Shale oil companies: Victims of their own success
A self-inflicted wound
Chesapeake Energy Company was one of the leaders in a shale oil business that boomed over the past several decades. New fracking technology and lucrative oil prices powered the rise of “unconventional resource plays,” exploiting the vast U.S. reservoirs of hydrocarbons locked into shale formations. Shale oil companies were so successful at finding and producing new oil and gas reserves they became victims of their success, and now Chesapeake Energy has filed for bankruptcy.
From a national energy perspective, these resource plays were wildly successful. They increased domestic production and made the USA less dependent on foreign oil. The country consumed 7.5 billion barrels of oil in 2019, and about 4.5 billion barrels were from domestic production. Shale oil accounted for approximately two-thirds of the U.S. production.
Resource plays were also lucrative for consumers, since the new oil flooded the market and drove down prices. But crude oil is a commodity where prices reflect global supply and demand. If demand increases and supplies remain fixed, then the cost of oil rises. However, when market-demand holds steady and supplies increase, then prices fall.
Supply and demand set the stage for the shale oil industry to be the architect of its own…
