Why the Oil and Natural Gas Shale Revolution is so Resilient

Someone asked me why the North American Oil and Shale Gas Revolution didn't stall given declining oil and natural gas prices. What came to emy mind was resilency and seven other factors which taken together can explain why OPEC and Russia did not get their wish.

The most important factor is that Oil and Natural Gas can't just be looked at as a single commodity. The fact is, depending on where you drill a hole in North America's onshore shale basins, you will probably get oil and associated natural gas, natural gas and natura gas liquids (NGLs) or just natural gas. So a producer can rely on multiple revenue streams from all or a combination of these commodities or a portfolio of assets. Fortunately, each commodity's price is different and not exactly related. It also helps to have th infrastructure to process and refine these commodities and move them to markets in North America and abroad. 

The seven factors are as follows:

  • Three major energy commodities are interlinked (oil, natural gas and NGLs)
  • Producers did not give up. In fact they have significantly reduced expenses
  • Pipeline infrastructure to get molecules to market either in North America or abroad
  • Physical gas can be traded at almost 200 sites in North America and there are 700+ buyers and sellers
  • Increasing level of exports and prices
  • Very liquid crude oil and natural futures markets to hedge risk
  • Power Sector is getting more “gassy” in North America

On Sunday November 20, 2016 I presented a paper at the Southern Economics Association Conference in Washington DC that captures some of these factors. See the presentation here.

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