US vs OPEC "Oil War" (trade war)?

[Edward Campbell]

pulverizing it and injecting it certainly ensure better burning at higher temps which reduces emissions, not a SME to really get into it. I did review one project where the power plant was to be built beside the coal seam and the front end loader takes a chunk out of the hillside and dumps it into the hopper which shortens the supply chain considerably. That project died on a change in regulations as I recall. interesting link  http://www.world-nuclear.org/info/Energy-and-Environment/-Clean-Coal--Technologies/

Thanks, Colin, that's a useful article for we who are uninformed on energy matters.

I guess the point is that if this was all simple, as simple as oil extraction and refining, or as simple as the "experts" make out, then it would all be in place.

Reminds me, again, that Lao Tzu was right:

 

[a_majoor]

Wait a sec; who started this "pump everything you have to maintain market share" business?

http://www.opec.org/opec_web/en/press_room/2999.htm

Counting the cost ... for 100,000 energy workers
OPEC Bulletin Commentary March 2015

Looking back over the past half century or so of OPEC’s existence, one can easily understand why the global petroleum sector has earned the reputation of being a boom-bust industry, characterized by instability and sporadic volatility. At varying times, the international market for crude oil, perhaps the most complex, sensitive and unpredictable of all commodities traded today, has witnessed both high and low price extremes, bringing in their respective turns perceived yet perhaps misconceived advantages for the industry’s principal stakeholders — the producers and the consumers. Previous thinking was that when crude prices were low, it was the consumers who reaped the benefits; alternatively, when they exceeded a certain level, it was the turn of the producers to smile.

However, years of experience of operating at both ends of the spectrum have taught us that actually no one really gains from excessively high or low prices — there are just too many elements involved and knock-on effects to consider. OPEC recognized this from day one. In fact, its five Founding Members came together in September 1960 to defend their sovereign rights as a result of crude pricing issues. And since that day, the Organization, through its policies, has endeavored to establish and nurture a market that is stable, with prices that are fair and reasonable — for all the parties involved.

To the Organization, it makes perfect business sense to have a win-win situation for all the going concerns that have a vested interest in the global petroleum sector. Hence, its longstanding commitment to dialogue and cooperation with the industry’s principal stakeholders, aimed at bringing about a better understanding of the main issues involved.

Happily, a good deal of progress has been made on this front with many of today’s pressing issues up for discussion at various workshops and seminars organized under the umbrella of the International Energy Forum (IEF). There is little doubt that the Forum has managed to bring producers and consumers closer together.

However, looking at oil price developments over the past eight months, there is clearly still a lot to do. Whether one is a producer, consumer or investing oil major, planning for the future becomes a precarious, almost impossible task when having to factor in an oil reference price that is prone to wild fluctuations. The price of international crude has been halving since the summer of last year. This has been brought about by a combination of factors led by oversupply and exacerbated by the actions of speculators. The industry is already counting the cost. Projects worth billions of dollars have been cancelled and much-needed investments for future capacity additions put on hold. Worst of all, Bloomberg, quoting figures by Swift Worldwide Resources, has reported that more than 100,000 energy workers have lost their jobs. Oil service companies, panicking over what the future might hold, have quickly retrenched. And this at a time when the international oil sector is having to cope with the so-called ‘retirement tsunami’, where the industry already stands to lose many of its experienced personnel, especially engineers.

With its chequered history, some would say this is just typical behaviour of a market that is just entering another of its cycles. But in this instance, could it not have been avoided?

We are often reminded that in today’s multilateral world, where continents, regions and countries are increasingly becoming interconnected, there is little room for unilateral action, especially in the vast and intricate world of commodity trading. Today, operating purely through self-interest is quite simply frowned upon. As the old adage says, a problem shared, is a problem halved.

Yet, when it comes to the supply of petroleum, there is a stubborn willingness of some non-OPEC producers to adopt a go-it-alone attitude, with scant regard for the consequences. These parties consider producing to the maximum as being the norm. To them, rationalizing the development of one’s precious natural resources in keeping with market demands appears to be an alien concept.

This same self-interest and unilateral thinking could not be more apparent today with the advent of the ‘game-changing’ tight oil, which has taken the market by storm over the past few years. Make no mistake — this unconventional source is a great and welcome addition to the world’s potential oil wealth. But the timing of its exploitation is certainly questionable. The facts behind the market oversupply speak for themselves.

