Shana has conducted an interview with Professor James D. Hamilton, senior American econometrician currently teaching at University of California, San Diego. His work is especially influential in time series and energy economics.
Since 1981, Dr. Hamilton has been a productive scholar in his area of studies and has so far published numerous articles on energy economics.
Dr. Hamilton believes that US will maintain the lead in the future of shale oil and gas production at least for the next few years, due to the costly procedures of fracking that makes it hard for other countries to develop its technology. The following Shana's verbatim interview with Prof. Hamilton.
Shana--How can hydraulic fracturing change the future of oil markets in the world given the US’s monumental advances in the field, especially in recent years?
Prof. Hamilton: I think it will be a number of years before other countries produce significant amounts of oil using hydraulic fracturing. In addition to favorable geology, there are a number of other reasons we're seeing almost all the action so far within the United States. These include abundant exploration and drilling assets within the U.S. that can be quickly moved to new locations, infrastructure in place that can transport the product, a clear and effective system of mineral rights, financial markets that allow entrepreneurs to raise capital quickly, and political stability. Fracking is costly and it's not going to be replicated quickly or easily outside the United States.
Shana: What is your estimation of the future of the U.S. ban on exports of crude oil? Will the US be able to maintain the ban now that domestic oil production in the US is booming? How will things change for US oil transactions and industries as well as world markets if the ban is removed?
Prof. Hamilton: I do not expect the U.S. to become self-sufficient in oil any time soon. We still import much more than we export. The issue is the existing transportation and refining infrastructure. Many U.S. refiners are most efficient processing a lower-quality crude than the U.S. is currently producing, and in any case the pipelines and U.S.-based ships are inadequate for getting the new oil to them. Although the market would function more efficiently if the ban were removed, I do not expect a major impact on world markets or U.S. consumers if it is lifted. The primary effect would be that North American producers would get a higher price for their oil. For this reason, it's a hard sell politically to get the ban lifted, and so far the oil companies have not done a good job persuading the American public that it would be a good idea.
Shana: The first condensate cargo for export was loaded in Texas earlier this month (http://www.reuters.com/article/2014/07/15/condensate-exports-loading-idUSL2N0PQ2TM20140715). Speaking of oil policies, do you think that the cargo is meant to exert US’s dominance over Middle East markets or put pressure on countries like Iran and Qatar as major condensate suppliers in Asia?
Prof. Hamilton: I do not think there is any hidden diplomatic objective in this. Instead, it is simply an illustration of how American politics sometimes plays out. We have a ban on exports of crude oil, but not of refined products. That creates an incentive for somebody to try to export something they call a "refined product" even if the actual processing has been rather minimal. Lease condensate is the latest example of that. You also have some mini-refineries being set up now solely for the purpose of doing the minimal amount of processing of the crude to get around the current law.
Shana: How do you think will be the pricing trend for petroleum products in the coming years? What will be the role of shale oil and gas in the market and what will come to the conventional oil market? What are the major factors that can affect the future of the oil market in the world? Will the situations in Libya and the activities by the ISIS affect oil prices in the near and far future?
Prof. Hamilton: Of course things could change quite dramatically and the political situation is particularly hard to predict. But I think a fair guess is that the next few years will look like the last few, with most of the increase in world production coming from the U.S. and the price of oil trading in a relatively stable range. If China were to have a major economic downturn, that would bring the price of oil significantly down. A return to stability in Libya could also lower oil prices. But when I look at the situation with ISIS, I do not think the most likely scenario is that peace and stability are about to break out in the Middle East. Instead the risk of the conflict spreading further seems higher to me than the possibility there's going to be a peaceful resolution of the ambitions of ISIS.
Shana: How do u view the future of supply and demand in the world? Which countries will be the major players in the market and why? Will there be any changed in the market at all?
Prof. Hamilton: Increasingly it is the emerging markets and the oil-producing countries that are the major consumers of oil. As long as their demand keeps growing, I think global supplies will have a hard time keeping up, with the result that consumption of the U.S., Europe, and Japan could continue to decline.
Shana: There are speculations that non-OPEC producers will replace OPEC by producing more energy day by day; what do you think about this?
Prof. Hamilton: I'm not sure where major OPEC increases are going to come from. Some people say Iraq, but I do not see how that is going to happen any time soon, just as I see no improvements in the situation in Nigeria. Libya is the best hope for the next few years, but that's in terms of getting back to the levels they had before the civil conflict there. I think the U.S. and Canada can increase production a little more over the next few years, but perhaps not a whole lot more from the rest of the world.
Shana: What do you think will be the future of the Middle East production and market given the upheavals in the region?
Prof. Hamilton: Conflict and unrest are nothing new in the region. I almost feel we can count on them. I would like to see a peaceful future for the people in Syria and Iraq, but don't see how it is going to happen.
Interview by:
Abbas Hajihashemi
Petroleum Journalist
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