End of the Shale Boom? Or Pause?

I’m sitting here watching Bloomberg report WTI at a hair over $46 a barrel, and reading Goldman’s gloomy prognostication that the six month price will be $39, rather than the previous $75, and the twelve month number will be $65 vs $80.  OPEC is continuing to hold the line on their production putting gigantic pressure on US shale production which has a break-even, depending on region, of around $50 to $75 per barrel.  Last week, Fortune’s Shawn Tully declared the US shale boom in serious jeopardy, correctly asserting that the high decline curve on unconventional resources demands ever increasing capital investment to grow production.

With US oil stocks remaining at 5 year highs, and reduced near-term domestic and international demand, I’ve become increasingly bearish on crude pricing for the short to medium term.  The Saudis seem to have a tight grip on the OPEC members, and they are holding the line to keep prices just low enough to stifle new shale production.

The industry is responsive to big shifts in economics, this time, though, it appears that the large conventional producers who have lower marginal costs, like Saudi Arabia, are in the drivers seat.  And that would be happy to drive the car over the cliff if it puts them back in charge of global prices.

More ugliness to come.

 

In my early career in the oilfield, when I was working on cement and frac crews, I breathed plenty of dust from cement, frac sand, and powdered guar used to make frac gel.  Throw in a little xylene and hydrochloric acid, and I think my lungs have experienced plenty of challenges.  Read the rest of this entry

Source: US State Department

Over the last several months, the controversy over the Keystone XL pipeline extension has grown to such fevered pitch that several weeks ago, the Obama administration, fearing alienation of its own environmentalist base, punted a decision on its border crossing permit for another year of further “study” of the pipeline project. Proposed by pipeline company Transcanada, The Keystone XL extension consists of over 1,600 miles of 36″ pipe that would move oil from the oil sands projects in Alberta, Canada, through Saskatchewan, into Montana, then crosscountry, using portions of the existing Keystone pipeline, extending all the way to refineries on the Texas Gulf Coast.  When completed, the pipeline system is expected to have capacity to transport up to 1.1 million barrels of oil per day, or about 6 percent of our total oil consumption per day in the US. Read the rest of this entry