Fact: OPEC crude output has been stable over the last nine years. Production has averaged 30 million b/d, with zero growth.

Fact: Over the same period, non-OPEC production — led by the US and Canada — has surged by 6.3m b/d. In 2014 alone, growth was measured at over 2m b/d compared with 2013.

In the past, OPEC has often shouldered the burden of ensuring oil market stability alone. In the current situation, which should be of great concern to ALL, is it not time for this burden to be shared?

 

[Colin Parkinson]

That "stability" was for OPEC benefit, not ours. Most of those countries need a fairly high price per barrel to pay off political debts and to maintain loyalties. since much of that money was used by Saudi to destabilize the Islamic world with their nutbarism, I will take this new instability over the previous. 

 

[CougarKing]

Gas prices to still be a US 2016 election issue...but for different reasons than before.

CNBC

Why the US won't have OPEC to kick around in 2016

As candidates for the 2016 U.S. general election gear up for a White House run, one villain of recent campaign cycles will be conspicuously absent: the cartel known as OPEC.

(....SNIPPED)

Now that the U.S. is producing much of its own energy supplies, and with gas prices tame, the Organization of the Petroleum Exporting Countries won't loom as the boogeyman it has in prior election years, when presidential contenders were forced to address how they'd confront petro-states over costly oil prices.

As benign as the politics of oil have become for the U.S., it has become an enormous source of social strain for OPEC countries, many of which are being deprived of the currency needed to maintain social stability. According to data from the International Monetary Fund , countries such as Iran need a price of around $122 per barrel of oil just to balance their budgets. Several others need a price of between $100 and $130 per barrel to come close to breaking even.

(...SNIPPED)

Vincent DeVito, a partner in Bowditch & Dewey and former U.S. assistant secretary of energy in the administration of former president George W. Bush, insists the issue of oil should still be of major importance to presidential candidates. Oil's place as a national security issue and a booming market mean candidates should continue to address the subject.

DeVito acknowledges that dependence on foreign oil has decreased, but he says the U.S. "has not been exercising its producer muscle" for geopolitical and national security purposes, most notably to counter Russia's ability to strong-arm its neighbors with its oil and natural gas riches.

(...SNIPPED)

 

[a_majoor]

The American Interests suggests that the "oil war" could continue for many years to come. Low oil prices benefit ourselves (in most sectors of the economy) while hurting many nations who are depenent on oil revenues for their budgets (Saudi actions are not exclusively aimed at American oil shale producers). Saudi Arabia has something like $700 billion banked away, so they should be able to hold out for several years, I am curious as to how long Iran or Russia can weather the low oil prices. (Domestically, it should be interesting to see how the NDP deals with low oil roices now that they have gained access to the piggy bank in Alberta. Watching the rest of Canada suddenly be cut off from "equalization payments" should provide the incentive to truely reform a lot of how so called "public service" is defined and delivered here as well):

http://www.the-american-interest.com/2015/05/15/strap-in-for-a-long-oil-price-war/

Strap in for a Long Oil Price War

The trenches have been dug, the preparations (mostly) made, and now we’re in for a protracted price war between the entrenched petrostates of OPEC and the upstart producers fracking American shale. Both sides are pumping copious amounts of crude—some 1.5 million barrels per day more than what the market demands—and prices have subsequently crashed from a zenith of more than $110 per barrel last June to just above $65 per barrel today.

Saudi Arabia has strong-armed the rest of OPEC into going along with its strategy not to cut production in a bid to gain market share on U.S. shale firms, and ahead of the cartel’s semi-annual meeting next month there’s little sign that any dip in output is forthcoming. By abdicating the role of the global swing producer, OPEC believed it would put pressure on the relatively high-cost shale boom, forcing producers to trim production as certain plays became unprofitable.
But U.S. firms haven’t assumed that role as readily as the Saudis would have hoped. Rather, they’ve been hard at work innovating their way to profitability even at $65 per barrel. True, shale growth is expected to slow this year and the next, but it isn’t going away. Combine that with production growth from other non-OPEC producers, and what the cartel is left with is a longer-term price war than it likely bargained for. The WSJ reports:


Russia’s output jumped an unexpected 185,000 barrels a day year-on-year in April and Brazilian production was up 17% in the first quarter, the IEA said. Meanwhile, production in China, Vietnam and Malaysia has also shown persistently strong growth. The IEA expects Chinese oil production to increase by 100,000 barrels a day this year to 4.3 million barrels a day. A recent rally in oil prices could also give U.S. shale-oil producers a fresh lease on life.
“It would thus be premature to suggest that OPEC has won the battle for market share. The battle, rather, has just started,” the IEA said.

