Will $45 - $65 be the "shale band"?
... Wells that used to take 35 days to complete now take 17, says Daniel Yergin of IHS, a research firm. The amount of oil produced per dollar invested will rise by 65% this year, he says. Better seismic data, improvements to the fracking liquids pumped into wells and more intensive deployment of rigs are all helping.In all, IHS reckons that 80% of the new capacity this year will be profitable with WTI at $50-$69 a barrel. As its price has edged above $60 in recent days, some shale companies have begun to talk about increasing output again. The size of the “fracklog”, the pipeline of ready-to-roll projects awaiting better prices, is contested. But the principle is clear: American shale firms have become the new “swing producer” of the global oil market.
Its main influence used to be OPEC, and particularly the Saudis, switching the taps on and off to try to rig the price. Now the market is increasingly led by the American frackers, ramping their drilling up and down in response to global prices. Petromatrix, a consulting firm, has coined the phrase “shale band” for the price range between $45 and $65: below that range, American production falls sharply; above it, it surges. If so, there should be a tendency for prices to stay within that range.
The greater the proportion of the world’s oil supply that comes from fracking, the stronger this effect will be. The American government’s Energy Information Administration has in the past three years raised its forecast of American oil output in 2020 by 3.1m barrels per day to 10.6m—the equivalent of adding another producer the size of Iraq. There is scope to reduce production costs further through the consolidation of what is still a fragmented fracking business. This week, in the first big deal of its kind since the oil-price drop, Noble Energy said it would buy Rosetta Resources, a smaller and indebted rival, for $2 billion, paid in shares. More such deals are likely. Paul Stevens of Chatham House, a think-tank in London, expects a “flurry of mini-mergers”.
As American production continues to rise, pressure will grow on the government to ease its restrictions on exports of crude. In the meantime America’s imports are diving—they fell below those of China last month. Other countries, from Russia to Argentina, have promising shale beds. Although they lack America’s expertise, finance and legal system, they may eventually begin to produce oil from them in significant quantities.
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http://www.economist.com/news/business/21651267-american-shale-firms-are-now-oil-markets-swing-producers-after-opec?fsrc=scn/tw_ec/after_opec |
