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Despite Slumping Prices, No End in Sight for U.S. Oil Production Boom
HOUSTON — Falling oil and gasoline prices have sent oil company stocks tumbling, but oil experts say the boom in American energy production shows no signs of slowing down, keeping the market flush with crude and gasoline prices low.
Even after a drop of as much as 25 percent in oil prices since early summer, several government and private reports say that it would take a drop of $10 to $20 a barrel more — to as low as $60 a barrel — to slow production even modestly.
On the downside, taxes and royalties on oil will decline, potentially cutting into the finances of oil-producing states like Texas, Alaska, Oklahoma and North Dakota. And it will continue to put pressure on the Organization of the Petroleum Exporting Countries to cut output to support prices, as well as cause economic pain to big producers like Russia, Venezuela and Iran.
Current production levels can be sustained in the shale fields in 2015 even if the Brent global oil benchmark, which fell to just under $84 a barrel at one point this week, dropped to as low as $60 to $65, according to Rystad Energy, an international oil and gas consultancy based in Norway.
Continue reading the main story
Pressure on Oil Economies
The falling price of oil creates varying degrees of financial difficulties for countries that rely heavily on its export. According to research by Deutsche Bank, the point at which their national budgets break even varies from about $125 a barrel for Iran to less than $75 for Kuwait.
“Oil output will respond very slowly to a drop in oil prices,” Bjornar Tonhaugen, vice president for oil and gas markets at Rystad Energy, wrote in a report released this week. “Markets may even be oversupplied next year more than previously thought.”
Slowing American oil production is like slowing a freight train moving at high speed. The current production of 8.7 million barrels a day, the highest in nearly a quarter-century, is more than a million barrels a day higher than it was only a year ago. Most companies make their investment decisions well in advance and need months to slow exploration because of contracts with service companies. And if they do decide to cut back some drilling, they will pick the least prospective fields first as they continue developing the richest prospects.
The Energy Department this week reported that only 4 percent of shale production in North Dakota, Texas and other states needed an oil price above $80 a barrel for producers to break even on investments. One reason is that improved efficiencies in hydraulic fracturing and other modern production techniques have increased the output of each new well month after month in recent years.
For example, the Energy Department expects that new oil production from new wells in the North Dakota Bakken shale field will increase by seven barrels a day next month over this month, and in the Texas Eagle Ford field by eight barrels a day. Put together, over a couple of months that translates into tens of thousands of new barrels every day across the country, with no increase in investment.
Sadad Al Husseini, the former head of exploration and production at Saudi Aramco, predicted that the United States would add a million more barrels of oil in daily production over the next year.
“What is softening prices is weaker demand because of the global economy and the growing volume of North American production,” Mr. Al Husseini said in an interview. “So will prices bottom? It depends on what comes from the U.S.”
He added that when investors start seeing $75 to $80 oil, that will cut back some ambitions, and that could mean “a leveling off of new supplies by midyear 2015.”
The United States has banned most oil exports for four decades, but the expanded production has slashed imports from many OPEC countries, forcing them to drop their prices in Asia. The United States is also expanding its exports of refined products like gasoline and diesel, which are allowed, and that is cutting into production from other countries.
The Paris-based International Energy Agency, which accumulates and analyzes data for the industrialized nations, this week identified deep water offshore production, the Canadian oil sands and some of the American oil shale fields as the most susceptible to cuts in investment and production when oil prices fall. But only about 8 percent of these types of production require $80 a barrel oil to break even.
All told, the I.E.A. said only about 2.6 million barrels out of total world production of just over 90 million barrels requires a break-even price of $80, including some fields in China, Indonesia, Malaysia, Nigeria and Russia, which are high-cost fields in part because of how much the governments require producers to pay them in taxes and royalties.
Global and American benchmark oil prices bounced back a bit on Friday, ranging between roughly $83 and $86. The American benchmark, West Texas Intermediate, fell below $80 for the first time in two years briefly Thursday morning, and some oil experts say it could break the symbolic threshold again in coming days.
Lower oil prices mean lower prices at the pump for American consumers. The average national price for a gallon of regular gasoline on Friday was $3.14, 10 cents lower than it was a week ago and 22 cents lower than a year ago, according to the AAA motor club. That is the lowest price in more than three years.
Roughly a third of the nation’s gas stations are selling gasoline for less than $3 a gallon. The average American family saves about $120 a year for every dime drop in the gasoline price, experts say.
Many oil experts say that Saudi Arabia and several other OPEC countries that have shaved their prices in recent days are trying to drive down global production, and particularly American and Canadian production, to protect their market share. But with a growing population and struggling to tamp down potential domestic unrest, Saudi Arabia carries a rising social service budget that is financed almost entirely by oil money.
Over the long term, it may need to stretch its production as much as or more than the United States.
“For the government to balance budgets on an ongoing basis, higher oil prices are inevitably required,” Badr H. Jafar, president of Crescent Petroleum, a United Arab Emirates-based oil and gas company, said in an email exchange. “Otherwise, if oil prices continue to fall, maximizing production may be an imperative to securing required higher revenues, and that in turn might have a catastrophic effect with the creation of a major glut.”
