Back to the Future? Oil Replays 1980s Bust - Rise of Shale Extraction Speeds Output and Changes Equation for Producers
From The Wall Street Journal:
A surge of oil from outside of the Middle East flooded global energy markets. The world-wide thirst for crude didn’t keep up. The Organization of the Petroleum Exporting Countries stood by and watched as oil prices fell and then fell more.
Welcome to the world of oil in 2015—a repeat in surprising ways of the story 30 years ago. Between November 1985 and March 1986, the price of crude plunged by 67%. Between June 2014 and today, crude prices have fallen by 57% and could well head lower.
After the mid-1980s bust, it took nearly two decades for oil prices to rebound to pre-bust levels and remain there. Energy executives are now haunted by the question: Will it take as long this time?
The answer may lie in one enormous difference between today and 30 years ago: the speed of shale.
Before U.S. energy companies figured out how to pull oil from shale formations, petroleum projects often took years to execute. Two decades passed between a fisherman spotting a colorful slick floating off the coast of Mexico and oil flowing from the giant Cantarell project off the Yucatan Peninsula. It took nine years and billions of dollars to get crude moving from the North Slope of Alaska to markets.
Today, the discovery and development of oil from shale rocks means that oil output is faster paced and near at hand—in Texas and North Dakota, Colorado, Oklahoma, Wyoming, even Ohio. Drilling and hydraulically fracturing a well takes weeks, not years. An expensive well costs $10 million, compared with the billions needed to drill offshore wells and build associated infrastructure. Moreover, expenditure of both time and money are falling fast.
A surge of oil from outside of the Middle East flooded global energy markets. The world-wide thirst for crude didn’t keep up. The Organization of the Petroleum Exporting Countries stood by and watched as oil prices fell and then fell more.
Welcome to the world of oil in 2015—a repeat in surprising ways of the story 30 years ago. Between November 1985 and March 1986, the price of crude plunged by 67%. Between June 2014 and today, crude prices have fallen by 57% and could well head lower.
After the mid-1980s bust, it took nearly two decades for oil prices to rebound to pre-bust levels and remain there. Energy executives are now haunted by the question: Will it take as long this time?
The answer may lie in one enormous difference between today and 30 years ago: the speed of shale.
Before U.S. energy companies figured out how to pull oil from shale formations, petroleum projects often took years to execute. Two decades passed between a fisherman spotting a colorful slick floating off the coast of Mexico and oil flowing from the giant Cantarell project off the Yucatan Peninsula. It took nine years and billions of dollars to get crude moving from the North Slope of Alaska to markets.
Today, the discovery and development of oil from shale rocks means that oil output is faster paced and near at hand—in Texas and North Dakota, Colorado, Oklahoma, Wyoming, even Ohio. Drilling and hydraulically fracturing a well takes weeks, not years. An expensive well costs $10 million, compared with the billions needed to drill offshore wells and build associated infrastructure. Moreover, expenditure of both time and money are falling fast.
posted by Sid Cottingham | 7:28 AM
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