Photo: Reuters
Photo: Reuters

The oil question

At what point will the glut and resultant decline in prices make the shale industry unattractive?

The new fuel price system kicked off on Friday on an auspicious note—a reduction in petrol and diesel prices. Full deregulation with daily price revisions has come when the Organization of the Petroleum Exporting Countries’ deal’s extension has failed to put a floor under oil prices, thanks to the prospect of a boost in supply from Nigeria and Libya—both exempt from the deal—and the seemingly unending shale boom in the US. Shale production has risen over 700,000 barrels per day since September last year, with more in the pipeline.

The question now is: at what point will the glut and resultant decline in prices make the shale industry unattractive? There are some negative signs on the horizon, such as drilling productivity starting to decline and drilling costs rising because of a tight market for rigs, equipment and crews. Investment in top shale companies has also started tailing off. This is not to say that the sector will reverse course anytime soon, but it does raise an interesting question. What will be the political impact in India if and when the shale boom ends and prices start to rise again?

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