In the early 2000s, the entire world started to search for new energy sources to replace oil, the major fossil fuel for mankind which is at risk of depletion. However, soon after, a mining technology developed in the 2010s, which allowed the extraction of shale oil, began to gain attention. The United States, one of the countries with the highest reserves of shale oil, took the lead role of the shale revolution based on its abundant reserves, geographical conditions favorable for development, and advanced oil development technology. As a result, energy supremacy around the world began to change. However, because of the recent COVID-19 crisis, the international oil prices have plunged and that hurt the U.S. economic market. Let’s find out what shale oil is and how the United States has an impact on the world with shale oil.
What is Shale Oil?
Unlike original crude oil, shale oil is extracted from the shale layer. Shale oil is a crude oil that has been trapped inside the shale layer without moving near the surface since the time that the crude oil was created; and it must be extracted from a rock layer of 3,000m underground, which is much deeper than the original crude oil. As a result, not only the existing vertical drilling technology, but also high-level technology such as horizontal drilling and hydraulic crushing is needed. The unit cost of shale oil is naturally higher than that of crude oil.
The existence of shale oil was known in the 1800s, but at that time, the cost of technology, which had to penetrate a solid shale layer, was too great. However, with the development of horizontal drilling technology using hydraulic pressure in the 1990s, shale oil extraction and production costs has become more reasonable. As a result shale oil started drawing attention as a new source of energy. In particular, the U.S. claimed to be the frontrunner in this shale revolution. In the United States, it was possible because of the combination of horizontal drilling technology and hydraulic crushing technology, an innovative mining technique needed to produce and supply shale oil and shale gas. What we should note here is that while traditional crude oil was concentrated only in some specific areas, like the Middle East, shale oil is relatively evenly distributed around the world. Currently, shale oil is considered to be rich enough to be used around the world for at least another 60 years.
The Sudden Changes on the Energy Supremacy
The United States has become the largest producer of shale oil. In September 2019, the U.S. oil extraction began to outperform imports of oil. The U.S. exerted considerable influence on international oil prices by producing crude oil based on huge shale oil reserves. As of 2012, U.S.-produced shale oil has been supplied to the crude oil market in earnest, forcing international oil prices to fall. Dubai crude oil, which reached $100 a barrel in 2014, fell to $30 in 2016. U.S. shale oil production is not the only reason for the drop in international oil prices, but it certainly has claimed to be the most powerful variable. The global flow of energy power seemed to be slowly shifting from the Middle East to the United States. Original oil-producing countries have waged an oil-producing war to increase oil production and lower oil prices in order to protect their energy power. However, the continued development of mining technology has further reduced the production cost of shale oil, and the long-term low oil prices caused by the oil war have made the economies of the existing oil-producing countries more difficult. In response, the U.S. showed a change in its political and economic attitude. They have become bolder in Middle East policy and are charging more for allies. As the need to rely only on oil from the Middle East has decreased, foreign policy has become emboldened. As an example, in 2017, when the impact of the shale revolution was certain, the United States declared Jerusalem the capital of Israel. It also scrapped the existing nuclear agreement. It is also continuing its trade war between China with its solid economic base in the U.S. with shale oil.
The Effect of the Nosedive of International Oil Prices Caused by COVID-19
However, the global economy is facing a crisis due to the recent collapse of international oil prices due to the COVID-19 Pandemic crisis. This is because the COVID-19 has reduced global energy demand. Due to the unprecedented Pandemic, oil prices plunged due to a combination of a slowdown in consumption and a global oil war. The price of West Texas Intermediate (WTI) which was around $50~60 dropped to $10. The unit price of shale gas in the U.S. is about $40 per barrel. As oil prices have fallen due to the recent COVID-19 crisis, shale companies in the U.S. are cutting back on production of shale oil, which has a relatively high unit price. It is difficult to even recoup the extraction costs due to falling oil prices. In addition, there was a possibility that the mining technology could be legally banned in the U.S. due to the austerity measures of several large shale oil companies in the U.S., the alleged reserves of inflated shale oil, and the environmental destruction of hydraulic fracturing technology, which plays a key role in drilling shale oil. Shale gas accounted for almost 10 percent of U.S. GDP in recent years. That's why the recent fall in international oil prices due to COVID-19 is expected to have a huge impact on the U.S. economy.
Thus, the shale revolution, which began in the United States, now occupies an indispensable place in the international oil price order. The U.S. Energy Information Administration (EIA) predicted that shale oil production will continue to expand due to the development of new technologies. However, the U.S. economy is currently in a crisis due to a plunge in oil prices caused by COVID-19 crisis and problems in the shale gas production process in the U.S. The United States should be cautious about what kind of energy policy it will carry out under these circumstances. Many are also interested in what alternatives they will come up with to counter the environmental destruction of current technologies.
