The document discusses the shale gas and oil revolution driven by new fracking technology. It summarizes that: 1) Fracking has led to a boom in US gas and oil production, making the US a net exporter and reducing global prices. 2) Lower oil prices are benefiting net importing countries but hurting OPEC producers who face a dilemma of either losing income from restricting production or risking instability from low prices. 3) The shale revolution has increased global oil capacity and reduced risks of supply disruptions, putting downward pressure on long term oil prices.

1. SHALE GAS & OIL
REVOLUTION
Koen De Leus
KBC Economic Autumn Seminar
5 september 2013

2. 2
Shale Gas & Oil Revolution
Topics
 Shale revolution & the gas & oil production boom
 Glut of oil & North American oil independence
 Macro economic impact US
 Worldwide impact low oil prices

3. 3
 1990-2002: stable oil
prices
 From 2002 on prices up
because of economic
recovery, huge demand
China + ‘Peak Oil’ fear
 Start of Pig Cycle
 New technology of
horizontal hydraulic
fracking
Brent Oil Price
(US$/barrel, 1990 – today)
Shale revolution
Investments & new technology
Bron: Thomson Financial Datastream Bron: Thomson Financial Datastream
0
20
40
60
80
100
120
140
160
Low prices,
no investments,
no concessions
High prices,
Pig Cycle.

4. 4
Shale revolution
Booming gas & oil production
US: Production of natural gas & import
(In billion cubic feet)
2016
US: Production, consumption & net
import oil
(In billion barrels per day)
-500
0
500
1000
1500
2000
2500
3000
3500
4000
0
5000
10000
15000
20000
25000
Natural gas production, lhs
Net import, rhs
0
5
10
15
20
25
0
2
4
6
8
10
12
14
16
Petroleum Net Imports, lhs
Crude Oil Production, Total, lhs
Oil consumption, rhs

5. 5
 Worldwide oil capacity 2011: 93 mbd
 Iraq: +5.1 mbd
 US: +3.5 mbd
 Brazil: +2.5 mbd
 Canada: +2.2 mbd
 …
 Worldwide oil capacity 2020: 110.6
mbd (Harvard Kennedy School)
Non-conventional oil
Shale revolution
Worldwide capacity & energy independance

6. 6
Economic impact
Current account & FX
US petroleum trade balance & prices
(In bn US$ & US$ per barrel)
US relative oil deficit & exchange rate
(oil deficit vs Germany & €/$ exchange rate)
0
20
40
60
80
100
120-450
-400
-350
-300
-250
-200
-150
-100
-50
0
US Trade balance petroleum (in bn $)
US trade balance petroleum (in bn $, 2005 prices)
Crude Oil-WTI Spot Cushing U$/BBL - DS MID PRICE
0,6
0,8
1
1,2
1,4
1,6
1,8
0
5000
10000
15000
20000
25000
30000
35000
40000
1/01/2000
1/01/2001
1/01/2002
1/01/2003
1/01/2004
1/01/2005
1/01/2006
1/01/2007
1/01/2008
1/01/2009
1/01/2010
1/01/2011
1/01/2012
1/01/2013
US - Germany oil deficit, in mio US$
EUR/US$ exchange rate

7. 7
 Employment:
 Gas & Oil: 0.44% total employment
 Precedent 4Y: +190K
 Till 2020: +400K
 Multiplicator: 3x to 4x = +1.2 mio
 Low Gas prices:
 Refinery & chemical sector: 46%
industrial gas consumption
 No positive output effect
 Industrial fuel mix: gas from 31.5% to
36.5% since 2006
 No positive effect on electricity prices
No manufacturing renaissance (yet)
Natural gas price
(Europe, US & Japan, in US$/MMBtu)
Economic impact
No Manufacturing Renaissance
0
2
4
6
8
10
12
14
16
18
20
9/03/2005
16/11/2005
26/07/2006
4/04/2007
13/12/2007
21/08/2008
30/04/2009
7/01/2010
16/09/2010
26/05/2011
2/02/2012
11/10/2012
20/06/2013
US GAS EURO GAS Japan import price

8. 8
 Spare capacity increases, risk
premium decreased.
 Long term oil price
 Futures WTI (delivery 60 months):
90US$
 Break-even price: 90US$ or lower
- deepwater: 50-70 US$/barrel
- Shale oil: 50-80 US$/barrel
- Oil sand: 80-90 US$/barrel
But short term supply failures (4% global
supply) keep risk premium high
Evolution (estimated) spare capacity OPEC
(in % world demand)
2,7%
6,5%
6,8%
2,7%
3,7%
5,3%
6,2% 6,3%
0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
6,0%
7,0%
8,0%
2008 2009 2010 2011 2012 2013 2014 2015
Bron: KBC
Economic impact
Structural lower oil prices

9. 9
 Inflation < 2%
 Positive supply shock net
importers
 OPEC main loser
 Dilemma:
- High oil price (production restrictions) leads to
more production non-conventional oil. Will
coherence uphold (e.g. Iraq, Venezuela)
- Low oil price: national income implodes, fiscal
break-even level >100$. Arab Spring part II?
US: CPI versus Brent oil
(Brent change in US$, % YoY)
-60
-40
-20
0
20
40
60
80
100
120
-2
-1
0
1
2
3
4
US CPI, %YoY
Brent %YoY, right hand scale*
* Brent moving to 90US$ by 05/2015 and stabilising afterwards
Economic impact
Positive supply shock & OPEC dilemma

10. SHALE GAS & OIL
REVOLUTION
Koen De Leus
KBC Economic Autumn Seminar
5 september 2013