Summary of Week 2

Oil prices have declined by roughly 70% since peaking in the middle of 2014.

The U.S. oil rig count–a common measure of drilling activity–peaked in late 2014 and has since declined by about 60 %. Yet U.S. production of crude oil continued rising until the middle of 2015 and has since fallen by only 6% from its peak. The dramatic advance of U.S. oil production seen in the last decade is driven primarily by new discoveries of shale oil and innovation in drilling and extraction technology and has not been as responsive to the deterioration of oil markets as some analysts predicted..

The US is leagues ahead of the rest of the world in developing its unconventional gas reserves. For many years, the US was a big importer of gas. But thanks to the dramatic growth in its domestic shale gas industry, the US is already exporting LNG to Europe and other parts of the world. Numerous other countries around the world, from Argentina to Mexico to China, also have extensive reserves of unconventional gas. Many of them will take at least a decade to set up the right conditions to extract this gas – notably having the right know-how, equipment and regulatory environment.

Next week, let us start looking into how this shale gas revolution is leading to various energy and LNG market changes. As this market develops, suppliers and buyers will change the way gas is bought and sold. Gas contracts are likely to be shorter. Spot gas markets will grow, deepen and become more liquid. Buyers will source a bigger share of their gas from the spot market rather than long-term contracts, while suppliers will set aside more of their capacity for the spot market too.