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Where Are Oil Prices Headed?

By: , Posted on: June 5, 2017

In early 2015 the bottom dropped out of the oil price market.  Within months the price of oil dropped in half to about USD 50 per barrel.  Then it oscillated below that between about USD 30 and 50 for about two years.  This happened because US shale oil swamped the market and OPEC did not reduce production to prop up prices.  The Saudi’s are credited with taking this (in)action to wipe out shale oil production.

Shale oil survived.  Small, highly leveraged, players went under.  But a hundred bankruptcies and default on USD 70 billion in debt later, the industry continues to exist, if not thrive.  Giant players like ExxonMobil and Shell have entered with renewed vigor.  Shale is viewed as safe and requiring relatively low capital infusion, with short term cash flow.  Offshore deep water prospects, by contrast have time horizons of over 5 years to production.  Since overall revenues are down due to low oil prices, dividend payments require short term cash.  In any case, new investments to the tune of USD 7 to 10 billion are expected just from these two plus Chevron in the coming year in the Permian Basin alone.  This will be at the expense of offshore development.  The Arctic, in particular, is stone cold.

Shale oil and gas had largely been the province of small independent producers.  These have little or no research capability in-house, although some are very nimble in applying externally sourced technology.  But the likes of Shell add the research dimension.  A Shell spokesman recently stated that in the Permian they were profitable at USD 40 per barrel oil, and that “newer wells” were profitable at USD 20.  The latter figure is extraordinarily low, and certainly cannot be used as an industry-wide (possibly not even Shell-wide) indicator.  The Permian has very productive wells compared to other prospects, so is a bit of an outlier, albeit a giant one.  But figures such as this are indicative of the broad initiatives in the industry to drive down the cost per barrel produced.

Oil price used to be fairly predictable, in part because OPEC was able to raise it with curtailed production and lower it with opening the spigots.  For years they successfully balanced the price to be in the vicinity of USD 100.  Now all bets are off.  Predictions of price were largely premised on political risk and the orderly delivery of oil from large fields with known characteristics.  Shale oil, on the other hand can be brought on and off stream in a matter of weeks.  The attendant change in the prediction methodology has caused deep divisions among the noted analysts.  Some are predicting a surplus by 2020 (and hence prices firming up to the USD 75 range).  Others are forecasting a glut inspired low price regime for years.

The glut is likely premised on the fast response of shale oil production to short term movement in price.  If, in addition to this ability, the breakeven cost of production is brought down to the low to mid-thirties on average, then oil prices may not go above USD 55 for the foreseeable future.  This scenario requires technology to improve recovery economics.  It also presupposes that various environmental challenges are successfully met.  These last include fugitive emissions of methane in the natural gas value chain, the prevention of aquifer contamination and the detection and control of air borne contaminants such as volatile organic chemicals.

The advances in many of these elements of sustainable production of the resource are found in a recent book, Sustainable Shale Oil and Gas Production: Analytical, Biochemical, and Geochemical Methods, by Vikram Rao and Rob Knight.  We wrote the book in the belief that analytical methods were not adequate for meeting the sustainability objectives.  The last line of the book essentially sums up the imperative: “That which cannot be measured, cannot be regulated or otherwise controlled or exploited”.

About the book

Sustainable shale oil and gas production

A new volume in the Emerging Issues in Analytical Chemistry series, Sustainable Shale Oil and Gas Production: Analytical, Biochemical, and Geochemical Methods was written on the premise that analytical methods to inform these areas were wanting. While not attempting to be comprehensive, it describes important analytical methods, some still in development. These methods are underpinned primarily by chemistry, but geochemistry and even biochemistry play significant roles. The book has a solutions flavor; problems are posed together with approaches to ameliorate them.

Visit elsevier.com for more details or to purchase your own copy. Enter code STC317 for 30% off plus free shipping!
About the author

vikram raoVikram Rao is the executive director of RTEC, and assumed this position on September 1, 2008. Dr. Rao served as senior vice president and chief technology officer at Halliburton, responsible for their technology effort as well as intellectual asset management. Dr. Rao advises the non-profit RTI International and venture capitalist Energy Ventures AS, and firms BioLargo Inc., Global Energy Talent Ltd., Biota Technology Inc., Melior Innovations Inc. and Eastman Chemicals Company. He is a past Chairman of the North Carolina Mining and Energy Commission.

Dr. Rao is the author of more than 30 publications and has been awarded 40 United States patents and foreign analogs in fields that include non-ferrous metal refining, alloy formulations, and oil and gas technology. Dr. Rao earned a doctorate degree and a master’s in engineering from Stanford University, and holds a bachelor’s degree in engineering from the Indian Institute of Technology, Madras in Chennai, India.

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Oil & Gas

The discovery and production of fossil fuels is as vital a topic as ever, driven by increasing energy demands and guided by swiftly advancing technology. Exploration continues for new sources of oil and natural gas, as well as unconventional sources such as oil shale and tar sands. Energy industry professionals need fundamental knowledge of topics such as liquefied natural gas (LNG), pipeline engineering, transmission and processing, enhanced oil recovery, reservoir management, and deep water exploration, as well as accurate, up-to-date modeling, data, and analysis. Elsevier provides both foundational and cutting-edge geoscience, engineering, and business information to researchers and professionals in the field in varied ways: in its industry-leading journals, via online tools such as Geofacets, and through books and eBooks published under respected imprints such as Gulf Professional Publishing.