People have been questioning whether the Shale Revolution is dead. Our opinion is that it is just pausing and will continue on for the next 50 years.
1. The reason the price of oil is low is because of the excess oil from Shale revolution in the United States. If the price is too low for shale oil to be drilled, then the supply will go down, causing the price to rise. You cannot eliminate shale oil from ever being drilled, it can only be delayed.
2. Oil demand, according to BP, is expected to rise by 0.8% per year for the next 20 years, causing the demand of oil to rise from ~96MM BBL/day to over 120MM BBL/day by 2035. There is no excess supply at cheaper price levels than that supplied by shale.
3. The oil glut that is in effect currently was, at its peak, ~2.5-3MM BBL/day. This is a “glut” of ~3%. That amount will be quickly absorbed by growth of 1.7MM/day in 2015 and oil depletion of ~4MM/day per year. People have compared this “glut” to the glut of the 1980’s. In the 1980’s, the glut was ~20MM BBL/day when demand was only ~40MM BBL/day. It is not an apt comparison.
4. Iran will come online. People expect Iran to raise supply by ~600K BBL/day. This is ~0.7% of world demand. It is a blip that will be absorbed by growth and depletion.
5. China growth is slowing. That is true. China right now consumes ~11.2MM BBL/day of oil. if its growth slows from 5% per year to 3%, a mammoth drop, that would mean they would reach 12MM BBL/day about 3 months later. Its meaningless.
Unless oil goes in to terminal decline, which I have not seen forecast, the Bakken will, eventually, be fully drilled with at least 55,000 wells and be operating for the next 100 years.