Kemp: OPEC Has Stalled The Shale Revolution
John Kemp is a Reuters market analyst. The views expressed are his own
LONDON, Oct 20 (Reuters) – The resilience of U.S. shale producers has surpassed all expectations as they have wrung extra efficiencies out of their operations and pulled rigs back to the most prolific sections of existing plays.
The shale sector's ability to cut costs and sustain their output in the face of plunging prices has been extraordinary and testament to the entrepreneurial spirit and technical skill of the independent producers.
Shale producers are justifiably proud of their ability to survive the perfect storm that has hit their industry since the middle of 2014.
But it should not disguise the fact that the collapse in oil prices has paused the shale revolution, with the sector's focus shifting from growth to survival.
The revolution cannot be reversed. Techniques once mastered will not be unlearned. And adversity has forced shale drillers to become more efficient.
If and when prices rise, shale output is very likely to start increasing again, and from an even lower cost base.
For the time being, however, lower prices have stunted shale's growth in the United States and slowed its spread around the rest of the world.
In North Dakota, the oil boom has stalled as low prices have brought formerly rapid production growth to a standstill since the end of 2014.
State oil output grew at a compound average rate of just 0.38 percent per month over the last 12 months, according to records published by the Department of Mineral Resources.
By contrast, production increased at a compound rate of 2.37 per month in the 12 months before prices started to crash in June 2014 (http://tmsnrt.rs/1QOlGI8).
Output has been flat at 1.2 million barrels per day (bpd) since the end of 2014, the deepest and most protracted pause since the shale revolution began in the state in 2005 (http://tmsnrt.rs/1QOn25S).
If production had continued rising on its pre-June 2014 trend, output would now be 330,000 bpd higher at 1.52 million bpd.
Some analysts question whether the Organization of the Petroleum Exporting Countries (OPEC) is winning its price war against high-cost producers.
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