What you need to know about PwC’s shale oil findings
- 14 Feb 2013, 16:25
- Ros Donald
When it comes to promised energy revolutions -
lower energy prices and changing geopolitics - shale oil has
remained in the shadow of shale gas. But a new
report by Pricewaterhouse Coopers
suggests shale gas's less popular oily little sister could come
into its own in coming years, pushing down fuel prices and
potentially boosting the world's economy by up to $2.7 trillion.
Here's our read of the report - with graphs.
A US story - so far
Just like shale gas, exploitation of shale oil - or
light tight oil - has been concentrated in north America. And
production has been accelerating - growing from 111,000 barrels per
day in 2004 to 553,000 barrels per day in 2011. PwC says "shale oil
could displace around 35-40 per cent of waterborne crude oil
imports to the US".
But PwC adds there's also potential for production of
relatively cheap oil to spread to other countries. It says early
indications suggest there's a lot of technically recoverable shale
oil all over the world. PwC claims analyses from the International Energy Agency and the
US Energy Information Administration
(EIA) have been "arguably conservative" in their estimates of
modest growth in global shale gas production.
By contrast, PWC ups the ante by extrapolating from
available data and "drawing parallels with US shale gas experience"
to conclude that shale oil could make up to 12 per cent of total
oil supply by 2035.
Shale oil could reach up to 12 per cent of global oil
production and push prices down by between 25 and 40 per cent, PwC
The report is divided into two scenarios.
The "PwC reference case" allows for the association
of the world's biggest oil producers, OPEC, to respond to increases
in shale oil production by limiting supply - meaning any oil price
reduction would be limited.
The second scenario - the "PwC low case" does not
include an OPEC response, so prices would fall lower, PwC says.
In both cases, PwC expects that the increase in shale
oil production will force prices lower than the EIA expects. While
the EIA has predicted oil prices will rise to around $133 per
barrel by 2035, the PwC reference case predicts it will remain
fairly steady at around £100 per barrel, while the low case sees
prices falling to around $83 per barrel.
According to the report, the influx of of cheaper oil
could add between 2.3 and 3.7 per cent to the global economy by
2035. It says: "At today's GDP values, this is equivalent to an
increase in the size of the global economy of around $1.7-2.7
trillion per annum."
Industries that rely on oil - either to make
things or to move things - could also benefit in the long term, PWC
says. They include hauliers, heavy industry in general, the
chemical industry, car makers and airlines.
Winners and losers
The big winners in PwC's scenarios are expected to be
the big oil importers. PWC predicts the largest net oil importers
like India and Japan might see their GDP boosted by between four
and seven per cent by 2035.
It could also boost consumers' "real disposable
income", PwC says. It projects a $50 fall in the real oil price
could increase private consumption per head by 2035 by more than
$3,000 a year.
In contrast, major oil exporters like Russia and the
Middle East could see their trade balances worsen by between four
and ten per cent of GDP in the long run "if they fail to develop
their own shale gas resources", PWC warns.
Focus on the UK
PwC has also produced a handy
video explaining what shale oil could
do for UK energy markets. The report claims if global production of
shale oil ramped up, the UK's GDP could increase by up to $1240
(£800) per person by 2035.
It says estimates indicating there might be large
reserves of shale gas under the UK suggest there's potential for a
lot of shale oil, too. This could " contribute
directly to investment, employment, economic growth and greater
energy independence", says PWC energy consultant Adam
Lyons in the video.
"With North Sea resources in long
term decline, we can create a new growth engine for UK plc if we
seize the opportunity presented by the growth of this new resource
in the UK and overseas."
Haven't we heard this before?
PwC admits that shale oil exploitation outside the US
has so far been "disappointing" outside the US. In its report it
assumes global shale gas exploitation will start scaling up from
2015, building to one million barrels per day by 2018 and
"continuing to grow thereafter", underpinned by a "supportive
James Leaton, research director at Carbon
Tracker, tells Carbon Brief:
"Crucially, PWC's report expects that
it will be as easy to extract shale oil around the world as it has
been in the US. Yet we know from experience that this might not be
the case. Predictions that shale gas would be exploited worldwide
in the same way as it is in America haven't panned out - and US
shale gas has yet to bring the global cost of gas down".
Unlike shale gas, which has helped reduce the US's
carbon footprint by displacing much more polluting coal, shale oil
isn't going to have any relative emissions benefits. PWC warns
affordable oil could conflict with decarbonisation and it's careful
to point out that without strong policies in place, this could be
bad news for the world's carbon emissions.
But policies aimed at cutting carbon could put a
dampener on shale oil production. Carbon Tracker released a report last year highlighting that markets so
far haven't cottoned on to the fact that high carbon businesses'
models could come unstuck if governments get serious about
constraining carbon emissions. Leaton says:
"Shale oil has the potential to
extend oil production, but that will still depend on carbon
constraints. If governments introduce carbon cutting policies, that
will lead to reduce demand and oil prices. Adding that up knocks
out around 40-60 per cent of the value of the European oil majors,
according to recent analysis by
It's important to remember that extracting
shale oil is still an energy and resource-intensive process. Leaton
"It's worth asking whether this is a
sensible use of resources and capital or whether we want to put
those resources into investments that give a better return."