WSJ: Goldman Sachs on Oil Companies’ $700 Billion Problem

"Oil companies like nothing more than spending big money drilling for new resources around the world. Unfortunately, more and more of that activity is looking like it might prove redundant.

Indeed, Goldman Sachs's  head of European energy research Michele della Vigna reckons around $700 billion’s worth of capital spending in the pipeline may no longer be needed. The reason? Yet another side effect of the shale revolution in the U.S. 

Goldman estimates that the big discoveries of shale oil in recent years have added around 66 billion barrels of crude oil resources; at its peak, that could add 8 million barrels per day to daily output.

That extra production should prove enough to meet oil demand growth in the coming years, Goldman thinks. In the jargon, it means shale oil provides the oil market with its marginal supply.

In turn, it means that any oil investments that are more costly than shale developments won’t be needed. Indeed any new projects that require oil prices to be above $80-85 per barrel to break even ought to be delayed or canceled. That could include big investments being considered in Canadian heavy oil, or in deep waters off shore.

Mr. della Vigna reckons this also potentially bad news for the oil service companies that make money helping oil companies with their big projects. As for the winners – those are likely to be companies with best roster of low-cost investments: Goldman’s top picks include BG Group, Sinopec, Santos and Afren".
Source: WSJ

  Should the reasoning be only one way? What if investments in
the shale industry turn redundant,in reality they are the marginal
supply. The boom and bust story of commodities,tells us much about how this boom is so dependant on the prices of oil and gas.
   With lower prices marginal projects go bust.