The New Economics Of Oil: Sheikhs Vs. Shale

Discussion in 'International Politics' started by amoy, Dec 9, 2014.

  1. amoy

    amoy Senior Member Senior Member

    Joined:
    Jan 17, 2010
    Messages:
    5,524
    Likes Received:
    1,548
    The New Economics Of Oil: Sheikhs Vs. Shale - Business Insider

    The economics of oil have changed. Some businesses will go bust, but the market will be healthier.
    [​IMG]

    The official charter of OPEC states that the group’s goal is "the stabilisation of prices in international oil markets". It has not been doing a very good job. In June the price of a barrel of oil, then almost $115, began to slide; it now stands close to $70.

    This near-40% plunge is thanks partly to the sluggish world economy, which is consuming less oil than markets had anticipated, and partly to OPEC itself, which has produced more than markets expected.

    But the main culprits are the oilmen of North Dakota and Texas. Over the past four years, as the price hovered around $110 a barrel, they have set about extracting oil from shale formations previously considered unviable.

    Their manic drilling–they have completed perhaps 20,000 new wells since 2010, more than ten times Saudi Arabia’s tally–has boosted America’s oil production by a third, to nearly 9m barrels a day (b/d). That is just 1m b/d short of Saudi Arabia’s output. The contest between the shalemen and the sheikhs has tipped the world from a shortage of oil to a surplus.

    Fuel injection

    Cheaper oil should act like a shot of adrenalin to global growth. A $40 price cut shifts some $1.3 trillion from producers to consumers. The typical American motorist, who spent $3,000 in 2013 at the pumps, might be $800 a year better off–equivalent to a 2% pay rise. Big importing countries such as the euro area, India, Japan and Turkey are enjoying especially big windfalls. Since this money is likely to be spent rather than stashed in a sovereign-wealth fund, global GDP should rise.

    The falling oil price will reduce already-low inflation still further, and so may encourage central bankers towards looser monetary policy. The Federal Reserve will put off raising interest rates for longer; the European Central Bank will act more boldly to ward off deflation by buying sovereign bonds.

    There will, of course, be losers (see "Shale oil: In a bind"). Oil-producing countries whose budgets depend on high prices are in particular trouble. The rouble tumbled this week as Russia’s prospects darkened further. Nigeria has been forced to raise interest rates and devalue the naira. Venezuela looks ever closer to defaulting on its debt. The spectre of defaults and the speed and scale of the price plunge have unnerved financial markets. But the overall economic effect of cheaper oil is clearly positive.

    Just how positive will depend on how long the price stays low. That is the subject of a continuing tussle between OPEC and the shale-drillers. Several members of the cartel want it to cut its output, in the hope of pushing the price back up again.

    But Saudi Arabia, in particular, seems mindful of the experience of the 1970s, when a big leap in the price prompted huge investments in new fields, leading to a decade-long glut. Instead, the Saudis seem to be pushing a different tactic: let the price fall and put high-cost producers out of business. That should soon crimp supply, causing prices to rise.

    There are signs that such a shake-out is already under way. The share prices of firms that specialise in shale oil have been swooning. Many of them are up to their derricks in debt. Even before the oil price started falling, most were investing more in new wells than they were making from their existing ones. With their revenues now dropping fast, they will find themselves overstretched. A rash of bankruptcies is likely. That, in turn, would bespatter shale oil’s reputation among investors.

    Even survivors may find the markets closed for some time, forcing them to rein in their expenditure to match the cash they generate from selling oil. Since shale-oil wells are short-lived (output can fall by 60-70% in the first year), any slowdown in investment will quickly translate into falling production.

    This shake-out will be painful. But in the long run the shale industry’s future seems assured. Fracking, in which a mixture of water, sand and chemicals is injected into shale formations to release oil, is a relatively young technology, and it is still making big gains in efficiency. IHS, a research firm, reckons the cost of a typical project has fallen from $70 per barrel produced to $57 in the past year, as oilmen have learned how to drill wells faster and to extract more oil from each one.

    The firms that weather the current storm will have masses more shale to exploit. Drilling is just beginning (and may now be cut back) in the Niobrara formation in Colorado, for example, and the Mississippian Lime along the border between Oklahoma and Kansas.

