Peak oil has been a hot topic lately. Usually, it’s about demand and whether it will peak before 2030 or much later. However, in some cases supply and investment may be an issue. Sometimes people talk about whether there is a future for shale in the United States.
The Wall Street Journal recently raised this question in an article about New Mexico’s oil counties. Some in the county are bracing for what appears to be an inevitable decline in investment and, in turn, oil revenue. The argument for this inevitable decline is the transition of energy away from hydrocarbons. That transition could accelerate or slow after the November election, but they insist it will happen. Ultimately, this will spell disaster for oil and oil wealth.
The U.S. oil and gas industry has been hit by a wave of consolidation as buyers cashed in on soaring oil prices sought to expand into shale patches. The Permian, which straddles Texas and New Mexico, has been a prime focus for deep-pocketed buyers because of its vast untapped reserves.
The industry appears to be maintaining its momentum this year, with $100 billion worth of deals completed through September, Rystad Energy said, with another $46 billion worth of deals in progress. This means this year could reach all deals. In 2023, it will reach a record high of $155 billion.
The shale patch seems to be busy. In fact, deals are so busy that they’re spilling beyond the Permian, as the supply of available acreage has significantly reduced and managers and investors look to expand into new parts of the shale patch.
One researcher at a climate NGO called Resources for the Future likened the shale oil industry to the coal industry in Appalachia. “In Appalachia, the coal economy has been depressed for decades,” Daniel Raimi, a fellow at Resources for the Future, told The Wall Street Journal. “The result is really deep-seated poverty and really big problems.”
However, comparing shale oil and coal is a bit of a stretch given the evolution of both fuels. Coal was the first industrialized fuel, reigning supreme for decades until the discovery of oil and gas. What happened to coal was the result of the natural process of better fuels organically creeping into the market and delaying the supply of substitutes for inferior fuels. However, it was not so inferior as to prevent the primary use of coal. However, current energy transitions are the opposite of organic processes. Instead, governments dictate where businesses and households should get their energy from.
It is this feature of the energy transition drive that is most important. Without continued and growing government support, both legislative and substantive, the energy transition will not materialize. Meanwhile, oil demand remains strong enough for Texas and New Mexico to move more oil and gas to processing facilities and overseas buyers. It will be.
Although climate change NGO officials continue to warn of a peak in oil investment and the destruction of regional wealth it will bring, demand for oil continues to rise, prompting further investment. To be sure, the pace of growth in these investments and supplies does not rise continuously. But it’s on the upswing, and unless electric cars become mandatory, it won’t change direction anytime soon.
Meanwhile, investment in offshore oil and gas exploration is increasing even faster than investment in the shale patch, suggesting that the outlook for demand is indeed quite positive, with no peak in sight. When it comes to the hypothesis that oil and gas will run out, this is not the first time that a peak in oil supplies has been prematurely declared.
Written by Irina Slav for Oilprice.com
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