As CEO of Dallas-based Breitling Energy Corporation, Chris Faulkner runs a company that manages oil and natural gas deposits in North Dakota and Oklahoma. He is dubbed by many in energy industry circles as “The Frack Master” for the amount of natural gas extraction his company carries out in the U.S. Mr. Faulkner also serves as an advisor to the ECF Asia Shale Committee and here he tells The Wall Street Journal what challenges the shale revolution poses for the Middle East and how the energy exporters of the region can best deal with the phenomenon.
WSJ: Where do you see the U.S. shale revolution going?
Mr. Faulkner: We are the biggest producer of oil, bigger than Saudi Arabia right now, if you take into account biofuels and natural gas liquids. I think that when people take about American energy independence, I think it is possible, because our production is up 21% from a year ago but you have to calculate Canada and Mexico into our energy independence idea. The U.S. on its own is going to have a difficult role to get to and sustain 13.5 to 14 million barrels a day without Canada or Mexico. But I do think now we can wean ourselves off Middle Eastern oil. The challenge is now for Saudi Arabia or other OPEC members like Nigeria to find new buyers for their oil. So we are going to see a shift in the global energy market but the biggest elephant in the room is Iran. When Iran is back in the market, what is that going to do to the price and supply of oil?
WSJ: But the U.S. is importing more heavy crude from the Gulf producers, when do you see it scrapping its imports?
Mr. Faulkner: The challenge we have is that our refineries are built to refine Middle Eastern oil and it does not happen overnight to convert those or build new ones. The process is starting very, very slowly to convert our refineries and when that happens then that will be the end of Middle Eastern crude for the U.S. I think within 5 to 10 years, the U.S. could free itself from Middle Eastern heavy crude and that would be a game changer.
WSJ: Would the U.S. lessen its military presence and interest in the Middle East once it becomes energy independent?
Mr. Faulkner: I think the U.S. will continue to have a presence in the Middle East whether we have our energy independence or not. The reason is we are currently married to China and China is going to demand we continue to have a presence in the region and protect oil shipping routes that matter to them. I would love for the country to be an oil island, but the reality is global demand dictates the price of oil and we cannot ignore the rest of the world.
WSJ: At what price level does shale production become unattractive?
Mr. Faulkner: I think the music stops for shale production when oil prices hit $65 a barrel and $4 for natural gas. Hopefully that will never happen because Middle Eastern producers cannot sustain their economies at that price level. Too many countries in OPEC for instance need oil prices to stay above $100 a barrel to support their economy. So our party will never stop because at $65 level, it will be the end for Saudi Arabia. My only concern is whether it could be the U.S. that keeps producing oil to a level that drive prices down and we become the end of the party.
WSJ: Do you think the shale revolution could be replicated in the Gulf?
Mr. Faulkner: No, I don’t think so. I have been to almost every shale gas or tight oil base in the world and there is not one that I think has the infrastructure, the knowledge and the water availability to replicate the boom in the United States. You guys are rich in a lot of things but not water. The U.S. has the perfect storm. It is not only a very well regulated industry but it has entrepreneurial spirit. Saudi Aramco for example is like Exxon. They look at things differently. But there are thousands of small companies in the U.S. that take risks and do things out of the box and do things that bigger companies would not do and that’s one of the biggest challenges here. I think the region will have some shale gas extraction but it will be on a small scale and that does not mean it will be a failure. But comparing what happened in the U.S. to other parts of the world is a mistake because it is not going to happen at that speed or that level again.
WSJ: So how can the Middle East deal with the shale challenge?
Mr. Faulkner: One way out for the Middle East is to get serious with energy efficiency and stop subsidizing everything, but that’s not going to happen. But in the longer term if their conventional production declines, they cannot find new production, their efficiency levels don’t change and domestic demand continues to grow, they will become energy importers and it will be a complete disaster, and before that happens their economies will collapse.
WSJ: Do you think the region (Gulf) is doing something about that?
Mr. Faulkner: No, they are not. They are sticking to the old mentality which is hiding their heads in the stand and hope the lights will stay on. Whether they want to admit it or not, they are quite concerned about what is happening in the U.S. I think they should get serious about what is happening before they see a huge surprise, unless they want to destroy their economies.
Article Author: Summer Said