BUMP IN THE ROAD FOR US SHALE OIL?
“How did the US get here? It is technology. We knew fracking and horizontal drilling before. It just developed so much more,” said Mine Yücel, senior vice president and director of research at the Federal Reserve Bank of Dallas. “At the beginning of 2010, the US had a daily production of around 5.4 million barrels of oil per day, that number is now around 9.1. That means an increase of around 4 million barrels per day—that is really huge. It is more than adding a Canada to the oil market.” (See table)
The United States is now the world’s second-largest producer of oil—and still the largest importer, ahead of China. It could soon match the level of Saudi Arabia, which in principle can produce more, but on average held its output at around 9.8 billion barrels a day.
But a big question mark is pending on how long the US shale production will remain profitable with declining oil prices. Some experts forecast bankruptcies, closures and strong consolidation in the industry. But other see the shale revolution as a permanent change in the oil market.
“Even at these lower prices, the US shale production will continue to increase because technologies and knowledge of shale prices are getting better month after month,” says Leonardo Maugeri, former top manager at Italian oil company ENI and now associate professor at the Harvard Kennedy School’s Belfer Center for Science and International Affairs. According to Maugeri, who forecasts 2015 US production at 9.7 to 9.8 million barrels per day, it has been a mistake for the Organization of Petroleum Exporting Countries (OPEC) to expect that lower oil prices would kick a large number of US producers out of the market. He says that some of the US shale oil production areas, such as McKenzie County in North Dakota—the most prolific production area of the huge Bakken and Three Forks formation—have a break-even point of $28 per barrel, which also includes a 10% internal rate of return. According to Maugeri, 80% of the Bakken oil has a break-even point below $42 per barrel.
Whether these forecasts prove accurate remains to be seen—and will depend to a large extent on how long prices remain low. If it is a long-term trend, Maugeri’s predictions will certainly be tested.
|
Year |
|
|---|---|
|
1903 |
275 |
|
1913 |
681 |
|
1923 |
2007 |
|
1933 |
2481 |
|
1943 |
4125 |
|
1953 |
6458 |
|
1963 |
7542 |
|
1973 |
9208 |
|
1983 |
8688 |
|
1993 |
6847 |
|
2003 |
5649 |
|
2013 |
7462 |
Source: Energy Information Administration
