Is the US shale gas boom over?

Discovery and production of shale had helped the US achieve self-efficiency in energy thereby bringing in sweeping changes in crude oil dynamics. However, as the production process is technologically more intensive, it requires high crude prices to remain financially viable. But the rout in crude oil prices since 2014 has put US shale producers in a tight spot.

And if reports are to be believed, then weak prices are here to stay making it difficult for them to hold their heads above water. Both International Energy Agency (IEA) and US Energy Information Administration (EIA) indicate a crude production surplus of 2.6 m barrels per day in August 2015 which is the highest since the oil price collapse started in 2014. As per EIA, the excessive build-up in crude inventory is not only on account of higher production but also a steep fall in consumption. This is reflected in the crude demand growth that has halved to 1.2% in the last one year.

Further, US has been curtailing crude output since April even as the Oil Producing and Exporting Countries (OPEC) has been raising production to drive out costly shale and defend market share. As Iran is also expected to add on substantially to crude output by early 2016, the US shale producers will find it increasingly difficult to remain financially viable going ahead.

Source: EquityMaster Newsletter