Last week’s chart on drilling intensity of US tight oil versus Saudi Arabia spurred some thought about what the industry looked like in previous years.

For completely self-serving reasons (birthday or something), I decided to look back 50 years to 1965 to check some industry data and see what was happening in the world at the time. It is remarkable how much has changed since then but also how much of it maybe hasn’t changed all that much.

Interesting data-points to consider:

• In 1965, North America produced about 10.9 million bpd (32% of global production of 34.5mm bpd) and in 2015 that number is about 14.5 million (19% of 76.3).
• In 1965, the Middle East produced about 9.4 million bpd (27%) and in 2015 that number is 23.3 (30%). Total all-in OPEC production is currently about 40% of total global production.

Interestingly, production coming out the Middle East has been fairly consistent as a percent of global production while North American production has actually seen a significant relative decline in market share, notwithstanding recent years growth.

In the 1960s, the Western economies were experiencing the longest peacetime expansion in history, fuelled by cheap energy, in the case of the U.S. mostly produced domestically, but increasingly dependent on imports from elsewhere, including the Middle East.

At that point in world history, Iran was actually the United States’ most stable ally in the Middle East and was in fact the dominant oil producer in the region – but Saudi Arabia, with its vast reserves, was quickly growing to the status of “swing producer” for the newly formed group called OPEC – a fact that would become all too apparent by 1973-4 with Arab oil embargo and subsequent energy crisis.

In 2015, we are experiencing an oil-shock of a different kind, ironically again fuelled by cheap energy. Much of the recent media talk has been about Saudi Arabia/OPEC battling U.S. tight oil producers for market share, the irrelevance of OPEC and that the U.S. tight oil producers are now the swing producers. Headlines and cozy social media hits aside, a review of history and thinking long term about the data doesn’t really bear that out as the Middle East and OPEC market share is pretty consistent.

Even if the US were to continue to grow production by, say, 1 million bpd (which is by no means an easy feat given the capex investment required), the best it can hope for given demand growth in the global market share context is really to maintain where it currently sits. So is there really a market share battle between OPEC and US tight oil or is OPEC just flexing their muscles?

On the swing producer status question, it appears to be hard to argue that the US as a technically non-exporting country that needs to drill 35,000 wells a year to tread water or grow production incrementally is a swing producer when Saudi Arabia or Iran or Iraq or Libya can increase production by 1 million barrels in 6 months.

This is not to say that North American production doesn’t have a significant role to play in the global mix – it does – let’s just not rush to crown a new king when the old one is still watching and wondering what all the fuss is about.

As a final note – in a follow up to the update from two weeks ago and the leverage situation at many US shale producers, the attached Bloomberg article is timely. (ctrl-click to open)

The Shale Industry Could Be Swallowed By Its Own Debt – Bloomberg Business

Prices as at June 19, 2015 (June 12, 2015)

• WTI Crude: $59.51 ($59.97)
• Nymex Gas: $2.812 ($2.775)
• US/Canadian Dollar: $0.8152 ($ 0.8125)

Highlights

• The price of oil rallied in the week before slipping toward the end on US dollar strength.
  • Storage declined marginally more than expected
  • Production increased marginally during the week. Traders await the much anticipated production drop-off
  • The rig count continues to fall
• Natural gas rallied during the week on the basis of increasing demand.
• As of June 12, 2015, US natural gas in storage was 2433 billion cubic feet (Bcf), which is 1.9% above the 5-year average and about 42.9% higher than last year’s level, following an implied net injection of 89 Bcf during the report week. Overall U.S. gas consumption increased by 3.4% this week, with an 8.2% increases in power-sector consumption offsetting a 1.9% decline in consumption in the industrial sector, and a generally flat residential/commercial sector. In addition, exports to Mexico (who knew?) hit an all-time high of 3.1 Bcf/day. 40% more than exports for the same week last year.
• As at June 12, 2015, US Crude oil supplies were at 467.9 million barrels, a decrease of 2.9 million barrels from the previous week and 81.6 million barrels ahead of last year.
• The number of days oil supply in storage was 28.5, ahead of last year’s 24.6.
• Production decreased to 9.589 million barrels per day from 9.610, with the decrease coming from Alaska
• Oil rig count at June 19 was down to 631 from 635 the week prior, the lowest since August 2010
• Natural gas rigs drilling in the United States rose this past week to 223 from 221.
• As of June 15, the Canadian rig count was up to 130 (17% utilization), 76 Alberta (14%), 17 BC (21%), 36 Saskatchewan (28%), 1 Manitoba (5%)). Utilization for the same week last year was 31%.

Drillbits

• Another LNG project received some positive news this week. The LNG project led by Royal Dutch Shell was given the environmental go-ahead by the Federal Government, subject to dozens of conditions.
• The new Alberta NDP government announced increases to corporate and personal taxes as part of its fiscal plan and moved forward on its royalty review and environmental plan.
• A number of Canadian energy companies announced or closed on capital raises including: Prairie Sky, Crescent Point, Yoho, Pembina Pipeline, Tidewater Midstream, Manitok, Husky, Cequence and Arsenal