Quote:
Originally Posted by joosttx
This maybe a moot point since the oil prices have dropped. I read it becomes unprofitable when oil is lower than $80.
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There is a cost curve across shale formations in the US and across the geologies globally. In US shale the cost curve is from let's say the $30s to the $80s, and globally it is from $30ish in the Middle East to well over $100 in some locations. But not all infographics specify the nature of the costs. If you already have a working well the break evens to keep pumping can be very low while if you just have a plot of land and have to start from scratch the costs can be very high.
Importantly, shale extraction is fairly cheap to start and stop compared to other extraction methods. General consensus is that 2015 shale extraction will be flat to up because the recent drop in prices will just slow its growth. More importantly, when oil prices recover (quite possibly in late 2015) to the $70-$80 range, let's say, most shale production growth will resume. Saudi Arabia knows this. The media story that SA is doing this to really hurt shale oil therefore makes no sense. They are losing a lot of potential income with their current tactic. Logic suggests that they would not do that just for a brief pause in shale growth. So anybody who thinks that the current drop in oil prices implies that shale extraction will be much reduced for any length of time would be wise to think otherwise.
By the way, as we ponder externalities, the long-term impact of a) not spending billions on shale extraction; b) not employing a whole pile of people with limited skills for years; and c) spending more for energy than was necessary should be put into the mix with environmental assumptions. This whole story is far from black and white (on either side, I am at pains to add, lest anyone think otherwise).