The uncertainty in global oil and gas demand will persist in the short term and will affect the rate of recovery for shale industry, which is expected to be slow.

Macroeconomic Trends

Listed below are the key macroeconomic trends impacting the shale theme, as identified by GlobalData.

Oil and gas industry critical for the US Gross domestic product (GDP)

Oil and gas production plays a significant role in the economics and geopolitics of the US. As per World Bank estimates, oil rents have been around 0.3% of the US GDP since 2005. After a dip in 2015 to about 0.008%, oil rents recovered to about 0.377% of the US GDP in 2018, riding on the shale boom. The US is one of the largest energy consumers in the world. Therefore, it needs to ensure energy sufficiency through domestic production.

The shale revolution has helped the US to move towards being a net energy exporter. The shale production has grown rapidly in the US over the last decade. This growth also provides the US a leeway in terms of geopolitical approach towards the oil producing nations such as Saudi Arabia.

The Covid-19 pandemic and subsequent OPEC+ induced oil price decline, leading to liquidity and production decline in the US shale operations, highlight the overbearing dependence of the US on its native shale oil and gas production.

Capital expenditure cuts in the US shale industry could derail future growth

The low oil prices due to Covid-19 pandemic and OPEC+ conflict has had an adverse effect on the operations of the US shale industry. This has led to reduction in shale production with a significant portion of oil and gas rigs being idle. To maintain operations, the US shale players have resorted to cutting down on the planned capital expenditure for 2020.

Hess Corp announced reduction of its planned capex from $1.4bn to around $696m in the Bakken shale in 2020. Similarly, Two prominent Permian Basin operators, EOG Resources and Pioneer Natural Resources, slashed capital spending by 62% and 40%, respectively.

This is an edited extract from the Shale – Thematic Research report produced by GlobalData Thematic Research.