In 1859, American businessman Edwin Drake used a steam engine to drill a hole in remote Pennsylvania – now recognized as the world’s first modern commercial oil well. Its immediate success sparked a major oil boom in the US – and even today, such conventional “onshore” drilling remains the most common method of global oil production and its largest source of supply.

Conventional drilling involves a vertical well piercing an oil reservoir and pumping its contents up to the surface. And onshore drilling denotes production on land, as opposed to “offshore” drilling beneath the seabed. Because of its relative simplicity, this combination remains the cheapest way to produce oil – and these types of producers tend to feel the least pain during periods of weak oil prices. But that hasn’t stopped the Organization of the Petroleum Exporting Countries (OPEC) – the largest source of onshore oil production globally – from regularly intervening to help prop up the oil price.

OPEC consists of 14 oil-producing countries, predominantly in the Middle East and Africa, that collectively supply almost a third of the world’s oil. The group was set up in 1960 to coordinate the oil policies of its members and remains one of the most influential forces in the global oil market. For example, OPEC has historically implemented production cuts when it deems oil prices are too low in order to restrict supply and drive prices back up. While these countries’ drilling operations’ are still profitable during periods of weak prices, oil funds the bulk of their governments’ spending on infrastructure, healthcare, defense, and so on. They, therefore, rely on higher oil prices to balance their budgets and break even.

Despite roping other major producers including Russia into related “OPEC+” agreements in recent years, the group’s share of global production shrank from 35% to 30% as the shale revolution in the US took off. Over the past decade, US oil and gas production has surged almost 60% – and the country is now the largest oil producer in the world. In fact, oil from US shale now makes up almost 10% of global supply. Forecasts of future growth are less certain, depending as they do on future oil prices – but the chart below gives several analysts’ views on the direction of travel.

Source: Rystad Energy

Compared to conventional drilling, producing oil from deep shale rock deposits is a lot more complicated. Hydraulic fracturing, or “fracking”, involves drilling a hole downwards and then horizontally – sometimes for over two miles – to access thin layers of shale. A mixture of water, sand, and chemicals is then pumped into the well at high pressure in order to cause cracks in the rock, allowing the trapped oil to flow up to the surface.

If that all sounds more convoluted and expensive than conventional vertical drilling, that’s because it is. But thanks to some good ol’ American ingenuity and innovation, costs have gone down significantly in recent years. Today, the break-even price for US shale producers drilling new wells sits at around $50 a barrel. That’s lower than the break-even price for new offshore projects – which isn’t great for large offshore oil producers like Norway and the UK.

The reason new project viability is so important is that drillers have to constantly track down and tap up new oil reserves to offset depleting production from existing ones. Today, however, more and more energy producers are starting to shift their focus to exploring for and exploiting natural gas instead. Natural gas is produced in virtually the same way as oil – either through conventional drilling or methods such as fracking – and can also be found onshore and offshore. The US shale revolution has also seen the country become the largest natural gas producer in the world, closely followed by Russia – with the two countries together representing almost 40% of the world’s total natural gas production.

So why the increasing shift towards natural gas? Because it plays a key role in the global energy transition. We already talked about “peak oil” and how demand will eventually start to decline. But our energy needs still have to be met somehow – and the consensus is that a combination of natural gas and renewables is the immediate way forward. We’ll address this further, so stick around...

The takeaway: OPEC, the world’s most influential oil-producing body, has been losing market share to US shale. But natural gas, produced in much the same way as oil, may be the next big battleground.