    Nor need shale oil be a uniquely American phenomenon: there is similar geology all around the world, from China to the Czech Republic. Although no other country has quite the same combination of eager investors, experienced oilmen and pliable bureaucrats, the riches on offer must eventually induce shale-oil exploration elsewhere.

    Most important of all, investments in shale oil come in conveniently small increments. The big conventional oilfields that have not yet been tapped tend to be in inaccessible spots, deep below the ocean, high in the Arctic, or both.

    America’s Exxon Mobil and Russia’s Rosneft recently spent two months and $700m drilling a single well in the Kara Sea, north of Siberia. Although they found oil, developing it will take years and cost billions. By contrast, a shale-oil well can be drilled in as little as a week, at a cost of $1.5m.

    The shale firms know where the shale deposits are and it is pretty easy to hire new rigs; the only question is how many wells to drill. The whole business becomes a bit more like manufacturing drinks: whenever the world is thirsty, you crank up the bottling plant.

    Sheikh out

    So the economics of oil have changed. The market will still be subject to political shocks: war in the Middle East or the overdue implosion of Vladimir Putin’s kleptocracy would send the price soaring. But, absent such an event, the oil price should be less vulnerable to shocks or manipulation.

    Even if the 3m extra b/d that the United States now pumps out is a tiny fraction of the 90m the world consumes, America’s shale is a genuine rival to Saudi Arabia as the world’s marginal producer. That should reduce the volatility not just of the oil price but also of the world economy.

    Oil and finance have proved themselves the only two industries able to tip the world into recession. At least one of them should in future be a bit more stable.
     
    jus likes this.
  2.  
  3. Zebra

    Zebra Senior Member Senior Member

    Joined:
    Mar 18, 2011
    Messages:
    6,011
    Likes Received:
    2,251
    List of countries by recoverable shale gas - Wikipedia, the free encyclopedia

    Country.............................Estimated recoverable resources...........Date of Information
    ........................................ (trillion cubic feet)

    - World total..................7,299................................................. 2013
    1 China.........................1,115................................................. 2013
    2 Argentina....................802.................................................... 2013
    3 Algeria.......................707...................................................... 2013
    4 United States..............665.................................................... 2013
    5 Canada...................... 573................................................... 2013
    6 Mexico.......................545.................................................... 2013
    7 Australia....................437..................................................... 2013
    8 South Africa...............390..................................................... 2013
    9 Russia.......................285..................................................... 2013
    10 Brazil.........................245..................................................... 2013

    - Rest of the World.......1,535................................................... 2013
     
  4. amoy

    amoy Senior Member Senior Member

    Joined:
    Jan 17, 2010
    Messages:
    5,524
    Likes Received:
    1,548
    China's Shale Gas Plans Limited By Water Shortages, Report Finds

    Shell continues shale gas exploration in China | Shale Energy Insider
    Shale gas exploration accelerated in China |Industries |chinadaily.com.cn
    China finds shale gas challenging, halves 2020 output target | Reuters

    [​IMG]
     
  5. amoy

    amoy Senior Member Senior Member

    Joined:
    Jan 17, 2010
    Messages:
    5,524
    Likes Received:
    1,548
    The First Shale Casualty: WBH Energy Files For Bankruptcy http://www.zerohedge.com/news/2015-...-wbh-energy-files-bankruptcy-many-more-coming

    Zero Hedge sounds very excited :lol:
     
  6. sorcerer

    sorcerer Senior Member Senior Member

    Joined:
    Apr 13, 2013
    Messages:
    6,203
    Likes Received:
    5,121
    Location:
    India
    Oil Market Uncertain As US Shale Boom “Goes Bust”

    Oil market is uncertain as the US shale oil output is expected to fall for the first time in four years, and the coming months are likely to see a continuing price war between OPEC producers. Deutsche Bank, Goldman Sachs and HIS are now projecting that US oil production growth will now end. The global oil price rose slightly in the morning of April 14.

    Citing the April 13, 2015 US Energy Information Administration prediction on the US shale production Andy Rowell writes in Oil Change International:

    The production would fall by 57,000 barrels per day in May this year.

    The report says:

    “The EIA forecasted that the seven major shale formations in the US: Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica will produce a total of 5.56 million barrels of crude oil daily next month, down from 5.62 million barrels per day in April.

    “These seven regions have accounted for 95% of domestic oil production growth and all domestic natural gas production growth over the last few years.

