OPEC Fights U.S. Shale Oil, U.S. Shale Oil Hangs in There

Cartels and monopolists tend to react to competition in very predictable ways - one of which is to lower their prices until the competition is driven out of business due to lack of profitability. OPEC nations want higher oil prices because their economies are built on maintaining a certain price level.

Bloomberg has a pretty good analysis of what price levels are needed for each OPEC state to make ends meet here. Saudi Arabia needs a price point of $106, Iran $87, Venezuela $125.

Current market price for a barrel of oil is below $50. Why so low? Part of the reason is the attempt to drive U.S. shale oil producers out of business and eliminate them as competition and allow OPEC to be back in the oil pricing and demand driver seat.

There's an interesting analysis from FGE's  Fereidun Fesharaki and David Isaak about why that may not be working so well from Oil & Gas Journal FGE: US unconventional industry shows resilence as OPEC reacts to shale production and prices

When the "War on Shale" began, it was common to hear that substantial drops in production would occur at $90/bbl, $80/bbl, or $70/bbl. And, it was true that to make the overall economics work, those sorts of prices were needed for many producers in certain plays. But the overall economics include the lease costs, which for some producers represents a very large fraction of the total cost. But lease costs are sunk costs, and once the investment has been made, they do not have much effect on production economics. So there are projects that might require $70/bbl to make money, but the operator can still keep producing at $40-60/bbl.
Some aspects of shale economics were improving at astonishing rates, even with the cushion of high prices. Total well depths typically more than doubled in the last 6 years, as did lateral runs lengths. Despite greater depths and lateral runs, typical drilling times per well were cut in half (to 17 days from 35), and some wells are now drilled in 9-12 days. In addition, multiple wells now are drilled from single production pads, meaning that the drilling equipment can be repositioned and restarted in a matter of hours rather than days.
As is widely known, productivity per well also has skyrocketed. This is the result of many factors, such as fracturing practices geared to specific local geology, improved use of proppants, and the longer total runs per well. But one of the reasons productivity is climbing is simply that the producers have begun to concentrate on the best plays.
In the early days of shale, most of the producing wells were also effectively exploration wells. In addition, many wells in the Great Rush were drilled simply because lease terms required a certain amount of drilling and output to avoid the lease reverting to the owner (leases held by production, or HBP drilling in industry jargon).

But as long as oil prices remained high, there were costs that tended to rise rather than come down. Labor was short, operating costs tended to rise, good drill rigs were at a premium, proppants and chemicals saw major price increases, and common items such as compressors were backordered. In addition, limited (and expensive) transport infrastructure cut netbacks to the wellhead.
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Costs Have Fallen
Lower prices and increased productivity have to some extent reversed those trends. In the new low-price environment, costs have fallen-some producers report operating costs down by 20% or more. Rig counts are down, and this not only lowers the cost of rig hire, but it also means that only the best rigs are employed. Finally, although cheap transport infrastructure still falls short of demand, improvements in getting liquids to market have been steady.
That does not mean prevailing prices do not hurt. They have definitely put an end to the Great Rush. But the main effect has been to put the US shale business on a sounder footing. In the new environment, the less productive leases and plays are likely to be abandoned (which will look to the market like another major increase in well productivity). Improvements in drilling and production economics improved the bottom line before, but now additional improvements are required rather than optional.
What does this mean for production of tight oil and gas? With all the time-lags involved, it is becoming harder to assess. The large producers have slashed their E&P budgets for 2015 by about a third; and smaller producers have implemented even bigger cuts. Despite this, most of the producers report that their output of oil will be higher for 2015 than for 2014.
Monthly production declines are already occurring-although even the modest crude price revival of the last few months was enough to encourage a few producers to begin deployment of additional rigs for mid-summer. But a confounding factor is that many producers have elected to delay completions on wells that have already been drilled. Completion (casing and installation of production trees and piping) is expensive-and not needed unless the well is going into production. Some statistics suggest that as many as half of the wells drilled in the Bakken are deferring completion. Some companies (notably EOG Resources Inc. and Apache Corp., both of Houston) actually are deferring more wells in 2015 than their total new wells in 2014. This means that in the coming months and years, there may be small surges in production that are seemingly unrelated to drilling.
Crude prices need to be driven well below recent levels to put shale out of business. Conversely, mild increases in price can draw in new production comparatively rapidly. Deferred well completions add to the price responsiveness. Shale production is surprisingly resilient in the range of $50-60/bbl, and prices above $60/bbl may draw in significant new production.

So, OPEC, thanks for forcing the shale oil industry into streamlining and improving.

And good luck on that "control of the market" thing.

