Reuters’ energy columnist John Kemp makes an eye-popping argument in his latest column: there is now so much shale gas in the world that the price of oil will have to come down to compete with it.
He refers to the EIA report that came out yesterday showing new estimates of worldwide shale gas deposits now augment the global natgas supply by a whopping 47%.
The report also said shale oil deposits boost overall oil supplies 11%.
But there’s a key difference between shale oil and shale gas: the recovery rate — how much ultimately gets pumped out of a given play. It’s been topping out at around 10% for the former, while it reaches up to 30% for the latter.
Given those factors, oil, which costs almost four times as much as gas: doesn’t stand a chance. Kemp:
Until now it has not been clear whether the gap will close mostly through a rise in the price of gas, a fall in the price of oil or some combination of the two. The comparative abundance of shale gas suggests oil prices are much more likely to converge down to gas, rather than the other way around.
Given the geological differences, natural gas looks set to be the lower cost way of adding reserves over the next couple of decades.
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