Here is a brief primer on the real implications of the decline of oil prices and environmental degradation on the unconventional petroleum industry (fracking, tar sands and deep-water drilling). Oil has been relatively inexpensive, energy intensive, portable, relatively safe, convertible to myriad uses – an incredibly useful substance, especially in regard to transportation. In the US, and globally, oil powers virtually all movement of people and goods, and is the source of many products. It appears to many people to be essential.
Oil comes in at least these categories:
· Conventional oil: vertically drilled wells on land or shallow continental shelf. Conventional oil, worldwide, is past its peak of production (it peaked in 2005-8 per the International Energy Agency), and oil production is declining at an average rate of 5.8% per year (Whall and Nelson. Investec. “Global oil supply: the decline rate problem” 2/2014, page 11).
· Unconventional oil comes from oil-laden shale, requiring vertical and horizontal drilling, and also requiring hydraulic fracturing, or “fracking”. It is more expensive to produce than conventional oil. Unconventional oil appears to be in a state of transition. Oil prices were high (~ $100/barrel) from about 2011 to mid-2014. Those high prices supported rapidly expanding new shale oil production, adding nearly 5 million barrels/day of unconventional shale oil to American production, and more than off-setting the worldwide decline in conventional oil.
However, the price of all oil has been dramatically declining (today it is about $45/barrel) – more than a 55% decline – and, in most cases, the price is insufficient to cover shale oil production costs plus profit. Some shale wells are shut in; only very productive shale oil wells will continue to be operated. Conway Mackenzie Inc., a liquidator, predicts large losses in shale oil production-related businesses in the next quarter, especially if prices continue to fall.
Oil comes in at least these categories:
· Conventional oil: vertically drilled wells on land or shallow continental shelf. Conventional oil, worldwide, is past its peak of production (it peaked in 2005-8 per the International Energy Agency), and oil production is declining at an average rate of 5.8% per year (Whall and Nelson. Investec. “Global oil supply: the decline rate problem” 2/2014, page 11).
· Unconventional oil comes from oil-laden shale, requiring vertical and horizontal drilling, and also requiring hydraulic fracturing, or “fracking”. It is more expensive to produce than conventional oil. Unconventional oil appears to be in a state of transition. Oil prices were high (~ $100/barrel) from about 2011 to mid-2014. Those high prices supported rapidly expanding new shale oil production, adding nearly 5 million barrels/day of unconventional shale oil to American production, and more than off-setting the worldwide decline in conventional oil.
However, the price of all oil has been dramatically declining (today it is about $45/barrel) – more than a 55% decline – and, in most cases, the price is insufficient to cover shale oil production costs plus profit. Some shale wells are shut in; only very productive shale oil wells will continue to be operated. Conway Mackenzie Inc., a liquidator, predicts large losses in shale oil production-related businesses in the next quarter, especially if prices continue to fall.
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