Is shale oil a sustainable business model?

Shale drilling has created more jobs in the oil drilling industry

Question: Is shale oil a sustainable business model?
Position‹3 of 3: Shale is a viable, sustainable business model given improvements in technology and prices
Argument‹2 of 2: Shale drilling has created more jobs in the oil drilling industry

The extraction of "shale" oil—known as "fracking"—has significantly increased the number of jobs available in the industry, and has been a boost to the economy.

The argument

Shale oil is a more than sustainable business model and here is why. In between 2010-14, technology developments and high and stable oil prices triggered a massive investment wave in the US shale sector. Investment more than quadrupled, leading to an eightfold increase in shale oil production. The production went from 0.44 (mb/d) to over 3.6 mb/d – the fastest growth in oil production in a single country since the development of Saudi Arabia’s super-giant oilfields in the 1960s.

Premises

[P1]Between 2010 and 2014, technology developments and high, stable oil prices triggered a massive investment wave in the US shale sector. [P2] That investment more than quadrupled and drove an eightfold increase in shale oil production, from 0.44 to over 3.6 million barrels per day. [P3] This was the fastest growth in oil production in a single country since Saudi Arabia's super-giant oilfields in the 1960s, expanding the industry and the jobs within it. [C] Therefore, because shale drilling has created growth and jobs in the oil industry, shale is a viable, sustainable business model given improvements in technology and prices.

Counter-arguments

Shale oil is anything but a reliable business model. The sector as a whole generated cumulative negative free cash flow of over USD 200 billion in between 2010 and 2014. Throughout this phase, companies were forced to rely extensively on external sources of financing, predominantly debt and receipts from the sale of non-core assets, in order to finance their operations. In addition to issuing bonds, companies benefited from the reserve base lending structure, which is essentially a bank-syndicated revolving credit facility secured by the companies’ oil and gas reserves as collateral. This structure was used heavily by small and medium-sized companies with non-investment credit rating that did not have as easy access to the corporate bond market.

Rejecting the premises

[Rejecting P1] The premise names the conditions that produced the boom — high, stable prices and a new technique — and in doing so identifies exactly what a sustainability claim has to survive without. Prices did not stay high: the collapse from late 2014, and again in 2020, is the test the argument needs to meet and never addresses. [Rejecting P2] Production growth measures output, not viability. A sector can expand output while destroying capital, and the counter documents precisely that: cumulative negative free cash flow of more than 200 billion dollars over the same years, funded by debt and asset sales. Rapid growth financed on those terms is evidence about the model's weakness rather than its strength. [Rejecting P3] The comparison is a claim about scale and does not bear on sustainability, and the two cases differ in the respect that matters: shale wells decline steeply within a few years and require continuous drilling merely to hold output flat, which conventional giant fields do not. The job-creation claim in the title also appears nowhere in the body, and employment in the sector has been volatile, falling sharply in each price downturn.