    “Although the most productive formation, Permian, will see a slight increase in production by 11,000 barrels per day to 1.99 million, the output at the next highest producer, Eagle Ford, will drop 33,000 barrels daily, while the output from Bakken will decline by 23,000 bpd next month.

    “The production of shale gas is due to decrease by 23 million cubic feet of gas per day as well.”

    The Oil Change International report headlined “US Shale Boom ‘Goes Bust’” (April 14, 2015) says:

    “The news is extremely interesting as it could mean that finally we are seeing the Saudi strategy of allowing global oil prices to plummet as a way to undermine US shale production as paying off.

    “But even with US shale production now declining, do not expect any let off from OPEC. As an article on Oilprice stated on April 13, 2015 the price war between OPEC and US shale producers is likely to continue.

    “It stated: ‘the oil price war between OPEC and U.S. producers could last longer than initially expected, with oil prices remaining at levels of around $55 per barrel or lower for the rest of 2015, and potentially well into 2016.’

    “What this means is that the continuing price war could signal the beginning of the end of the US shale boom, which has helped boost US oil output by more than 4 million bpd since 2010.

    “Indeed, Deutsche Bank, Goldman Sachs and HIS are all now projecting that US oil production growth will now end.”

    Andy Rowell cites already seen widespread lay-offs and jobs cut as companies cut back production, and adds:

    “Indeed, last week the number of drilling rigs in play declined by a further 42 to 760, the lowest number since December 2010.

    “‘We’re going off an inevitable cliff,’” because of the shrinking rig counts, Carl Larry, head of oil and gas for Frost & Sullivan LP, told Bloomberg on April 13, 2015. ‘The question is how fast is the decline going to go.’”

    In another report Oilprice.com (Price War: OPEC Versus U.S Shale Likely To Continue Despite Iran Deal) said:

    “The recent agreement on Iran’s nuclear program exacerbated fears that the price of oil will continue to slide downwards once Iran’s vast oil reserves start to flow onto the global markets without restriction. However, there are signs that the process will at best be a gradual one, and that it will not dramatically affect the price of oil in the short term.”

    The report said:

    “A comprehensive deal, meant to be reached by June, is still far away, with many obstacles still present between the international community and Iran. In addition, much will depend on reactions from the U.S. Congress, where the Republican majority will most certainly try to boycott the final agreement.”

    The report headlined “Price War: OPEC Versus U.S Shale Likely To Continue Despite Iran Deal” said:

    “It is highly unlikely that Iran will be allowed to start exporting its oil freely before June, and even if this happens, it will take at least six months or more before a full capacity production and export chain is re-established.

    “The swing in oil prices is likely to come from a different side.

    “Ever since OPEC decided not to cut its production quotas in November 2014, U.S. shale producers have been struggling to cope with low oil prices, and there are growing signs that this is finally taking its toll.

    “The key reason for this lies both in high production costs that in many cases significantly outpace current oil prices, and in U.S. producers’ increasing difficulty to raise money to continue with the investment cycle. Shale oil is a highly demanding industry in terms of capital investment, and it requires a constant influx of money to sustain its activities.

    The report by Ante Batovic for GlobalRiskInsights said:

    “During the period of ‘easy money’ supported by the Federal Reserve’s quantitative easing (QE) policy and high oil prices, investing in U.S. oil and gas sounded like good advice. However, it seems that with prices below $60 per barrel, this argument is not entirely valid.”

    The report discusses the junk bonds in the shale oil venture:

    “Since 2012, the U.S. shale revolution was driven not only by high oil prices, but also by high-yield junk bonds issued by many smaller shale companies. As the low oil prices slash the value of their oil and gas reserves, and as the yields on their bonds have almost doubled, many smaller producers will struggle to keep their heads above the water.

    “According to JP Morgan’s forecast, up to 40% of U.S. energy companies that issued junk bonds could default by 2017 if the period of low prices continues. Barclay’s estimates show that the total debt of the U.S. exploration and production companies makes up to 17% of America’s junk bonds market.”

    Mentioning the Saudi strategy to “kill” the U.S. shale sector with low prices the report said:

    The strategy “will most certainly have a strong impact, and in the long term will probably stabilize oil prices at around $70-80 per barrel. At the same time, it will make the U.S. oil sector more consolidated and resilient to price fluctuations, with technology innovations and processes that will drive production costs down and help to make the industry a sustainable part of the global energy market.”