The U.S., according to the U.S. Energy Information Administration seems to be sitting pretty on shale:

Does the United States have abundant shale resources?
Yes, the United States has access to significant shale resources. In the Annual Energy Outlook 2014, EIA estimated that the United States has approximately 610 Tcf of technically recoverable shale natural gas resources and 59 billion barrels of technically recoverable tight oil resources. As a result, the United States is ranked second globally after Russia in shale oil resources and is ranked fourth globally after China, Argentina and Algeria in shale natural gas resources.

U.S. Oil Shale Under Part of Wyoming Estimated at 1.45 Trilliom Barrels

Green River shale oil in place put at 1.45 trillion bbl

A trillion barrels is 1 million million  (1,000,000,000,000) barrels in U.S. terms. According to the EIA Saudi Arabia has 266.75 billion barrels of proven oil reserves, so this report would seem to give the U.S. even more oil than Saudi Arabia, though it is shale oil.

The EIA reports the U.S. crude oil and products imports 9,440,000 barrels/day. Assuming you can recover it, a trillion barrels would replace those imports for 288 years, by my rough calculations.

If these numbers are correct, why is this not a bigger news story?

You can find the supporting U.S.G.S. report in pdf format here.

UPDATE: Speaking of big energy finds, a report of a large gas find off Africa, which is a good thing, I would think for Mozambique:

An Eni group has drilled a giant gas discovery at the first well in Area 4 off northern Mozambique that the company said is the largest operated find in its history.
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“The outstanding volume of natural gas discovered will lead to a large scale gas development with a combination of both export to regional and international markets through LNG and supply to the domestic market. This will support the industrial and economic growth of the country,” Eni said.

About Oil Shale

Just a primer for politicians from the government About Oil Shale:

"While oil shale is found in many places worldwide, by far the largest deposits in the world are found in the United States in the Green River Formation, which covers portions of Colorado, Utah, and Wyoming. Estimates of the oil resource in place within the Green River Formation range from 1.2 to 1.8 trillion barrels. Not all resources in place are recoverable; however, even a moderate estimate of 800 billion barrels of recoverable oil from oil shale in the Green River Formation is three times greater than the proven oil reserves of Saudi Arabia. Present U.S. demand for petroleum products is about 20 million barrels per day. If oil shale could be used to meet a quarter of that demand, the estimated 800 billion barrels of recoverable oil from the Green River Formation would last for more than 400 years."

Or, if the oil from this formation was used for 100% of demand, it would last 100 years.

Shell Oil's shale oil recovery project.

UPDATE: First comment points to this article which makes it clear who is mucking up the U.S.'s ability to exploit its own resources:

Last month, the U.S. Senate's Appropriations Committee voted 15-14 to kill a bill that would have ended a one-year moratorium on enacting rules for oil shale development on federal lands (which is where the best oil shale is located). Most maddening of all - at least to someone like myself not steeped in the wacky ways of Washington - the swing vote on the appropriations committee, U.S. Sen. Mary Landrieu, D-La., voted with the majority even though she actually opposes the moratorium.

"Sen. Salazar asked me to vote no. I did so at his request," Landrieu told The Rocky Mountain News. A Landrieu staffer contacted by Fortune doesn't dispute this, but notes that Landrieu did propose a compromise which Republicans rejected.
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She was speaking of U.S. Sen. Ken Salazar, D-Colo., who has emerged as the Senate's leading oil shale opponent. Salazar inserted the aforementioned moratorium into an omnibus spending bill last December, and in May he proposed a new bill that would extend the moratorium another year.

Salazar's efforts have essentially pulled the rug out from under Shell (RDSA) and other oil companies which have invested many, many millions into oil shale research since the passage of the Energy Policy Act of 2005, which established the original framework for commercial leasing of oil shale lands. (Last year, oil shale represented Shell's single biggest R&D expenditure.)

Salazar says he's simply trying to slow things down in order to ensure environmental considerations don't get trampled in the rush to turn western Colorado into a new Prudhoe Bay. But, ironically, his bid to extend the moratorium comes at a time when his fellow Senate Democrats have been blasting Big Oil for not reinvesting enough of their profits into developing new sources of energy.
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Fortune: Why do you consider developing oil shale such a high priority?

Sen. Hatch: We have as much oil in oil shale in Utah, Wyoming and Colorado as the rest of the world's oil combined. Liberals and environmentalists can talk all they want about wind, solar and geothermal - all of which I'm for - but last time I checked, planes, trains, trucks, ships and cars don't run on electricity. 98% of transportation fuel right now is oil. Ethanol is the only real alternative, and we're seeing that ethanol has major limitations.

