Caspian Report - Issue: 07 - Spring 2014

After a decade of volatile prices, the past
three years saw an unusual period of
stability in the oil market, with a barrel of
crude oil averaging $110 each year.
After a decade of volatile prices, the
past three years saw an unusual
period of stability in the oil market,
with a barrel of crude oil averaging
$110 each year. However, forecasts
for 2014 predict a decline to an average
of $105, on the basis of expanding
supply and a weaker-thanexpected
demand. A combination of
geopolitical events in Syria, Libya
and Nigeria have prevented oversupply
despite the expanding entry of US
shale oil into the market. The price
has remained high thus far, but how
long can prices stay above $100
This coming price drop arrives at a
time when the world’s largest consumer
is nearing its long-held goal of
energy self-sufficiency. The United
States embarked on this quest in the
aftermath of the 1973 oil crisis, and
in recent years has seen the country
develop a comprehensive nuclear
program, develop biofuels and
seek oil from ever-more-expensive
sources: the tar sands of Canada, the
depths of the Gulf of Mexico and even
the wilds of Alaska. Further afield, it
drew on oil from Brazil’s deep-water
wells and West Africa’s low-sulphur
oil deposits, all of which contributes
to a reduced dependency on oil from
the Middle East.
More recently, the development of
unconventional sources of oil and
gas back in the United States has led
to a revolution in energy flows and
policies, as the country stands on
the verge of becoming a gas exporter.
The rapid development of shale oil
and gas fields has seemed miraculous
at times, but like many of the
conventional sources the US relies
upon the production is more expensive
(costing $60-80 per barrel) and
more risky, as output and depletion
rates seem less predictable than conventional
sources. As a result US domestic
and regional supply is quite
vulnerable to price fluctuations, as
witnessed when work at the tar
sands of Canada came to a standstill
in 2008 following a price drop.
Analysts have claimed that the age of
“easy oil” is over, and we are entering
a period of expensive extraction and
capital-intensive processing. With
the shale oil and gas sector currently
requiring $1.5 in capital investment
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CASPIAN REPORT, SPRING 2014