The U.S. energy sector has seen a massive turnaround in only a few years thanks in large part to the rise of unconventional oil exploration and production. Shale oil and gas exploration took the industry by storm, but it remains unclear how much of an impact the new approach will have on oil prices over the long term, or even the medium term.
Reuters reports that a request for long-term projections of oil prices offered an average estimate that was little different from current prices. Twenty different projections suggested prices for Brent crude oil could rise to $118 per barrel by 2020, from around $110 per barrel today.
But the interesting part of the exercise was that only a handful of these estimates actually projected a modest rise over the rest of the decade. Instead, analysts projected either a rapid rise or a dramatic plunge, depending on how they viewed the prospects for shale oil production.
"In 2020 we expect the world to be awash with oil as a result of booming supply and sluggish demand," Julian Jessop of Capital Economics told Reuters. Julian's group estimates that oil prices will plunge as low as $70 per barrel in the coming years.
But others see the change as a more local phenomenon.
"While it is true that shale oil has reinvigorated U.S. production, this new supply remains too small, even when combined with Canadian oil sands, to flood the global market," Bernstein Research wrote in a recent report. Bernstein, on the other end of the spectrum, projects a rise to around $158 per barrel by 2020.
The problem, the bears explain, is that unconventional oil production still accounts for only a small proportion of total American production and has not proven that it can sustain steady output over the long term. Meanwhile, projects elsewhere around the world have not proven nearly as successful, from offshore Brazil's subsalt fields to bitumen deposits in Kazakhstan.
"While the boom in U.S. and Canadian oil production is a great thing for North America, we have seen that the rest of the non-OPEC countries have clearly underperformed, and output is lower than expected," JBC Energy's Michael Dei-Michei told the news source.
OPEC here to stay
And the role of shale oil can easily be overstated.
Some American politicians have touted the potential for shale oil to promote energy independence, serving to reduce or negate the role of the Middle East and the Organization of the Petroleum Exporting Countries in setting energy prices.
But the Early Warning blog's Stuart Staniford notes that even overly optimistic projections of growth in western shale oil production – as much as 20 million barrels per day – would hardly make Saudi Arabia much less important to global prices. If Saudi oil production remains steady at around 10 million barrels per day, but global production rises from less than 87 million barrels per day last year to 100 million barrels per day, that would still leave Saudi Arabia responsible for one-tenth of all production and more than capable of leveraging their production to influence prices.
Other energy sources
But there are other ways unconventional energy resources could play a role in limiting costs of oil. While the role of shale oil production in setting prices has been relatively modest to this point, the impact of shale gas has been dramatic, pushing prices to their lowest point in more than a decade earlier this year.
Bloomberg reports that new technologies to convert natural gas into liquid fuels usable by trucks, planes and cars could help give an outlet to American producers and provide competition for crude oil demand.