The Saudis have the funds to make up for the budget shortfalls cheap oil is foisting upon them, but the rest of OPEC isn’t anywhere near as well prepared. Nigeria, Iran, and Venezuela have all agitated for the cartel to take action, though none have volunteered to be the one to actually make the necessary cuts. Saudi Arabia is realistically the only member capable of meaningfully moving the market, but it no longer seems willing to take one for the team, as it were, and cut production. As the IEA pointed out, this price war is only just beginning.

 

[TCBF]

- Burning coal produces fly ash. Fly ash was ordered 'captured' years ago, which it was. What to do? Fly ash was used to diminish cement proportions in concrete (cement production is non-friendly), which it did well, and some fly ash types did better than others. Result: Alberta fly ash is used for concrete production and in some cases preferred all over North America and Hawaii. Meanwhile, the anti-coal activists have convinced the 'base' that all coal is bad. Resulting in the closing of a plant near a seam of coal that produced superb fly ash when burnt. Where will the fly ash now come from? Well, it is politically impossible to get a new coal plant approved (check out the history of Notwell's CoS), but: if one was to propose a fly-ash production facility that burned coal as cleanly as possible for the production of fly ash and used the resulting potential power production for co-gen, and sold the unexpected surplus on the open market...

 

[a_majoor]

OPEC has shot itself in the foot, but can't seem to get themselves organized to fight the threat of American shale oil. I suspect that on factor the writers are overlooking is the Saudis are fighting several different battles using the oil weapon. Radical Islamists like ISIS don't get the benefit of being able to capture supplies of crude oil in Syria or northern Iraq (keeping them as a managable threat, but still available for the second goal). Arch enemies like Iran also have their actions constrained, since they must fight groups like ISIS to maintain their hold on Syria and Lebanon, continue their nuclear program and maintain a relatively large welfare state to keep the population pacified with much less money coming in. Supporters of Syria and Iran, like Russia, are also getting it in the neck, which supports Saudi Arabia's own long term goal to become the regional Hegemon of the Middle East.

For the Saudis, they belive they can assume the risk, since they have by far the largest amount of money in the bank (at @ $700 billion dollars, they could theoretically maintain their own welfare state for seven years even with no money at all coming in...). During this time, they can safely assume the Americans will become tired or impatient and leave the Middle East (or change their policy in ways which does not favour Iran), and their enemies will run out of resources first:

http://www.the-american-interest.com/2015/05/28/opecs-own-outlook-getting-grimmer/

OPEC’s Own Outlook Getting Grimmer

Every five years OPEC releases a long-term outlook, and a lot has changed since the last report in 2010. American shale has come on to the scene in a big way, contributing to a global oversupply that, coupled with weak demand, has helped depress prices more than 40 percent in barely a year. OPEC hasn’t acted to constrict production and set a floor to this price slide, consigning its petrostate members to market conditions that push regimes into the red. As Reuters reports, OPEC’s next long-term report suggests prices won’t be rebounding anytime soon:

A draft report of OPEC’s long-term strategy, seen by Reuters ahead of the cartel’s policy meeting in Vienna next week, forecast crude supply from rival non-OPEC producers would grow at least until 2017.

Sluggish global demand for oil means the call on OPEC’s crude will fall from 30 million barrels per day (bpd) in 2014 to 28.2 million in 2017, effectively leaving the group with two options – cut output from current levels of 31 million bpd or be prepared to tolerate depressed oil prices for much longer.

Saudi Arabia has pushed OPEC into its current strategy of competing with non-OPEC producers for market share in the hope that U.S. shale producers might assume the role of the market’s swing producer. While in the past OPEC had to cut production to buoy prices, the Saudis are hoping the high cost of fracking will force American producers to necessarily draw down operations when they can no longer stay profitable, allowing OPEC to produce at will without prices plunging as a result of oversupply.

