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Shale gas impact on the Tyre industry

Posted: January 14, 2016 at 7:40 am   /   by   /   comments (0)

Historically nations have tried to control energy resources , in particular oil-  and this has led to collaboration and competition  between countries – however  this is about to change dramatically.

Because there is a new kid on the block-Shale reserves.

Shale oil production globally could reach up to 13 million bpd of oil by 2030; this amounts to approximately 12% of the global oil supply.

COUNTRY                                ESTIMATED RECOVERABLE RESOURCES (2013)  Trillion cu.ft.

  1. China                                                                                                                                      7,300
  1. Argentina                                                                                                                                1,100
  1. Algeria                                                                                                                                      800
  1. S.A.                                                                                                                                           650
  1. Canada                                                                                                                                     573
  1. Mexico                                                                                                                                     550
  1. Australia                                                                                                                                  440
  1. South Africa                                                                                                                            390
  1. Russia                                                                                                                                       280
  1. Brazil                                                                                                                                         240

India holds approximately 38 trillion cu.ft.

What is happening in the world is an interesting scenario.

U.S Of A: The U.S. is in the process of expanding its shale gas production capacities at a very hectic pace, and soon it would become the largest producer of shale gas, in the world.

By diverting its coal fired energy corporations on to shale oil & gas, coal surplus has already been reached by the U.S. and it is a net exporter of coal today.

It is estimated that the U.S. will change into a net exporter of oil by 2030.

The U.S. is in the process of expanding its shale gas production capacities at a very hectic pace, and soon it would become the largest producer of shale gas, in the world.

China: Two decades ago, China was a net exporter of energy. By 2030 it is likely to become the world’s single largest crude oil importer, relying on imports for almost 80% of its oil and more than 40% of its gas.

Although China does have the largest known shale gas reserves in the world, it does not have the technology today to make it viable option for extraction, especially with low prices of crude and coal.

However with China’s known capabilities of reverse engineering industrial technology, it his highly likely that they would be at the forefront of extracting shale fuels very efficiently in the near future.

The demand in China for energy would grow at a scorching pace so the impact of shale fuels supply would not be very dramatic.

Europe: Europe, over the same period, is likely to remain a large importer of fossil fuels.

Europe is and will remain a net importer of gas and oil till this time frame of 2030 for which we are estimating the scenario. Shale fuels have a major issue since environmentalists have opposed the industry and therefore Europe is closed to the idea of actually extracting & fracking shale within their borders.

Middle East & Russia: Would remain net exporters of oil & natural gas, but low prices would reduce the trade surpluses that they have enjoyed so far for so many decades.

India: The prices of coal would remain depressed, and we would also be benefited by low prices of oil and natural gas. Our trade deficit will be positively affected.

The benefits of oil price reductions will vary significantly by country.

Net oil importers like India and Japan might see their GDP up by around 5% – 7% by 2030, while the US, China, Europe might gain by 3% – 4% of GDP.

Net oil exporters like Russia and the Middle East would have a drop in their trade balances of approximately 5%-10% of GDP.

Enroute to 2030 however the demand for oil from the U.S and other countries would shrink so dramatically that it will have a major geopolitical fall out- trade surpluses would turn into trade deficits in the Middle East and Russia.

Because the U.S. has been importing not only oil, but also capital from the Middle Eastern countries-since they have been supporting the U.S. exports of defense equipment.

The billion dollar question is – what will the U.S. import with all the money it saves by becoming energy self-sufficient.

The scarier question is who will buy all the defense equipment that the U.S. exports once Middle East trade deficits start shrinking.

Wishful thinking would be that the US could decide to import more of something else instead of energy- probably, a cleaner environment.

This could be done by reducing their industrial base of even mildly polluting industries like tyres – and this could have a positive impact on the world economy.

The U.S.could also import more of services & R&D facilities, and hopefully India would be at top of their game as suppliers for both of the above.

Shale gas and shale oil is a mystery that is unravelling in our lifetimes– well there is good news for India, since we would have the luxury of low energy prices it is likely that raw material prices for the tyre & rubber industry would also remain low.

Let us look at the relatively shorter term of the next 1 to 5 years -A question that needs to be answered is whether in the prices of crude oil would remain at below USD 40 per barrel or would they move upwards to USD 60 per barrel or more.

There is a price war between the different players at present and the arsenal available with them is as below:

  • Approximate Cost of crude oil production
  • Saudi Arabia : USD 10 per barrel or less
  • Other Middle east & North African sources USD 20 per barrel
  • Russia : USD 25 per barrel
  • Rest of the world USD 30 to USD 40 per barrel
  • Approximate cost per barrel for shale extracts
  • USD 60 TO USD 90 per barrel at present

For shale, USD 40 per barrel in the future may be achievable for very few locations over the lifetime of the extraction site.

With this scenario it seems to be highly likely that most crude oil producing nations would not go on with production at such low prices and the prices would increase and settle anywhere upwards of USD 60 per barrel to keep them at par with breakeven costs of shale oil production.

The increased prices would bring viability to shale oil producing facilities also.

In our estimates – expect an increase in prices for rubber & tyre industry raw materials also – in the very near future.

Hemant Lal.

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