Chip Register
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As Saudis Target Shale Industry, U.S. Considers a Response
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If it wasn’t clear before, it should be now. The Saudis have put a bull’s-eye on the U.S. shale industry.
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This week the Kingdom cut the selling price for its crude for the second straight month in a row. But unlike the last time, the Saudis only cut their price for oil bound for the U.S. market and nowhere else. Indeed, they actually increased the selling price of its oil to Asia and Europe, much to the relief of fellow OPEC members.
There is now growing concern among investors that such low prices may force many U.S. shale producers to close up shop. Indeed, Deutsche Bank claims that 40% of U.S. shale oil production scheduled for 2015 would be uneconomic below $80 a barrel, a damning statistic. The chief economist over at the International Energy Agency (IEA) backs up the Deutsche Bank claim, recently noting that U.S. shale oil production needs prices to be around $80 a barrel in order to be profitable.
In my previous column, I posed a pretty provocative question – Is it time to save the Shale Revolution? I examined the possibility of the U.S. government raising trade barriers in the form of import taxes to protect the industry from collapse, much the way it does for many other commodities, like agricultural products. The article argues that continued investment in domestic drilling provides an economic and geo-strategic advantage to the nation that should be coveted, not left exposed to the whims of foreign leaders. For even asking this question aloud, I was labeled no less than a “market-skewing statist.”
Can U.S. Shale Interests Survive At Such Low Prices?
But is government intervention is really even necessary or helpful, or can the industry make the numbers work in a low oil price environment?
The Deutsche Bank figure has been held up by proponents of protectionism as a major reason to block foreign oil imports from ruining the U.S. shale industry. But how accurate are these figures? It turns out there is considerable debate within the energy community as to how low prices have to go to force shale drillers out of business. Indeed, the head of the IEA just recently contradicted her chief economist when she said that 82% of shale oil producers in the U.S. have a break-even price of around $60 a barrel or lower. Based on that, she didn’t see a major fall off in production anytime soon.
Meanwhile, the analysts over at Citibank say that weak oil prices haven’t made much of a dent in U.S. crude production and that drilling would continue to increase even if prices fell to around $70 a barrel. On average, they say, prices would have to fall below $50 a barrel before fully halting production growth in the U.S., with many drillers staying profitable if oil prices held between $40 and $60 a barrel.
end quote from:
- www.forbes.com/sites/
chipregister1/2014/11/07/as-saudis... Cached Nov 07, 2014 · Can the U.S. shale oil industry make the numbers work in a low oil price environment?
