OIL at 40 USD a Barrel is best of Global Economy
The
burst of oil was long overdue. This is very good for global economy.
The
Fake Shale Gas
Many experts have touted $50 as
a threshold, the minimum the shale industry needs to break even. But in
reality, it is more complicated. $50 is
an average, and although some wells, in certain areas of the Permian, can break
even at prices between $32 and $47 per barrel, other wells, even in the same
areas, need as much as $65 to break even. Outside of the Permian region,
breakeven prices are even higher.
Bloomberg New Energy Finance’s breakeven prices
in the Permian range from $46 per barrel in Loving County to $87 per barrel in
Reagan County.
Potential environmental considerations associated with
shale gas
Shale gas extraction raises environmental concerns in
relation to:
·
carbon
dioxide (CO2) and methane (CH4) emissions, particularly
the potential for increased fugitive CH4 emissions during
drilling compared with drilling for conventional gas
·
the
volumes of water and the chemicals used in fracking and their subsequent
disposal
·
the
possible risk of contaminating groundwater
·
the
physical effects of fracking in the form of increased seismic activity
Shale
gas 'worse than coal' for climate
Drawn
from rock through a controversial "fracking" process, some hail the
gas as a "stepping stone" to a low-carbon future and a route to
energy security.
But
US researchers found that shale gas wells leak substantial amounts of methane,
a potent greenhouse gas. This makes its climate impact worse than conventional
gas, they say - and probably worse than coal as well.
Oil price war sends US shale producers into survival
mode
Already hard-pressed North American shale oil producers are
contemplating a new round of spending and drilling cuts on Tuesday as they try
to quell investor concerns about profitability in the wake of the oil price war
unleashed by Saudi Arabia over the weekend.
Oil prices tanked by around a third on Monday after Saudi Arabia
over the weekend slashed the price it charges for oil, sending a shock wave
through an industry that had already been cutting costs since the 2014-2016 oil
price collapse.
Research firm Rystad Energy predicted total industry
spending on oil exploration and production would be cut by $100bn this year and
another $150bn in 2021 if oil prices remained around $30 a barrel. The global
benchmark was trading about $36.50 on Tuesday, up nearly six percent from
Monday.
At the heart of the collapse in oil prices is the breakdown in the
alliance between the Saudi-Arabia led OPEC and Russia, its most important ally.
Shale production has soared over the past eight years, pushing US
output and exports to record highs, but that has come courtesy of strict production
limits that the Saudis rolled back after the collapse of talks between OPEC and
its allies last week.
"If these oil prices persist, the only real discussion is
whether or not to continue operations in North American land," said Ian
Bryant, Chief Executive Officer of Packers Plus Energy.
The
Oil in the range of USD 30 is very bad news. That’s very bad news for Texas,
North Dakota and anyone still left invested in oil and gas stocks. Shares of Chevron are
down 20% in 2020, making it the best performing energy stock in America.
Most are down 30%, 40% or even 50% since January 1st. The S&P Oil
& Gas ETF (XOP) is down 33% this month.
The industry is facing
a three-sided attack:
falling prices, a move of institutional investors to divest from fossil fuel
companies, and crushing debt loads.
Debt is the problem.
The U.S. oil and gas industry has about $86 billion of rated debt due in the
next four years, according to Moody’s. Nearly all of that debt is either
junk rated, or rated just above junk. More
simply put, if we fall to $25-$30 per barrel for an extended period of time,
many traders and executives believe that stockholder pain will only get worse,
and bankruptcy lawyers will be busy.
What everyone does
seem to agree on is that the shale industry, its employees and its remaining
investors are going to experience very sharp pain in the near term. A
Capital IQ search shows that publicly traded oil and gas companies employ
nearly 700,000 people. That’s not including the millions more who work
for private companies or in the halo of the industry.
The Shale Boom Is Becoming a Bust
The math is simple. If each new well drilled produces
less than the earlier, and unprofitable, wells, then the peak is
quickly approaching.
Negative cash flow
Bankruptcies are mounting across the sector, underlining a squeeze
on funding. The money
pipeline is running dry for large portions of the US shale oil sector, tipping
drillers into bankruptcy and threatening the industry’s breathtaking growth in
oil production.
As
funding becomes scarce, bankruptcy filings are on the rise this year. Haynes
and Boone, a law firm, counted 33 by the end of September, 27 of them since
May, which is almost as many as in the whole of 2018. This month EP Energy
filed for bankruptcy with $4.6bn in debt, citing “challenging dynamics as a
result of depressed commodity prices.”
The story of indebted shale drilling is not a
new one. For years, much of the shale industry was unprofitable and cash flow
negative, but was able to finance aggressive drilling programs through a
variety of means.
By
some measures, this has led to some progress. After burning through
around $200
billion in
cash flow over the past decade, the top few dozen shale companies have come
close to positive cash flow this year. In the second quarter, one study found that the
top 29 shale companies posted slightly positive numbers, which was the best
performance to date.
According
to Rystad Energy, the top 40 companies spent $28 billion on capex in the first
half of 2019, but only took in $23.7 billion in cash flow from operations
OPEC
and Production Cut
Why
Should OPEC Subsidize Shale Gas of US
By
bringing down production or cutting production OPEC actually maintained Price
tag so that, US Shale gas can keep producing. If OPEC kept their production,
Shale can never survive the market competition
New Decade, New OPEC Oil Curbs. Same Mixed Results
OPEC+ reset the terms of its agreement as of Jan. 1. Half of the
10 OPEC countries now participating in supply cuts conformed last month, for a
rate of 138%, according to Bloomberg calculations from the group’s secondary
source data. Non-OPEC adherence was 76%, estimates from preliminary
International Energy Agency data on crude supply show. Overall, the OPEC+
coalition had a compliance rate of 119%.