But it’s not clear that the Saudis and OPEC can have their cake and eat it, too. The breakeven price of oil for most of the cartel’s regimes require is higher than the price most American shale operators need to turn a profit, meaning that even if U.S. shale takes the swing producer mantle, OPEC members will still be saddled with a global price too low to stay solvent. Moreover, shale firms are cutting their own costs through innovative new techniques, like drilling multiple horizontal wells per rig, allowing them to keep producing even in today’s bear market.

OPEC’s new draft report suggests the cartel is keenly aware of the growing threat they face from the rest of the world’s suppliers, and it should give members plenty to discuss at next week’s semiannual meetings.

 

[a_majoor]

American shale oil producers are becoming even more savvy and creative in the newly competative environment:

http://nextbigfuture.com/2015/07/us-shale-oil-finances-are-shaky-but.html

US Shale oil finances are shaky but doing better than deepwater oil and oilsands

Six months after the oil-price slump ($100 to $43 and today about $57) only five firms out of the hundreds in the US shale-drilling business have gone bankrupt.

The typical shale well costs just $10 million and can be producing within a matter of months. That means the industry can adapt fast. Since December shale firms have cut costs by 20-25%, according to Bob Brackett of Sanford C. Bernstein, a research firm. This has been achieved by brutally squeezing the oil-services firms that provide them with rigs, pumps and staff—big services companies such as Halliburton have fallen into losses and small ones are on life support.

The shale producers have also cherry-picked which wells they drill, concentrating on the best prospects and fine-tuning their engineering methods. As a result the number of rigs active in America has dropped by half since the start of the year.

All firms have slashed their capital-investment budgets for 2015—a reduction of a third is planned in aggregate.

Listed E and P firms owe $235 billion and during the first quarter debt rose, reflecting continued heavy spending. Assume a firm is in trouble if its net debt is more than eight times its annual cashflow from operations (based on the annualised first-quarter figures and excluding the benefit from derivatives). On the basis of this snapshot, 29 of the 62 firms are distressed, owing a total of $84 billion. Listed shale firms with distressed balance-sheets account for 1.1 million barrels a day of oil production, or 1.2% of global oil production.

NOTE- If the firms go bankrupt then their land (and reserves) will get sold to other firms at lower prices. The companies may not live but the US shale industry will.

Based on the first quarter (excluding derivative gains), their overall annualised return on capital was 8%, before any taxes or any capital investment. After deducting a rough guess at the capital investment required to keep production flat in the short term, returns on the historic capital invested fall to zero. Some 55 of the 62 firms, accounting for 4% of global oil production, are making inadequate returns, by our reckoning.

Most shale firms say that by being thriftier and more selective they can earn annualised returns of 25% or more on new wells at $60-a-barrel oil. Reinforcing their optimism, there is a buoyant secondary market for new wells once they are producing, with pension funds and tax-free investment vehicles the buyers. An E&P firm active in the Eagle Ford basin, in Texas, says it can sell newly drilled wells for 1.4 times their cost. Sceptics grumble that they have heard it all before.

Oil capacity is being cut elsewhere, particularly in projects with high production costs, from deepwater drilling in places like the Arctic or Canada’s oil sands. Of the worldwide investment cuts by listed energy firms expected to happen by 2016, only about half are forecast to come from shale, according to Oswald Clint, also of Bernstein.

 

[CougarKing]

Ha! No more Ferraris or hiring of Malaysian Chinese prostitutes in trips to Kuala Lumpur for these sickos!  ;D

The hotels in Kuala Lumpur's Pentaling Jaya area will sure see a drop in the number of bookings for their bridal/executive suites.

CNBC

Tough times strike Saudi Arabia's millionaires
By Katy Barnato | CNBC – Mon, 27 Jul, 2015 10:35 AM EDT

Turmoil in the Middle East, an unimpressive international stock market debut and tumbling oil prices will hit the wealth of Saudi Arabia's richest in years to come, according to a new report from WealthInsight.
Over the next five years, more Saudis will become U.S. dollar-millionaires, but the rate of increase will slow to 12.4 percent, less than half the steep 25 percent rate seen between 2010 and 2015, said the research firm.
This means that by 2020, around 55,245 Saudis will be high-net-worth individuals, with over $1 million in net assets, excluding their primary residence. This is up from 49,150 in 2015, according to WealthInsight, when Saudi Arabia-one of the most populous countries in the Gulf-had a total population of around 29 million.
One-fifth of Saudi Arabian millionaires make their money from oil, said WealthInsight, but the 50 percent decline in the price of WTI crude oil (New York Mercantile Exchange: @CL.1) over the last 12 months is only one factor behind the upcoming slowdown

