Shale Oil to Boost Global Economy by $2.7tn Annually

Last Updated: 14, February 2013

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Shale oil production could add $2.7 trillion to the global economy annual by 2035 while pushing global oil prices down by as much as 40 percent, according to a report.

The extra supply provided by shale could reach up to 12 percent of global oil production, or 14 million barrels a day, from around 1 percent now, as production expands from its U.S. base over the next two decades, added PricewaterhouseCoopers.

Shale oil production could add $2.7 trillion to the global economy annual by 2035 while pushing global oil prices down by as much as 40 percent, according to a report.

In its report, Shale Oil: The Next Energy Revolution, PwC said that the level of global growth could increase by as much as 3.7 percent as a result of the extra supply of shale oil, adding $1.7 – $2.7 trillion to the global economy annually.

However, bigger flows of shale oil is not expected to increase overall consumption substantially, because demand is not heavily dependent on price, but it will cut the cost of fuel, Adam Lyons, director of PwC’s oil and gas strategy team, said.

Last November, the Organisation of Petroleum Exporting Countries cut its forecast for demand for its own crude supplies and acknowledged for the first time that “shale oil represents a large change to the supply picture.”

“Given recent significant increases in North American shale oil and shale gas production, it is now clear that these resources might play an increasingly important role in non-OPEC medium- and long-term supply prospects,” the OPEC said in its report last year.

PwC reckons that more development of shale oil and gas could push down the 2035 oil price to between $83 and $100 per barrel.

PwC also warned that the effects of a lower oil price “resonate along the entire energy value chain, and investment choices based on long-term predictions of a steady increase in real oil prices may need to be reassessed.” It added:

[quote] The potential magnitude of the impact of shale oil makes it a profound force for change in energy markets and the wider global economy. It is therefore critical for companies and policymakers to consider the strategic implications of these changes now. [/quote]

However, the benefits of oil price reductions will vary significantly by country.

“Large net oil importers such as India and Japan may see their GDP boosted by around 4 to7 percent by 2035 in our alternative scenarios, while the U.S., China, Germany and the UK might gain by around 2 to 5 percent of GDP,” said John Hawksworth, chief ecnomist at PwC and co-author of the report.

Current major oil exporters, such as Russia and the Middle East, could be “significant net losers in the long term unless they can develop their own shale oil resources on a large scale”, PwC said.

Shale oil and gas have emerged as a viable way to boost energy supplies, but fracking has been blamed for the pollution of water supplies and linked to minor earthquakes.

In fracking, a mixture of water, sand and some chemicals is pumped into a well under high pressure to force the gas from the rock.

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