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The new economics of oil: Sheikhs v shale
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This issue of the Economist magazine looks at Saudi oil price cuts and the future for shale oil in the world's energy mix. In the short run overleveraged companies in the shale oil business in the U.S. will be affected by oil prices below $50 a barrel. The Economist points out that shale oil deposits are extensive in the U.S. and other parts of the world. The upfront costs are as little as $1.5 million for drilling a well. As a result the economics of shale will depend on new advances in technology and efficiency to bring costs down below existing costs averaging of about $57 a barrel, with some producers at costs of $35 a barrel. Because of technology advances anticipated in the field it points to shale oil as a reliable source of low cost oil supplies in the future, keeping oil prices lower than in the past and much less subject to manipulation by cartel pricing or oil price shocks. The lower volatility and lower level of oil prices will be good for the rapidly growing economies in Asia and the developed economies of Europe and the U.S., and for countries in Latin America such as Argentina with large shale deposits.
The Economist and WSJ on shale oil, the Saudis and oil prices in 2015 and beyond
01/13/2015
The Economist points out that shale oil production technology is at the early stages with production costs likely to come down from an average of $57 a barrel. With the relatively small costs to start drilling in shale deposits and extensive new shale deposits in the U.S. and other parts of the world, shale is likely to remain a factor in oil production and prices for a long time. Any impact of Saudi oil price cuts on shale oil production is likely to be temporary, as new advances in the technology and efficiency will make shale oil a serious source of oil supplies. Already some efficient shale oil producers have costs below $35 a barrel in the U.S., according to the CEO of CSX Railroad. CSX has dropped the fuel surcharge to improve the competitiveness of shale transported by rail from the Bakken shale region in N. Dakota.
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The new economics of oil: Sheikhs v shale
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Back to the Future? Oil Replays 1980s Bust
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CSX Railroad and lower oil prices in 2015
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The significant impact on the Canadian economy and on Alberta of the lower prices for Canada's shale oil. Discounts for Canada's shale oil relative to Brent crude benchmark international oil pricesand U.S. benchmark price range from 20 to 50%. Canada's shale oil was Dat $80 per barrel in April 2013, compared to $94 for U.S. benchmark price and $106 for Brent international crude oil price. This has reduced GDP in Canada for 2012 by 0.4% for the second half of 2012, according to Canada's central bank. GDP growth is sluggish at 1.8% for 2012. The impact in lower government tax and royalty revenues is significant for Alberta.
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Linked Articles
The new economics of oil: Sheikhs v shale
Economist 01/13/2015
The Oil Price Swoon Won’t Stop the Shale Boom
Wall Street Journal 10/23/2014
U.S. shale oil producers confounding Saudi oil price strategy- (2) the effect of technological advances and the future
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Linked Articles
The new economics of oil: Sheikhs v shale
Economist 01/13/2015
Exxon Mobil: Shale to the Chief
Wall Street Journal 03/06/2015
Shaile oil as a lasting factor for oil supplies beyond 2015- U.S. shale oil production likely to weather Saudi price cuts as technology advances
10/23/2014
Linked Articles
The new economics of oil: Sheikhs v shale
Economist 01/13/2015
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Wall Street Journal 10/23/2014
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