It is not often that routine corporate updates can rattle nations but that is exactly what happened this week.
ExxonMobil and Chevron, the two largest US energy supermajors, both raised their guidance for the amount of oil they expect to squeeze out of the Permian Basin, the heartland of the US shale boom, over the next five years.
In the process they sent a signal to Opec countries that any hopes that the shale revolution might falter are grossly misplaced.
The scale of the revisions are hard to overstate, with “Big Oil” increasingly becoming “Big Shale”. Operators are bringing expertise and efficiency earned over decades in far-flung corners of the globe to an area previously dominated by wildcatters and domestically-focused US oil companies.
By 2024 Exxon and Chevron now expect to be pumping almost 2m barrels a day combined from the Permian, which straddles Texas and New Mexico. That is 60 per cent more than previously forecast.
The Permian as a whole will already produce about 4m b/d this year, meaning that this one region — if it were an Opec country — would be the third-largest producer in the cartel, behind only Saudi Arabia and Iraq.
For Opec this spells trouble. Members, including Saudi Arabia, have consistently downplayed shale’s longevity, arguing that higher prices are still needed to foster investment in production and avoid a future supply crunch. It is a line of reasoning still favoured by many oil company chief executives too. But it looks, at best, outdated.
While the shale industry has undoubtedly relied on a gusher of Wall Street money to grow, often leaving investors disappointed by its ability to generate cash, Big Oil is now leading the way not just in getting production up, but in getting costs down.
Chevron says that returns on its shale investments are now “north of 30 per cent”, even with lower prices. Exxon says it could make a return of 10 per cent even if oil fell to $35 a barrel.
For Opec this means the days when members could rely on $100 crude to top up government coffers look like an anomaly, rather than a mean to which the market will one day revert.
The $100-oil era, in reality, was a brief period in 2008 followed by a four-year bonanza that collapsed in 2014 as US production overwhelmed demand.
The shale era that has followed, often described as “lower-for-longer” in the industry, is now comfortably on course to outlast the period where triple-digit crude was the norm.
Opec countries may still succeed in bumping up prices marginally in the short term by restricting their own supplies or relying on sanctions against members such as Iran and Venezuela, at the cost of conceding market share.
But the advances made by Exxon and Chevron show that the era of Big Shale is only really getting started.
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