Shale production growth will slow and eventually turn negative
- April 1, 2023: Vol. 10, Number 4

Shale production growth will slow and eventually turn negative

by Leigh Goehring and Adam Rozencwajg

Crude oil fundamentals are very tight and risk getting considerably tighter. Investors continue to starve energy companies of much-needed capital, the lifeblood of a solid supply base. Although the trend of lower spending has been in place for several years, our models tell us we are nearing a critical inflection point: The growth in shale oil production — the only source of non-OPEC+ production growth over the past two decades — may be coming to an end.

Few people have acknowledged shale’s importance to global oil and natural gas markets. In just 10 years, oil companies brought online the equivalent of two Saudi Arabias in the same country. An incredible achievement.

Shale development had many consequences, including massively shifting the U.S. current account deficit and reducing the geopolitical influence of foreign oil-producing countries. Surging shale production also allowed many investors and analysts to forget about the energy challenges society had faced in years past. For example, in the early 2000s, investors were fixated on “running out of oil.” The rise of Chinese energy demand was running into a period of lackluster non-OPEC production growth, resulting in surging prices and widespread fear. Oil ran from $25 to a record $145 per barrel in just five years.

Amid such widespread concern, several theories surrounding resource depletion and energy economics took hold. Once shale production began to surge, most of these theories — which investors had taken seriously only a few years prior — were discarded and openly mocked.

In recent years, we have become convinced shale production growth will slow and eventually turn negative. So far, the data has confirmed our thesis. If current trends continue and the shales do indeed plateau and roll over, global oil markets will have lost their only source of growth. Many of the resource depletion theories of the 2000s will likely return as critical issues in the 2020s. Investors would be wise to study them now.

As shale growth slows, investors will be re-confronted with the concepts of depletion and Peak Oil. The development of U.S. shales has allowed us to forget about these problems for over 10 years. We urge investors to familiarize themselves with these topics because our models suggest they will be crucial in navigating markets in the future.

Investors and policymakers tend to fight the last war and often are blind to the changes that will impact the future. In the early 2000s, investors’ focus on Peak Oil left many unable to see shale’s transformative potential. Today, investors remain convinced the shales are endless and fail to see that depletion problems have already taken hold.


This story was excerpted from the The End of Abundant Energy: Shale Production and Hubbert's Peak report written by Leigh Goehring and Adam Rozencwajg, managing partners of Goehring & Rozencwajg. Download a complete copy of the document here.


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