    Oil Market Uncertain As US Shale Boom “Goes Bust”
     
  7. sorcerer

    sorcerer Senior Member Senior Member

    Joined:
    Apr 13, 2013
    Messages:
    6,203
    Likes Received:
    5,121
    Location:
    India
    duplicate post
     
    Last edited: Apr 21, 2015
  8. amoy

    amoy Senior Member Senior Member

    Joined:
    Jan 17, 2010
    Messages:
    5,524
    Likes Received:
    1,548
    video: China's first large-scale shale gas field found in Chongqing



    BEIJING, Nov. 28 (Xinhuanet) -- State-owned Chinese oil and gas giant, Sinopec, announced Monday that its discovered a major shale gas field near Southwest China’s Chongqing. The Fu-Ling field has estimated reserves of 2.1 trillion cubic meters. It's also the first large-scale discovery of its kind in China.

    The discovery in Chongqing’s Fuling district means that China can enter into large-scale commercial development of shale gas much earlier than anticipated. Sinopec’s Chairman -- Fu Chengyu -- says 10 years can now be cut off from China’s planned development time for shale gas energy.

    "Our Fuling project, which will ultimately produce 10 billion cubic meters a year by 2017, will build shale gas capacity to 5 billion cubic meters a year by 2015." Fu Chenyu said.

    The discovery of the Fuling field means China’s official target for annual shale gas production, 6.5 billion cubic meters a year, will be easily surpassed. But Sinopec may be faced with a cash squeeze as it looks to develop the field. That’s because SinoPec’s major competitor, PetroChina, reportedly will seek private investment in order to help it get into shale gas production.

    Sinopec and state-owned PetroChina both cut their capital expenditures for 2014 from a year ago but analysts say Sinopec may have less flexibility on spending than its competitor. The reason for that is that PetroChina has a stronger balance sheet while Sinopec faces rising refining costs and weaker income from oil and gas production.

    Related News

    S. Africa to issue licences for shale gas exploration: Zuma

    Politicians deal blow to Britain's emerging shale gas industry

    China renews subsidies for shale gas exploration

    Shale gas exploited in north China
    [​IMG]
     
  9. Kshatriya87

    Kshatriya87 Senior Member Senior Member

    Joined:
    Feb 12, 2014
    Messages:
    4,748
    Likes Received:
    3,196
    Location:
    Mumbai
    We still have the Iran factor. Once the sanctions are lifted off of Iran, their oil will be available to th world market. They already have millions of barrels stored in tanks for export. Inclusion of Iran will lead to further fall in oil prices.
     
  10. amoy

    amoy Senior Member Senior Member

    Joined:
    Jan 17, 2010
    Messages:
    5,524
    Likes Received:
    1,548
    first export cargo of U.S.-produced light crude oil since the 40-year-old ban was lifted on December 18.

    NuStar and ConocoPhillips Loading Their First Export Cargo of U.S. Crude Oil After Lifting of Crude Oil Export Ban

    Business Wire NuStar Energy L.P. and ConocoPhillips Dec 30, 2015 1:52 PM

    SAN ANTONIO--(BUSINESS WIRE)--

    On the heels of the U.S. government's recent lifting of the federal ban on the export of crude oil produced in the United States, NuStar Energy (NS) and ConocoPhillips (COP) announce they are loading what they believe to be the nation's first export cargo of U.S.-produced light crude oil since the 40-year-old ban was lifted on December 18.

    ConocoPhillips committed to sell Eagle Ford light crude oil/condensate to international trading company Vitol. The cargo is expected to complete loading at NuStar's North Beach Terminal located in the Port of Corpus Christi on December 31, 2015.

    NuStar has invested heavily in recent years to expand its South Texas Crude Oil Pipeline System to move crude oil from the Eagle Ford Shale play to Corpus Christi. The company has also made major investments in its Corpus Christi terminal operations with the addition of more storage tanks, dock space and automated systems that allow the company to better accommodate and provide logistics services for its customers, including the ability to load export-size cargoes from its docks.

