and other developing economies. The shales, in other words, are bringing an abundance of oil and gas at the start of a twenty-to-forty-year period when we can, in many forecasts, see the declining demand for those fuels—not because of energy scarcity but because of more competitive and widespread low carbon energy sources.
While one can declare no energy revolution to be worthy of the name unless it completely reverses the consumption of fossil fuels, I think that revolution is a pretty mild term for a world now capable of entering a multi-decadal period of energy transition under stable prices rather than assaulted by economic and energy inflation, uncertainty, scarcity, and chaos. Sometimes the most important revolutions are ones that prevent violence and distress.
Priest wisely cautions readers against defending old historical paradigms. Certainly, the shale revolution at times can seem too familiar, too good ol’ boy, too oilfield to be history making. But to ignore the deep changes that have already happened, and will continue to happen, because of the shales would be to ignore an ongoing historical transformation still not yet fully explored.
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