Oil Change International

Exposing the true costs of fossil fuels

OPEC Wants to “Crush US Shale”

oil-price-dropJust how low can the oil price go? What was unthinkable even a few months ago is now becoming distinctly probable, even likely.

As analysts dissect the ramifications for the oil industry of $40 dollar barrel, oil traders are now thinking that the price of crude will halve that to a staggering $20 a barrel. Prices have not been that low for twenty years.

Just a few weeks ago, traders believed that the oil price would bottom out at around $40 a barrel, but two weeks into January and we have reached that level already.

If the price of oil drops to $20 per barrel there will be carnage in the upstream unconventional oil industry in North America. This is looking increasingly likely.

As the Times newspaper reports this morning “the number of contracts or options to sell US crude at $US20 in June has jumped from close to zero at the beginning of the year to 13 million barrels of oil.”

The next few months could be some of the most defining ones in the whole of the hydrocarbon era. If that sounds like hyperbole, think again. The Telegraph reports that the Arab states of OPEC are preparing to “crush US shale”, in their strategy to counter the shale gas revolution headon.

“The strategy will not change,” the Energy Minister of the United Arab Emirates, Suhail bin Mohammed al-Mazrouei, said this week “We are telling the market and other producers that they need to be rational.”  He predicted that it could be years before prices stablise, adding: “We are passing through very interesting times”. He finished by saying that he felt it was unlikley that will see a sudden rise in oil prices.”

The price drop threatens to re-write the energy landscape in the US. The oil price plunge is already hurting, with 35 horizontal fracking rigs idle last week in North Dakota and Texas fracking hotspots, the biggest single-week drop since the drilling boom started six years ago.

And now the business community are warning of the dangers of this new reality.  As one commentator in Fortune magazine wrote at the end of last week “The recent drop in oil prices poses a major challenge to the frackers. But oil producers, Wall Street analysts, and most industry experts claim the setback will be brief and minor. Don’t believe them.”

The magazine warns that the basic economics of fracking – that it now costs much more to drill than what oil is selling for “spells big trouble for the shale boom”. The energy utopia of America’s so-called shale driven oil independence is now “gravely endangered”.

The article argues that conventional drilling can withstand the oil price dip, the short-life span of fracking wells – where there is a breakeven price of $65 – will not be able to.

Fortune outlines how: “In the Bakken region straddling Montana and North Dakota, a well that starts out pumping 1,000 barrels a day will decline to just 280 barrels by the start of year two, a shrinkage of 72%. By the beginning of year three, more than half the reserves of that well will be depleted and annual production will fall to a trickle”.

The magazine finishes by saying that an oil-driven bonanza of jobs and economic recovery in the US may now be a “fading vision.”

Comments (10)

  1. Ron Shook says:

    There’s something so OPEC irrational about this article that it boggles my mind. Why in Heavens name would OPEC want to crush American fracking with a huge financial hit to themselves? This leaves American oil in the ground for later when oil prices will certainly be much higher. If OPEC wants to do something to corner the market why not let American frackers, frack as many short time delivery wells as possible, as quickly as possible so as to corner the market on oil by the end of the decade? This doesn’t compute, IMO. Driving this kind of volatility could result in awful results for OPEC just from a revenge standpoint.

  2. Denise says:

    Yes, I want OPEC to crush US shale too. While they’re at it, could they also crush Canadian tar sands and Australian coal?

  3. Miguel Reinoso says:

    Oil prices drop is temporary and cannot stay low for long. First of all, oil consumption is always growing, but oil reserves are limited and declining. Oil producing countries need to be wise and decrease their exports while oil prices are low, in order to stop the prices drop, and because in two or three years oil prices will rise again and much higher than it was a year ago.

  4. Ward says:

    Bad news for KeyStone, I can only hope.
    Now what will it take to take these savings and convert them to wind, solar, etc… To finally get off this political yo yo?

  5. Daniel Ferra says:

    Our Current Energy Policies, using Toxic Coal, Poisoning Fracked Natural Gas an Deadly Radiated Nuclear Fuel Rods, are Destroying Our Fragile Eco-Systems an Warming Our Planet.

    We Need a Residential and Commercial Feed in Tariff

    We need a National Feed in Tariff

    A California Residential Feed in Tariff would allow homeowners to sell their Renewable Energy to the utility, protecting our communities from Poison Water, Grid Failures, Natural Disasters, Toxic Natural Gas and Oil Fracking. It would also create a new revenue stream for the Hard Working Taxpaying, Voting, Homeowner.

    California Energy and Water Consumption an a Ban Fracking song

    Sign and Share for a Ca. Residential Feed in Tariff. Go to the youtube site, look six inches below video, click on Show More, then click on blue link to sign the petition.

    https://www.youtube.com/watch?v=v9GRkZMTqCs
    Attachments area
    Preview YouTube video We Need To Ban Fracking.

  6. KM says:

    I’m not sure why you all are treating this as a victory. Fracking and tar sands suck for the local environment, but cheap oil is a climate change catastrophe. That electric car looks good at $5 gas, not so much at $2.50. Basically they are introducing a big old headwind for any kind of renewable energy, which I’m sure is a bonus as far as OPEC is concerned — Solar and wind now have to be 2x as competitive just to survive.

  7. Jozef Oud says:

    Can’t wait for the frackers to go bust, along with the tar sand pushers and the coal industry! We need to get off fossil fuels altogether, that much should be abundantly clear by now. And soon, too! let’s use this opportunity to change course and go for renewable clean energy. We need full disclosure of technologies that have been suppressed by Big Oil et al. Then we can finally move away from the disasters that await us if we stay on our present course!

  8. Armando Framarini says:

    Does any one see the what is completely wrong with article?

    OPEC countries need the revenue from high prices, and it is only Saudi Arabia dumping oil onto the market.

    We should take oil subsidies and invest it in Solar, Wind, and other renewables so we can eliminate out dependency of foreign oil for good.

  9. laney says:

    As someone who maintains research deep in world energy affairs, I would like you all to know one thing…This is not temporary. Oil is going to be obsolete and the current price drop is being done very much on purpose by the Prince of Saudi Arabia. He says he has enough oil to supply the world for 50 more years. He is intent on keeping oil prices at $20.00 per barrel or lower. He does not want the US to continue oil or gas exploration because, in forcing his hand, he has now done away with his biggest competition. In the meantime, he knows that sustainable energy is the future. He is extremely intelligent and a firm believer in clean energy. He is the world leader in producing the most incredible, architectural buildings this world has ever seen. He sees the future and he plans on being in the lead. Even he, the God of oil, is over it. He intends to run all of his reserves into the ground (or out of it I should say) over the next 50 years, while holding firm to a world wide Monopoly on oil, while simultaneously creating the most integrative solutions to clean power this world has ever seen. And to that I say, Well played, young prince…well played.

  10. Sateesh Kumar says:

    Solar energy and biodiesel will crush you all.
    Projects of trillions of dollars are started to produce renewbal energy. Hydrogen powered vehicles are already on roads.

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