The end of the shale revolution

"Shale was thought of as a swing producer, the Saudis and the OPEC have waited this out. Now, really OPEC is back in the driver's seat where they are the swing producer."

This is what Hess Corp’s chief executive, John Hess, said last week at an investor conference, following reports by shale companies about lower well productivity and slower than expected production growth.

Hess’s remarks also followed a downward revision by the EIA of 2023 total U.S. oil output growth by as much as 21%, meaning the EIA now expects output next year to rise by 480,000 bpd, compared to earlier expectations of an increase of 610,000 bpd.

Of course, such revisions are something quite normal. Initial projections tend to be made based on estimates rather than factual production data and once that factual production data comes in, earlier projections are revised based on that data. But the EIA’s revision is not an isolated piece of news. It’s one of a growing number of red flags suggesting the shale revolution is losing momentum.

Oil industry vet David Messler wrote a series of four articles detailing the argument that U.S. shale oil is peaking, the latest of which quotes industry executives as saying a lot of things in Corporatese but also letting slip that well productivity has not been what one might hope for lately.

That’s not news, really. Art Berman, a notorious industry commentator who, I imagine, is not too well liked across the shale patch because of his gloomy view of the future, has for years been saying, roughly, that low-cost shale could not last forever; that the fast depletion rate of shale wells means that, over time, getting shale oil out of the ground will only be getting more expensive and not as attractive; and that basically there’s nothing anyone can do about it. Except, perhaps, make things even worse.

This is exactly what the Biden administration has done by taking an anti-oil stance from day one, threatening windfall taxes, and making new pipeline capacity construction just a tiny little bit easier than giving birth to a breech baby. And thus we come to Hess’s proclamation of OPEC being back in the driving seat. Interestingly, it coincides with an announcement by BP that it has big plans for U.S. shale.