    “Based on our investments in Corpus Christi and our South Texas pipeline system, NuStar was well-positioned, equipped and staffed to immediately begin loading cargoes for export,” said NuStar President and CEO Brad Barron. “And we plan on further expanding our Corpus Christi operations to provide more options to our customers to move Eagle Ford Shale crude oil, whether it is being moved domestically or internationally. In fact, we are currently in the process of developing a second private dock in the Port of Corpus Christi.”

    Barron noted that with the new dock, NuStar would have access to four loading docks in the Port of Corpus Christi, including two private docks, and would be able to load crude oil onto ships simultaneously on all four docks at a maximum rate of 90,000 barrels per hour.

    http://finance.yahoo.com/news/nustar-conocophillips-loading-first-export-185200461.html


    ~~Still waters run deep. ~~from my MiPad using tapatalk
     
  11. amoy

    amoy Senior Member Senior Member

    Joined:
    Jan 17, 2010
    Messages:
    5,524
    Likes Received:
    1,548
    China Said to Pitch Hong Kong Listing, Investors for Aramco IPO

    Chinese officials pitched a dual listing for Saudi Arabian Oil Co. that would put the government-owned oil giant’s shares on both the Hong Kong and Saudi exchanges in return for anchor investments from Chinese funds, according to people familiar with the matter
    .

    The proposal was made earlier this year and no decisions have been made, the people said, asking not to be named as the details aren’t public. The oil producer, also known as Aramco, said in January it’s considering an initial public offering of the entire business or some of its units, which could make it one of the world’s biggest public companies.

    One option Aramco is considering is an IPO for part of its downstream and refining businesses, which could be valued at more than $90 billion and raise $5 billion to $10 billion, the people said. The company hasn’t mandated financial advisers and may choose Saudi Arabia as the sole listing venue, they said. A representative for Aramco declined to comment.

    Aramco is a strategically important asset for China. Saudi Arabia was the source of 16 percent of China’s foreign oil, its largest supplier in 2014, according to the U.S. Energy Information Administration. Chinese President Xi Jinping visited the capital Riyadh last month on his first trip through the Middle East since taking power.

    Winning the listing for Aramco would be a boost for Hong Kong’s increasingly popular stock exchange. The exchange had about $34 billion in IPOs last year, surpassing the $30 billion raised in the U.S., which traditionally has the largest volume of listings, according to data compiled by Bloomberg.

    Based on its direct ownership, Aramco is the world’s fourth-largest refiner, behind Exxon Mobil Corp., Royal Dutch Shell Plc and China Petroleum & Chemical Corp., according to U.S.-based consultants PetroStrategies Inc.
     
  12. amoy

    amoy Senior Member Senior Member

    Joined:
    Jan 17, 2010
    Messages:
    5,524
    Likes Received:
    1,548
    Chinese oil major Sinopec to shut fields as oil price recovery hopes dim

    Iran refuses to join pact between Saudi Arabia and Russia aimed at capping supply, saying it won’t give up its ‘appropriate share’ of global oil market
     
  13. amoy

    amoy Senior Member Senior Member

    Joined:
    Jan 17, 2010
    Messages:
    5,524
    Likes Received:
    1,548
    China Receives First American LNG Cargo
    Tuesday, August 23, 2016

    [​IMG]
    Apollonia passes through the Panama Canal's locks on its way to Asia. Photo: Shell

    The first cargo of US liquefied natural gas (LNG) to target the world’s largest energy consumer arrived Monday at the Chinese port of Yantian in Shenzhen near Hong Kong.

    The cargo was brought onboard the 161,870-cbm Maran Gas Apollonia, chartered by the Hague-based LNG giant Shell, that was the first LNG tanker to transit the newly expanded Panama Canal connecting the Atlantic and Pacific oceans.

    The Maran Gas Apollonia has had 19 cargoes of LNG load from the U.S. Gulf of Mexico from the Sabine Pass export facility since February, but this cargo is the first to reach northeast Asia, world's biggest LNG demand center.

    China, Japan and South Korea are prime target markets for US LNG exporters.

    Sabine Pass' first liquefaction train has been in commercial operation since May (with first commissioning cargoes departing in February).

    Shell has a long-term contract for 3.5 metric tons per annum and the cargo on the Apollonia was one of its shipments.

    [​IMG]
    China's Yantain terminal
    http://www.platts.cn/latest-news/na...anker-arrives-in-china-first-to-land-26526937




    ~~Still waters run deep. ~~
     

Share This Page