(...SNIPPED)

--------------------------------------------------


Plus bad news for US oil producers:

Foreign Policy

Oil Glut Sends Crude Prices Tumbling and Hammers U.S. Producers
Supply is outstripping demand by more than 2 million barrels per day — and that's before Iran starts selling more crude in the wake of the landmark nuclear deal with Washington.

(...SNIPPED)

 

[CougarKing]

2 articles of interest:

CNBC

In the oil market, $30 is the new $50
By Patti Domm | CNBC – Tue, 4 Aug, 2015 4:00 PM EDT

Even as oil bounces back, analysts say market fundamentals are very bearish, and it would not be surprising to see crude take a temporary dive into the $30s per barrel in the next several months.
"There's no reason why oil won't go down to the $30s. That's the level that will really shut in current production and have a bigger edge than current capex (cuts) will have on the oversupply," said Edward Morse, global head of commodities research at Citigroup.
"I don't think it would stay there long but it can't be dismissed as a range for the fourth quarter of this year or first quarter of next year," he said in an interview. While Citigroup has said this previously, Morse made the comment while Brent crude traded around the key $50 level, which it broke below for the first time in seven months Monday.

(...SNIPPED)

CNBC

Iran nuclear deal: This is what it means for oil
Arjun Kharpal | @ArjunKharpal
Tuesday, 14 Jul 2015 | 12:48 PM ET
CNBC.com

Oil prices reversed themselves and moved higher despite a historic nuclear deal that traders feared could flood the market with Iranian crude.

Under the landmark agreement, economic sanctions on Iran would be lifted in exchange for restrictions on its nuclear program. As a result, Iran will now be able to rejoin the world economic stage and export its goods – including oil.

Brent crude fell as much as 2 percent to hit $56.67 a barrel early on Tuesday in response, but later changed directions to $58.42, a gain of about 1 percent. West Texas Intermediate was up more than 1 percent at $52.86. Natural gas was down 1.2 percent.

(...SNIPPED)

 

[a_majoor]

The "oil war" strategy is very complex; the Saudi's have the short and medium term goals of limiting Iranian revenues to cripple Iranian hegemonic ambitions, keep ISIS on a short leash, cripple Iranian allies who are in a position to strengthen Iran (or weaken the Saudis), as well as the long term goal of keeping American allies and trade partners dependent on imported oil through supply management and price manipulation. (America itself actually imports little oil from the Middle East, far more oil is/was imported from Mexico, Venezuela and Canada). This article suggests that while the Saudi strategy will work well in the Middle East and against Russia, their longer term goal is not achievable, and the Saudi's may end up consuming their $700 billion dragon's hoard to slay the Iranian threat without being able to quickly replenish their money supply through oil sales to US allies and trading partners (with negative long term consequences to their internal welfare state system as well):

http://nextbigfuture.com/2015/08/half-of-north-dakota-wells-return-over.html

Half of North Dakota Wells return over 10% even at $30 per barrel well below $70 breakeven estimate before oil price slump

Some parts of North Dakota’s Bakken shale play are profitable at less than $30 a barrel as companies tap bigger wells and benefit from lower drilling costs, according to a Bloomberg Intelligence analysis. That’s less than half the level of some estimates when the oil rout began last year.

The lower bar for profitability is one reason why U.S. oil production has remained near a 40-year high even as crude prices fell more than 50 percent over the past year to the lowest level since March 2009.

West Texas Intermediate crude for September delivery fell to $42.23 a barrel Thursday, the lowest settlement since March 2009. In North Dakota, where producers have to offer discounts to account for extra transportation costs, the price of Bakken oil reached $30.80 Wednesday, according to Royal Dutch Shell PLC.

In McKenzie County, North Dakota, one of the core areas of the Bakken, the median breakeven price is a little more than $29 a barrel, Foiles said. That’s about a third less than in nearby Williams County, and it’s less than half the average breakeven price for the Bakken that banks and research firms estimated last fall.