Despite Slumping Prices, No End in Sight for U.S. Oil Production Boom
HOUSTON — Falling oil and gasoline prices have sent oil company stocks tumbling, but oil experts say the boom in American energy production shows no signs of slowing down, keeping the market flush with crude and gasoline prices low.
Even after a drop of as much as 25 percent in oil prices since early summer, several government and private reports say that it would take a drop of $10 to $20 a barrel more — to as low as $60 a barrel — to slow production even modestly.
On the downside, taxes and royalties on oil will decline, potentially cutting into the finances of oil-producing states like Texas, Alaska, Oklahoma and North Dakota. And it will continue to put pressure on the Organization of the Petroleum Exporting Countries to cut output to support prices, as well as cause economic pain to big producers like Russia, Venezuela and Iran.
Current production levels can be sustained in the shale fields in 2015 even if the Brent global oil benchmark, which fell to just under $84 a barrel at one point this week, dropped to as low as $60 to $65, according to Rystad Energy, an international oil and gas consultancy based in Norway.
Continue reading the main story
Pressure on Oil Economies
The falling price of oil creates varying degrees of financial difficulties for countries that rely heavily on its export. According to research by Deutsche Bank, the point at which their national budgets break even varies from about $125 a barrel for Iran to less than $75 for Kuwait.
“Oil output will respond very slowly to a drop in oil prices,” Bjornar Tonhaugen, vice president for oil and gas markets at Rystad Energy, wrote in a report released this week. “Markets may even be oversupplied next year more than previously thought.”
Slowing American oil production is like slowing a freight train moving at high speed. The current production of 8.7 million barrels a day, the highest in nearly a quarter-century, is more than a million barrels a day higher than it was only a year ago. Most companies make their investment decisions well in advance and need months to slow exploration because of contracts with service companies. And if they do decide to cut back some drilling, they will pick the least prospective fields first as they continue developing the richest prospects.
The Energy Department this week reported that only 4 percent of shale production in North Dakota, Texas and other states needed an oil price above $80 a barrel for producers to break even on investments. One reason is that improved efficiencies in hydraulic fracturing and other modern production techniques have increased the output of each new well month after month in recent years.
For example, the Energy Department expects that new oil production from new wells in the North Dakota Bakken shale field will increase by seven barrels a day next month over this month, and in the Texas Eagle Ford field by eight barrels a day. Put together, over a couple of months that translates into tens of thousands of new barrels every day across the country, with no increase in investment.
Sadad Al Husseini, the former head of exploration and production at Saudi Aramco, predicted that the United States would add a million more barrels of oil in daily production over the next year.
“What is softening prices is weaker demand because of the global economy and the growing volume of North American production,” Mr. Al Husseini said in an interview. “So will prices bottom? It depends on what comes from the U.S.”
He added that when investors start seeing $75 to $80 oil, that will cut back some ambitions, and that could mean “a leveling off of new supplies by midyear 2015.”
The United States has banned most oil exports for four decades, but the expanded production has slashed imports from many OPEC countries, forcing them to drop their prices in Asia. The United States is also expanding its exports of refined products like gasoline and diesel, which are allowed, and that is cutting into production from other countries.
The Paris-based International Energy Agency, which accumulates and analyzes data for the industrialized nations, this week identified deep water offshore production, the Canadian oil sands and some of the American oil shale fields as the most susceptible to cuts in investment and production when oil prices fall. But only about 8 percent of these types of production require $80 a barrel oil to break even.
All told, the I.E.A. said only about 2.6 million barrels out of total world production of just over 90 million barrels requires a break-even price of $80, including some fields in China, Indonesia, Malaysia, Nigeria and Russia, which are high-cost fields in part because of how much the governments require producers to pay them in taxes and royalties.
Global and American benchmark oil prices bounced back a bit on Friday, ranging between roughly $83 and $86. The American benchmark, West Texas Intermediate, fell below $80 for the first time in two years briefly Thursday morning, and some oil experts say it could break the symbolic threshold again in coming days.
Lower oil prices mean lower prices at the pump for American consumers. The average national price for a gallon of regular gasoline on Friday was $3.14, 10 cents lower than it was a week ago and 22 cents lower than a year ago, according to the AAA motor club. That is the lowest price in more than three years.
Roughly a third of the nation’s gas stations are selling gasoline for less than $3 a gallon. The average American family saves about $120 a year for every dime drop in the gasoline price, experts say.
Many oil experts say that Saudi Arabia and several other OPEC countries that have shaved their prices in recent days are trying to drive down global production, and particularly American and Canadian production, to protect their market share. But with a growing population and struggling to tamp down potential domestic unrest, Saudi Arabia carries a rising social service budget that is financed almost entirely by oil money.
Over the long term, it may need to stretch its production as much as or more than the United States.
“For the government to balance budgets on an ongoing basis, higher oil prices are inevitably required,” Badr H. Jafar, president of Crescent Petroleum, a United Arab Emirates-based oil and gas company, said in an email exchange. “Otherwise, if oil prices continue to fall, maximizing production may be an imperative to securing required higher revenues, and that in turn might have a catastrophic effect with the creation of a major glut.”
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