James Thew/Adobe Stock
The Organization of Petroleum Exporting Countries in general, and Saudi Arabia in particular, have done the U.S. oil industry a massive favor, and they are probably ruing the day they tried to squeeze America’s shale industry out of existence.
The collapse in oil prices that ensued after Saudi Arabia-led OPEC opened the spigots two years ago forced American companies, and their many subcontractors, to innovate in a way that would never have happened so fast or gone so far without the imminent threat of survival forcing the pace.
Oil Prices Allow Reopening of Old Wells
Now, U.S. shale producers have achieved economies of scale that allow them to return to previously closed wells in fields like Eagle Ford and achieve 30% returns even at $40 a barrel. U.S. explorers may be making hay in the domestic market, but huge potential exists for these same firms to take their technology abroad.
An OilPrice.com post describes how oil majors are drawing on their experience in the U.S. tight oil market to open up vast fields in South America. Even legally strapped ,Argentina foreign investors are doing the unthinkable and being lured back in by the opportunities.
The hottest play currently, the article says, is Chevron/YPF’s Loma Campana, which is ramping up production steadily and will peak around 2025 with production reaching annual volumes of 2.5 million of oil and 1 billion cubic meters of natural gas. The largest shale development in Latin America, with reserves of 8.7 trillion cubic meters of gas and 16 billion barrels of oil, is Argentina’s Vaca Muerta formation in Neuquén Province but development has been delayed by poor politics.
Argentina holds the largest reserves in South America. In June 2013, the Energy Information Administration estimated that Argentina held 802 trillion cubic feet of recoverable shale gas reserves, the third largest in the world, and 27 billion barrels of oil. The failure to exploit them in the past is laid at the door of Argentina’s erratic former president, Cristina Fernandez, whose exit in December 2015 allowed many to hope the energy market would be put on a more stable footing and investment could resume.
South America Steps Forward
Argentina could be self-sufficient in oil and gas if it gets its act together. Larger neighbor Brazil appears, so far, not to be as well endowed with tight oil and gas as Argentina, but still boasts some 245 trillion cubic feet of wet shale gas and 5.3 billion barrels of oil, while Mexico is comparable to the U.S. and Canada if only national producer Pemex could access the funds and technical expertise to open up its reserves.
It was assumed that Europe and China would be the next to benefit from tight oil fracking technology after the U.S., but lack of expertise and complex geology in China, and lack of will and complex politics in Europe, have deprived both energy-hungry markets from exploiting their tight oil resources. It would seem American expertise and American money are going to be the driving force behind exploitation of tight oil and gas resources for years to come and the Americas, north and south, are where the action is going to be. So long, OPEC.