The Shale Boom Impact on the U.S… Lowering Mid-continent Crude Prices and Reducing Industrial Petroleum Product Manufacturing Costs

IT’S WORKING: The Shale Boom Has Given America Tons Of Political Leverage In The Middle East

Many have been skeptical of the true extent of the shale revolution’s impact on the U.S. economy, beyond localized effects like lowering mid-continent crude prices and reducing costs for industrial petroleum product manufacturing.

But in a new note, Standard and Poor RatingsDirect’s Peter Rigby says it’s actually given the U.S. a tremendous amount of political leverage.

Specifically, it can impose sanctions on Iran without the ricochet effect of spiking crude oil prices.

Why America’s Shale Oil Boom Could End Sooner Than You Think

America’s oil producers are nervous. They’ve had a great run the past few years. Domestic oil production is up 43% since 2008 to 6.5 million barrels per day, the highest level in decades. The majority of that 2 million bpd jump comes out of the two most successful new oil fields, the Bakken and the Eagle Ford. To develop these and all the other fields nationwide, the top 50 operators invested $186 billion in 2012, according to Ernst & Young. That was a record level of spending, up 20% over 2011.

You’d think that with drillers getting better, honing techniques and driving down costs, that a 20% increase in investment would bring about a more than commensurate increase in oil and gas production volumes, right? And yet according to Ernst & Young, total U.S. oil and gas production was up “just” 13% on the year.

Is Europe ready for a shale boom?

Centrica’s investment in Cuadrilla goes a long way towards breaking one of the key blockages to European shale gas: investment.

In my opinion, too much emphasis has been placed on the alleged strength of public opposition to shale as rationale for not investing. The entrance of Centrica is ironic, given their past statements on shale, but the fact they changed their mind is the key point today.  With an eventual commitment of  £160 million, the value of the entire company is over $1 billion.

Some, I’m among them, may say Centrica are getting a great bargain, but $1BN is nevertheless a great price for what is still a prospective play. Centrica have essentially anted up, and put a value on European shale assets. Because the M+A between the minnows of European shale gas has been so limited, assessing value has been problematic.  Someone serious, putting serious money on the table, is going to bring other players into the game.  Centrica’s investment puts down a marker, or benchmark, as to what other assets might be worth.