The topic of peak oil is drawing significant attention, primarily focusing on whether demand will peak before 2030 or later. Recently, discussions have shifted to supply and investment in U.S. shale, raising questions about its future.
The Wall Street Journal highlighted concerns in an oil county in New Mexico, where some are bracing for a decline in investments and oil revenue. The prevailing argument suggests that the ongoing transition away from fossil fuels will lead to this decline. Analysts believe that after the upcoming November election, this transition could either speed up or slow down, but ultimately, it is expected to happen, which could jeopardize oil wealth.
In recent years, the U.S. oil and gas industry experienced a wave of consolidation. Companies with cash from rising oil prices sought to expand their presence in the shale sector, particularly in the Permian Basin, which spans Texas and New Mexico. This region has attracted significant investment due to its vast untapped reserves.
This year, the industry has continued to thrive, with $100 billion in deals completed by September, according to Rystad Energy. An additional $46 billion in deals is reportedly in the pipeline, potentially bringing 2023’s total to an all-time high of $155 billion.
The shale patch remains active, with deal-making extending beyond the Permian as available land becomes scarce. Investors are looking to explore new areas within the shale sector for growth. Daniel Raimi, a fellow at the climate NGO Resources for the Future, compared the shale oil industry to the declining coal economy in Appalachia. He warned that such a decline could lead to entrenched poverty and significant challenges.
However, the comparison between shale oil and coal may not fully capture the dynamics at play. Coal was the first major fuel for industrialization, and its decline was a gradual process driven by the emergence of superior alternatives. In contrast, the current energy transition is largely driven by government policies directing energy sources, rather than a natural market evolution.
This aspect of the energy transition is crucial. Without ongoing government support—both legislative and financial—there may not be a successful shift away from fossil fuels. Meanwhile, oil demand remains strong, prompting Texas and New Mexico to continue expanding pipelines to facilitate the transport of oil and gas to processing facilities and international markets.
Despite warnings from climate advocates about potential declines in oil investment and the resulting economic consequences, demand for oil continues to rise, fueling further investments. While the growth of these investments is not consistently linear, the overall trend remains upward, with no immediate changes expected unless electric vehicles become a widespread requirement.
In addition, investment in offshore oil and gas exploration is growing even faster than in the shale sector, indicating a positive outlook for demand with no peak in sight. Concerns about the depletion of oil and gas resources have been expressed before, often prematurely, and history may repeat itself.
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