How do you tell if we have a revolution in either Resource X or Product Y? Simple. Volume goes up and price goes down. Think computing power. Now that’s a revolution.
So do we have a revolution in the production of tight oil in the U.S.? Let’s take a look at the projections of the U.S. government agency the Energy Information Administration (taken from an EIA staffer’s presentation to accompany the publication of the Annual Energy Outlook 2013; click for larger image):
So according to the EIA’s numbers, we have a five-year bump in production which puts us back to the level of output in 1990 and then a gentle decline out to the year 2040. Good, but hardly revolutionary.
And price (note in inflation-adjusted dollars)? Well, that goes up:
How about natural gas? Isn’t shale gas going to save the world? Well, production looks promising according to the EIA’s numbers.
But something appears strange for the near years: isn’t production flat? Let’s inspect the EIA’s Short-Term Energy Outlook report published today to get a closer look. As easily seen, we are supposed to be in a shale gas revolution but production is projected to go sideways.
So how come the EIA is predicting flat near-term natural gas production despite shale, yet it expects output to take off in the medium term? Easy, the EIA is projecting that the price will go up—and go up a lot:
The dynamic behind this is very simple. Whenever you see the word “unconventional” you need to substitute the word “expensive”. Tight oil is expensive oil and shale gas is expensive gas.
What fracking technology has done is merely transform a source of fossil fuel energy that has been prohibitively expensive to produce into something that is just very expensive to produce. And the only way it gets produced, even with all the new technology, is if price stays high or better still rises. When price softens, as has been the recent case with natural gas, profit margins collapse and investment stops.
So to recap, for a genuine technological revolution—like flat-screen TVs and flash memory—we need rising volume and falling price. With tight oil and shale gas, we only get rising volume with a high or rising price; when price falls, volume gains stop. No revolution. Sorry.
Risk and Well-Being 
We might not get rising volumes even with high prices if the depletion rate in shale gas is as high as some are suggesting. Any thoughts anyone?
Absolutely. I guess the answer to that rests of the respective elasticities of the supply and demand curves over the short term, and technology’s ability to shift the supply curve over the medium term. Demand destruction may be the main driver toward equilibrium. I think this is partly why OECD growth has decelerated so rapidly over the last decade.
For example, U.S. energy demand and CO2 emission growth has changed considerably over the last five years, but a big part of that is because GDP growth has stayed below trend for many years. Personally, what I think we are actually seeing is a new depressed trend for which a structurally high energy price is just one factor.