PwC: Shale Oil: The Next Energy Revolution?

The global impact of shale oil could revolutionise the world’s energy markets over the next couple of decades, resulting in significantly lower oil prices, higher global GDP, changing geopolitics and shifting business models for oil and gas companies, according to new analysis from PwC.

Global shale oil production could boost global GDP by up to $2.7 trillion by 2035

• Shale oil production has the potential to reach up to 12% of global oil production,  equivalent to almost 14 million barrels a day
• This extra supply could push global oil prices down by around 25%-40% in 2035 relative to an EIA baseline projection of $133 per barrel in that year (in real terms)
• Level of global GDP could increase by around 2.3%-3.7% ($1.7-2.7 trillion at today’s GDP values)
• Benefits of oil price reductions due to shale oil will vary significantly by country 
• Presents significant strategic opportunities and challenges for the oil & gas industry and governments
  

John Hawksworth, chief economist at PwC and co-author of the report, said:

“Lower global oil prices due to increased shale oil supply could have a major impact on the future evolution of the world economy by allowing more output to be produced at the same cost. These effects could build up gradually as shale oil production rolls out across the world to produce an estimated rise in global GDP of around 2.3%-3.7% in 2035. This would be roughly equivalent to adding an economy the size of the UK to total global GDP in that year.

“However, the economic benefits of oil price reductions will vary significantly by country. Large net oil importers such as India and Japan may see their GDP boosted by around 4%-7% by 2035 in our alternative scenarios, while the US, China, Germany and the UK might gain by around 2%-5% of GDP.

“By contrast, major oil exporters such as Russia and the Middle East could be significant net losers in the long term unless they can develop their own shale oil resources on a large scale.”

The estimated impacts on GDP by country and for the world as a whole are summarised in the table below.

Estimated change in GDP in 2035 due to 25%-40% cut in global oil prices due to shale oil

Note: We do not have GDP impact estimates for the Middle East region, but model estimates suggest that the current account balances of this bloc of countries could deteriorate by around 4%-7% of GDP in 2035 due to falls in oil prices in alternative shale oil scenarios.

Source: PwC analysis using the National Institute Global Econometric Model (NiGEM)

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