McKenzie County wells have shown the best returns amid the price drop. Drillers had 26 horizontal wells seeking oil in that county last week, the most in the state, according to Baker Hughes Inc.

Bakken oil production in North Dakota has fallen less than 2 percent from its peak in December, while the number of oil rigs in the state has fallen by 60 percent.

H/T Instapundit

EOG Resources Inc., the largest shale driller, says it can make a 30 percent after-tax return on $50 oil in its best plays. Whiting Petroleum Corp., the largest Bakken producer, said it’s preparing to be able to grow production at $40 to $50 prices.

At a realized oil price of $29.42, half of Bakken wells will generate returns exceeding 10%.

 

[suffolkowner]

Thucydides have you seen the actual production numbers? Last I looked I couldn't really see where the Saudis were actually overproducing it looked to me like they just weren't curtailing production

 

[cupper]

This is a good resource.

http://www.eia.gov/petroleum/

 

[suffolkowner]

Thanks cupper

The numbers pretty much look the same to me as the last time I saw them

 

[Edward Campbell]

Here (thanks to Ian Bremmer of the Eurasia Group) is an interesting graphic (with source information at the bottom):

 

[Oldgateboatdriver]

So, that proves it beyond any doubt: The US went into Iraq for the oil.

/SARC OFF

 

[cupper]

So, that proves it beyond any doubt: The US went into Iraq for the oil.

/SARC OFF

I thought it was the WMDs. Boy was I confused.  ;D

So, since Iraqi oil was supposed to pay for that little adventure, at 39m bbl averaged over 5 months, at $40 / bbl, it looks like it's gonna take a long time to pay that off. (525 years if you want to do the math)

 

[CougarKing]

$27 a barrel...

Reuters

OPEC-led attempt for oil-cut deal under way, prospects slim
By By Alex Lawler and Rania El Gamal | Reuters – Wed, 27 Jan, 2016 8:42 AM EST

By Alex Lawler and Rania El Gamal

LONDON/DUBAI (Reuters) - OPEC is renewing efforts among members and producers from outside the group for a deal to fix an oil glut and boost prices, but it is too early to say whether the attempt will work, OPEC sources said on Wednesday.

Such a deal has been mooted and dismissed for over a year and the lack of any supply restraint by the Organization of the Petroleum Exporting Countries and rivals such as Russia has helped send prices to a 12-year low close to $27 a barrel.


Hopes were raised on Tuesday when Iraq's oil minister said top OPEC producer Saudi Arabia and Russia were showing new signs of flexibility about agreeing to tackle the oversupply in the market.

And Venezuelan President Nicolas Maduro announced on Tuesday that the country's oil minister would tour OPEC and non-OPEC countries in a bid to drum up support for joint action.

(...SNIPPED)

CNBC video

Oil slides on Iranian price cut
Tuesday, 19 Jan 2016 | 9:30 AM ET

CNBC's Jackie DeAngelis reports on falling oil prices after Iran says it would counter price cuts made by Saudi Arabia.

(...FULL VIDEO REPORT AT LINK ABOVE)

 

[a_majoor]

If even half of these predictions pan out, the United States now holds the high cards in this game While this could be put in the Scary Strategic Problem: No oil thread, or the $60 barrel by year end thread, it's biggest impact will be to give the US a potent counter to attempts by OPEC, Iran or Russia to manipulate the price of oil. Given US oil companies respond to market signals, they can also turn the taps on and off far more quickly than their competition:

http://nextbigfuture.com/2016/01/technological-progress-in-big-data.html

Technological progress in big data analytics could create Shale 2.0 and bring US oil costs to $5-20 per barrel

The Oil-price collapse was caused by the astonishing, unexpected growth in U.S. shale output, responsible for three-fourths of new global oil supply since 2008. And as lower prices roil operators and investors, the shale skeptics’ case may seem vindicated. But their history is false: the shale revolution, “Shale 1.0,” was sparked not by high prices—it began when prices were at today’s low levels—but by the invention of new technologies. Now, the skeptics’ forecasts are likely to be as flawed as their history.

