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Maybe it’s just the size and ferocity of the North American media business, but in some ways the shale revolution needs to be kept in context. The whole shale boom may, from a global perspective, ultimately be the Kardashians of the industry – famous for being famous and good for headlines, but of limited practical value. Yes, there are spectacular shale deposits. Yes, some wells are incredibly prolific in certain sweet spots. But consider the overall context on a global basis.

For oil, the shale boom nearly doubled US production, from somewhere around 5 million barrels per day (b/d) in 2009 to just under 10 million in mid 2015. Pretty impressive growth, no doubt – but at what cost? Exact estimates are hard to come by because of the crossover with shale gas spending, but estimates of up to $500 billion don’t seem unreasonable given how much debt and equity was raised in 2010-14, never mind the huge amount of reinvested cash flow during that period.

At any rate, the $500+ billion investmnet added 5 million b/d and maybe 30 bcf/d of gas. That really made headlines, but from a global perspective those amounts are not as earth-shaking as we think. On the oil side, natural decline rates globally are hard to nail down with great precision – rates vary depending on amounts of maintenance capital available and incurred, for example – but one can make some reasonable assumptions. Most studies seem to put the number between 3-5 percent, so let’s call it 4 percent. That means that each year natural declines will take about 3.6 million b/d out of the 90 million b/d production base. Or in other words, close to one entire shale-revolution, a revolution that took more than 5 years to develop.

So the shale boom was and is big news in the US dominated airwaves, rightly so from a national perspective. It really did rewrite the US production map. But OPEC’s decision to drive down prices is drying up capital flows around the world.

A recent Bloomberg article speculates that $200 billion was removed from global energy capital budgets in 2015, with a similar amount skidded in 2016. That amount is likely to grow now that bankruptcies are beginning, but let’s assume that’s static. $400 billion that was earmarked to keep global oil production growing roughly in lockstep with demand growth is now gone, and that number will grow, and maybe by a lot, as long as oil prices remain low.

It’s hard to say exactly how much oil that represents, but we can make some rough estimates that will show what’s coming. At $40,000 per flowing barrel, a not too crazy overall estimate of what it costs to add new production on a global basis, the production shortfall from the capital spending hole would be 10 million b/d. If you disagree with the $40,000 per flowing barrel number, double it and the production shortfall is now “only” 5 million b/d, or one entire shale-revolution.

Add in a few other factors, such as how lower oil prices spur demand growth, and also that US shale growth is being clobbered as well, and the possibility for a fairly massive shortfall in the next two years is not hard to imagine. In two years, natural declines will remove somewhere around 7-8 million b/d from global production, and possibly a lot more if uneconomic wells are shut in. Resulting from this will b 5-10 million b/d that will never even show up at the party because of budget cuts. Add that together and a 15-20 million b/d shortfall could theoretically result. An shortfall like that is highly unlikely, but even a fraction of that would have serious consequences.

For context, the world has for several decades been comfortable that oil supplies are ample. OPEC pointed to their 2-3 million b/d “supply cushion” as proof. Those numbers appear to have been taken at face value even though no one had any clue if it was real.

Why were we industry watchers so comfortable believing that supply was always ample to meet fluctuations caused by markets, wars, etc.? Because OPEC said so, (read Saudi Arabia). The same nation that upped it’s oil reserves by 100 billion barrels in a single year just before OPEC set quotas based on oil reserves – is an astonishing act of deception that should have shattered confidence. Yet this has comforted the world in that it has an additional 2-3 million b/d accessible at any time. Saudi Arabia is now drilling oil wells at the highest rate in decades, and has increased production to flood the market but by nowhere near that amount (strange behavior indeed if they were telling the truth all along).

Saudi Arabia is now on a mission to crush expensive oil production such as with shale or in the oil sands, and is pumping close to flat out. More rigs are operating in Saudi Arabia now than in the past few decades. Shale production has stubbornly stayed high as near-dead shale companies fight off insolvency by drilling themselves into oblivion hoping for a sudden return of high prices. It doesn’t look like that’s coming soon and now the piper must be paid, or at least debt holders, who will fight over what’s left.

There seemed to be widespread belief in Saudi Arabia and their un-auditable books. Now there exists a complacency because of the overwhelming consensus in the news that shale production is unstoppable for decades to come. The sweetest spots are currently being drilled up as we speak, and if the industry finds itself short 10-20 million barrels per day in a few years, will the US shale business be able to crank double US production yet again? At what cost I ask?

It seems the risks of supply shortfalls in 2-3 years are far beyond the likelihood that the world will remain oversupplied by 2 million b/d at that time.

Read more insightful analysis from Terry Etam here