It's pathetic. Environmentalists are very happy having us dependent on foreign oil. They're unhappy with us developing our own. What they forget to say is that shipping fuel all the way from the middle east has a big greenhouse gas footprint too.
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Fortune: One of Sen. Salazar's environmental concerns involves water and the big draw on local water supplies required for oil shale production. Based on my reporting in western Colorado last year, this seems like a legitimate concern. What's your take on this?

Sen. Hatch: Let's compare it to ethanol. Corn needs about 1,000 barrels of water for the energy equivalent of a barrel of oil. That's a crazy amount of water, but it's worked out alright so far because corn is grown in rainy areas, for the most part. But if you want to increase the amount of ethanol, you're going to have to go to irrigation, and then there will be major water limits on how much we can afford to grow.

On the other hand, the Department of Energy estimates that oil shale will require three barrels of water for every barrel of oil.

Fortune: Of course, water is a lot scarcer in western Colorado than it is in Iowa.

Sen Hatch: It is, but remember the oil companies are going to use and recycle the water. And while we're on the environmental impact, let's talk about land use and wildlife habitat. One acre of corn produces the equivalent of 5 to 7 barrels of oil. One acre of oil shale produces 100,000 to 1 million barrels.

Fortune: With gasoline at $4, why this isn't this more of a front-and-center issue for consumers and voters?

Sen. Hatch: I'm generally the last guy to lambaste the media, but generally you do not hear these facts. We're sending $600 billion annually to enemies of our country. If one acre of oil shale produces 1 million barrels of oil, that's 1 million barrels that we would not be importing from Russia and the Middle East. People are going to go berserk when they find out that all along we had the capacity, within our own borders, to alleviate our dependency in an environmentally friendly way.

Ironically, the local governments in Colorado's oil shale areas do support oil shale development, but it's being stopped by the ski-resort elites. A couple months ago, an article came out about how the city of Aspen was being besieged with building applications equating to about $2 million in development a day. Now if those nice, rich people in Aspen really cared about the environment, they might save an acre or two of those beautiful forests they're building on and support some oil-shale development in the not-so-nearby and not-so-beautiful oil shale areas of Colorado.

Fortune: Has oil shale development always been a partisan issue or is this something new?

Sen. Allard: It is something new. The issue with the Democrats now is they want to cut off any source of carbon. And there are those in the Senate who believe the more expensive you make gasoline, the less driving people do and you force conservation by making driving so expensive people can't afford it. (emphasis added)

For $600 billion a year, we could build a pipeline from the Great Lakes to provide water for this project and that figure does not include the amount of money spent guarding the sea lines of communication that allow the oil from overseas to get to the U.S.

From Senator Salazar's Senate website, some words:

...Our national security is compromised by our alarming overdependence on foreign oil. Our economy is held hostage to other countries that control the oil reserves.
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“Over the last eight years, we have only become more dependent on foreign oil. Today, we import more than 60% of our oil. Thanks to the failed energy policies of the past, we are at the mercy of OPEC.

“We must succeed in a sustained policy that kills our addiction to foreign oil.
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“Oil shale deposits in Colorado, Wyoming, and Utah amount to somewhere between 500 billion and 1.1 trillion barrels of oil. That is more than double the proven reserves of oil in Saudi Arabia.

“The trouble is, the oil is locked up in rock and, even after $10 billion of research and development, nobody has figured out an economical way to get it out.

“If the technology were ripe, companies like Shell would already be developing oil shale today on their own lands. Shell and other companies already own nearly 200,000 acres of prime oil shale reserves in Utah and Colorado. Nobody – not the federal government, not the Congress, not the State – is stopping them from developing these tracts. But they are just not ready, and that’s what they have all told us in testimony. They are still struggling to overcome technological and economic barriers.

“We can help companies like Shell overcome these barriers through research and development incentives like the ones I helped put in the 2005 Energy Policy Act, but even under the most optimistic estimates, the technology won’t be ready for commercialization until 2015.

“So, let’s be honest about oil shale. Let’s not pretend there’s a magic wand that we can wave that will unlock the mystery of oil shale. Let’s be honest about our energy future. Let’s be honest with the American people.
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Oil shale again

Instapundit and Autin Bay touch on shale oil based on this Denver Post article.

See my earlier posts here and here.

Colorado resident Stygius reported on oil shale back in June here and includes a link to an NPR Morning Edition piece that points out that it takes energy to retrieve energy, which, incidentally is one of the lessons found in The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run out of Energy by Peter Huber and Mark Mills( Amazon info here).

UPDATE: Mark in Mexico and some science of oil shale.