The information here is from a paper called "Shale 2.0: Technology and the Coming Big-Data Revolution in America's Shale Oil Fields" was released in May by Mark P. Mills, senior fellow for the Manhattan Institute and faculty fellow at Northwestern's McCormick School of Engineering and Applied Sciences

Technological progress, particularly in big-data analytics, has the U.S. shale industry poised for another, longer boom, a “Shale 2.0.”

We’re not at the end of this shale era, we’re at the very beginning.

The shale industry is unlike any other conventional hydrocarbon or alternative energy sector, in that it shares a growth trajectory far more similar to that of Silicon Valley’s tech firms. In less than a decade, U.S. shale oil revenues have soared, from nearly zero to more than $70 billion annually (even after accounting for the recent price plunge). Such growth is 600 percent greater than that experienced by America’s heavily subsidized solar industry over the same period

The transition to Shale 2.0 will take the following steps:

1. Oil from Shale 1.0 will be sold from the oversupply currently filling up storage tanks.
2. More oil will be unleashed from the surplus of shale wells already drilled but not in production.
3. Companies will “high-grade” shale assets, replacing older techniques with the newest, most productive technologies
in the richest parts of the fields.
4. As the shale industry begins to embrace big-data analytics, Shale 2.0 begins.

Shale companies now produce more oil with two rigs than they did just a few years ago with three rigs, sometimes even spending less overall. At $55 per barrel, at least one of the big players in the Texas Eagle Ford shale reports a 70 percent financial rate of return. If world prices rise , to $65 per barrel, some of the more efficient shale oil operators today would enjoy a higher rate of return than when oil stood at $95 per barrel in 2012.

The “walking rig” is one technological advance that has contributed greatly to gains in rig productivity. Rather than drill a single well from a well-pad, a walking rig can move around the pad, drilling multiple wells (sometimes dozens)

Sand used per well has risen, from 5 million to 15 million pounds, on average; the additional sand adds 2 percent to completion costs but boosts output by 40 percent.

Even more oil supply is now, de facto, being stored underground. As noted, production begins with the distinct second stage of well construction. Once a shale site is mapped and long horizontal wells completed, operators can delay the expensive step of fracking. Since the latter constitutes 50–60 percent of total costs, significant spending can be deferred with no loss of the core asset. The oil is simply left stored, in situ, until markets and prices make retrieval more attractive.

In January 2016, there are probably over 5000 wells awaiting completion.

It takes only a few months to complete a well, such wells, once completed, could swiftly add 2–3 million barrels per day to U.S. supply.

Incremental and dramatic improvements will continue in all aspects of the many technologies used in shale production: logistics, planning, seismic imaging, well-spacing, fluid and sand handling, chemistry, drilling speed, pumping efficiency, instrumentation, sensors, and high-power lasers. Shale fields will increasingly be developed using advanced automation, mobile computing, robotics, and industrial drones. At present, barely 10 percent of projects use fully automated drilling and pressure-control systems, for example.

Big Data can make oil fracking 4 times more efficient

Many companies are keeping their big-data projects proprietary, some information is publicly available. Halliburton reports that its analytic tools achieved a 40 percent reduction in the cost of delivering a barrel of oil. Baker Hughes says that analytics have helped it double output in older wells.

At present, each long horizontal well is typically stimulated in 24–36 stages, with, on average, only one-fourth to one-third of those stages productive. At present, in other words, about 20 percent of stages generate 80 percent of output.

The current state of stimulation technology means that, on average, at least 300–400 percent more oil is not extracted. Bringing analytics to bear on the complexities of shale geology, geophysics, stimulation, and operations to optimize the production process would potentially double the number of effective stages—thereby doubling output per well and cutting the cost of oil in half.

SOURCES - Shale 2.0: Technology and the Coming Big-Data Revolution in America's Shale Oil Fields by Mark P. Mills

 

[CougarKing]

Let's wait and see what Iran will do...

Reuters

Saudis and Russia agree oil output freeze, Iran still an obstacle
[Reuters]
By Rania El Gamal and Tom Finn
February 16, 2016

DOHA (Reuters) - Top oil exporters Russia and Saudi Arabia agreed on Tuesday to freeze output levels but said the deal was contingent on other producers joining in - a major sticking point with Iran absent from the talks and determined to raise production.

The Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha. It could become the first joint OPEC and non-OPEC deal in 15 years, aimed at tackling a growing oversupply of crude and helping prices recover from their lowest in over a decade.

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