The most important implication of a successful shale and conventional revolution will arguably be a significant downward pressure on the global oil price.

A vast shale oil endowment and cutting-edge technology were fundamental to the fast rising US oil production of recent years. The revolution was further stimulated by the meteoric rise in international oil prices since 2005. However, as economic theory tells us, excessive prices sow the seeds of their own destruction by encouraging added supply through the development of costlier, harder to extract oil resources and at the same time spurring investment in consumption reducing research and development. Additional supply is brought online in the ensuing years, and prices are pushed down in turn. It is precisely this series of events that is likely to bring down the oil price in the coming decades.

In this chapter, we employ a simple model to assess the size of the price drop likely to occur due to the shale and conventional oil revolutions. All price and cost numbers are in constant (2013) money, unless otherwise specified. In brief, our reference case findings from Chapter 11 lead to a price fall of some $40/bl between 2015 and 2035; i.e., from an average price of around $100, as recorded in 2011–2014, down to a level of about $60 by the end of the projection period. The descent is primarily explained by the vast amounts of added oil supply made available over those years. Our high case projections lead to a greater price drop of $60 by 2035; i.e., a drop from $100 to $40. Although prices are expected to bounce back after the $50 lows of early 2015 (e.g., EIA, 2015a, published in April, anticipates average 2016 prices for Brent above $70), our projected long-term price fall will obviously be less dramatic if oil prices do not reach $100 again. Furthermore, oil prices may well continue to fluctuate significantly in the short term even as the trend line goes down over time.

The consensus price expectations from most analysts are bullish in comparison. The price outlooks from the EIA International Energy Outlook (2014b) and the IEA World Energy Outlook (2014a) are taken as cases in point. They anticipate that prices will continue their upward path until 2035 and reach about $130 and $128, respectively.