OPEC and Unconventional Resources

Abstract Crude oil and natural gas have been major pillars of the modern civilization during the past century. They are among the most valuable depletable global resources. The energy market has witnessed many oil price shocks during the past several decades. Such instabilities have impacted the global oil and gas industry in ways that have included disruption of investment in the infrastructure, slowdown of advancements in technology development, and backwardness on attracting and training creative solution providers. OPEC (Organization of Petroleum Exporting Countries) has been partly blamed for instigating such price instabilities. Recently, and since the latter part of 2014, in the fear that the shale resource developments may affect the market share of the OPEC producers, oil prices have dropped significantly because of OPEC countries, while suffering losses to their own economies, flooded the market with cheap oil. The global oil industry is now facing a similar situation it has faced several times during the last three decades. Advantages and disadvantages of low oil prices for both net exporters and net importers of crude oil, as well as the global economy, have been extensively discussed in the literature. Based on the available statistics, while in the short terms, OPEC producers may regain their market shares by producing low cost conventional oil and discouraging shale oil and gas developments, in the long runs, this might not be a successful strategy. OPEC countries in few decades will be paying a high price when their conventional resources reach to levels barely satisfying their domestic needs. Furthermore, because of current orchestrated low prices for shale resources they are preventing their own countries from investing in the development of unconventional resources in terms of technology, manpower and pace of development. In this study we examine the potential of source rock development in some OPEC countries and discuss the importance of realizing the real value of crude oil when it gets to pricing a depletable resource and considering the substitution cost.