The fall of the oil prices and the geo-political consequences

Frank Umbach

 

The impressing technological innovations (automation and digitalization) in the field of fracking technology might cause the production costs of shale oil and shale gas to fall further in the following years. “Digital oilfields” will make the US oil products still more competitive on the world market. Additionally, natural gas has become a direct competitor, concerning fossil oil in the transports sector, in America and some other countries, including the Middle East and Latin America. This is already decelerating the growth of the world-wide demand for oil. If this energy trend in the global transports sector continues due to electrical mobility and other alternative forms of driving, it will further reduce the world-wide demand for oil and might stabilise the prices of oil on such a low level as less than 50 US-Dollar. In the long term, even Saudi-Arabia seems to have lost its confidence in its oil reserves, its best instrument for the preservation of economic stability and regional influence. In a medium-term and long-term perspective, the scenario “Peak Oil Demand” is looming already, which already today forces all oil-producing states to start long-term structural reforms for diversifying economy and reducing dependence on oil exports for the respective national finances. With the vital question of a global decarbonisation of the energy systems, “He who is late will be punished by life” applies all the more. The American shale production undoubtedly has become a global „Game Changer“ on the global crude oil market and on the regional gas markets, totally underestimated both in the Middle East and in Europe. If the huge Permian Basin were optimal exploited, it would produce 10b/d – as much as Saudi Arabia altogether. If, in addition to that, Russia were capable of exploiting its Bazehnov shale oilfield effectively, this would certainly deal the final death-blow to OPEC. In this case both Russia and the USA actually would be independent from net energy imports. This would not only have aggravating effects on the global oil and gas markets, but also geo-politically, because this would fuel their rivalry additionally and might lead to new geo-political ally-constellations. The US shale oil and shale gas technologies will be applied by US contractors not only in the USA in future, but also in many other states. Above all, the vast shale oil reserves of the Maca Muerta oilfields in Argentina could be exploited with the help of American oil firms, and therewith further huge quantities of oil could arrive at the global crude oil markets, thus applying additional pressure to the global oil price.