Publications: The Petroleum Economics Monthly

Twilight of Big Energy (July 2017)


The Middle East low-cost producers having market power must bankrupt many of the large energy companies. In doing so, the producers would be following the timeworn approach of driving prices down to put competitors out of business. After the shutdowns, they would have a free hand to raise prices.


The suggested price war would not disable shale producers permanently. Shale is a short-cycle process and so would recover when prices rose again. The goal of the suggested price war is to end the megaprojects that have been so popular. These pose a serious threat to low-cost producers because, once finished, they continue to produce regardless of the price level. Short-cycle projects like shale, in contrast, can stop and start. Furthermore, shale and exports from nations such as the United States become relatively unimportant if the seven Middle Eastern producers—or a smaller grouping of four or five—operate as one. Under that circumstance, oil producers could exercise market power and reap the profits, just like Apple, Alphabet, and Microsoft have done.