The world media excites the public with might and main, announcing the fact that the "shale revolution" has occurred in the USA. Based on what facts may such statements be appropriate? There is, in particular, the thesis that the cost of shale oil production in the USA in 2014 decreased so much that the American black gold industry, in principle, doesn’t care what the current world prices for this product are. Is he right? What are the factors affecting the cost of shale oil production by US companies?
What is shale oil
First, a small theoretical digression into the subject matter. What is shale oil? What product cost are we going to determine?
The fact is that there are actually two types of oil that have a common name in Russian at the level of the layman - “shale”. The first is a product that, like the one that is mined in the classical way, is contained in special layers of the earth's rock. They are called "shales." But there is another product. Under the corresponding type of oil can also be understood as such shale, also referred to as "combustible". They, in fact, contain a product that is very close in properties to oil - shale resin. And it is also recovered and recycled through certain technologies.
Thus, the term “shale oil” can be interpreted in three ways. Namely:
- as a synonym for "oil shale";
- the closest analogue of traditional type oil, but occurring in a different kind of field;
- Resin extracted from shale.
Thus, the second and third are used as the product on the basis of which it is possible to produce fuel. Before studying the cost of producing shale oil, we note that a number of experts adhere to the point of view that the costs associated with obtaining each of the two noted products can vary greatly. As a rule, oil produced from oil shale is more expensive.
Where does shale oil lie?
Considering the factors affecting the cost of shale oil production, we will study the specifics of the fields in which the relevant work is carried out. According to reports from several analytical agencies, the United States is the world leader in the natural resources in question. The main oil deposits belonging to the category of shale, the Americans occur in the state of Texas, on the western coast and northeast of the country. Also significant reserves in the area of ​​the so-called "oil sands" that are located in Canada.
There are significant deposits of oil shale in many other countries of the world, including Russia, as well as those states that seem to be not considered today as energy powers - Slovakia, Poland, Ukraine. Assessment of the potential for extracting oil from shale is very different between experts. Largely due to the fact that the figures that allow for qualitative analytics are not always transparent, forecasts from various industry departments, reflecting, in particular, the size of reserves in the fields, may be inaccurate or repeatedly reviewed.
Cost indicators
To find out what the estimated cost of shale oil in the United States might be, let us turn to a number of expert sources. Published information on relevant studies conducted in different years give us very mixed data. Why? Is it true that the cost of shale oil production in the USA directly depends on the subtype of this product (we have identified two main ones above)? Based on information in a number of sources, this is so.
In 2012, Time magazine published the following data. True, they relate to global trends. However, an idea of ​​what the cost price of shale oil production in the USA can be, this information can give us.
According to experts, on the basis of which Time magazine published the figures, the production of 1 barrel of oil from oil shale in 2012 amounted to about $ 100. In turn, the indicator for oil that lies between the layers is neither more nor less, but half as much - $ 50. Thus, the thesis that we voiced at the very beginning of the article that the cost of shale oil in the United States and in other countries depends on the specific subtype of the product is confirmed if we take the data for 2012.
Oil in the USA and in the world
If we compare the noted indicator for the same year with those that reflect the costs of mining this type of mineral in Russia, then the difference, even in the case of a cheaper product, will be obvious. The "classical" oil recovered in the Russian Federation costs about $ 15. And in Saudi Arabia, by the way, it’s even cheaper - about 8. However, experts also differ about all these figures. Therefore, these are only approximate guidelines.
What are the more recent data for the current year? Increased or, on the contrary, decreased the estimated cost of shale oil production in the United States? 2014 is the year of the fall in world prices for black gold. Is there any correlation between the shale oil production rate and this market trend?
The opinions of experts on this matter are incredibly different. First of all, the costing methodology is very different. The criterion that causes the most discussion is the production tax.
With or without taxes?
A number of economists are calculating the cost of shale oil in the United States, focusing on the fact that its production is subject to a minimum tax. True, with regard to a similar product obtained by the traditional method, fees still need to be paid. There are benefits specifically for shale oil. In Russia, for example, as well as in many other countries exporting "black gold", the corresponding fee is higher.
If the tax rates for the United States and other countries were comparable, then, even if we consider the figures for 2012, experts say that American oil would have a very unattractive cost. Now, a shale product from the United States, due to tax benefits, may indeed have, according to analysts, a cost in the region of $ 50 or less.
In turn, there is a point of view that the corresponding type of fees to the American treasury is a criterion that is not significant in terms of calculating the cost of oil production, since the shale product produced in the USA is mainly oriented to the domestic market. And therefore, American taxpayers themselves "provide" cheap gasoline for themselves.
The downward trend?
Among experts, there is a thesis that over the years, the cost of shale oil in the United States has been falling. The argument is based on increasing the manufacturability of mining. Expert opinions on this subject are also shared. There are estimates according to which a barrel of shale oil now costs the Americans about $ 48 - and this is really lower than the global average recorded by analysts in 2012. And adjusted for inflation - in principle, fully testifying to the cheapening of production. Unless, of course, it is agreed that for the United States the figure in 2012 was the same as the world average (after all, the Americans are the undisputed leaders of the global market). And again, if we take into account the oil extracted from the bowels, and not from the shale through their processing.
Production profitability and oil prices
How do the cost of shale oil in the USA, in other countries and world prices for "black gold" compare? Opinions of experts and this time are very dissimilar. But it is important for us to study them in order to better navigate the factors affecting the cost of shale oil. 2014 is also very mixed in terms of oil prices. Now they have fallen significantly. Whether there will be growth, no one can say for sure.
OPEC analysts, in particular, believe that if world oil prices for a long time remain below $ 90 per barrel, then the work of about half of the American "shale" corporations will be unprofitable. In turn, IHS experts believe that the oil production business will remain appropriate, even if world prices fall to $ 57 per barrel. Some compromise in the assessment offers the International Energy Agency. According to experts of this structure, the production of shale oil in the United States will remain quite profitable if world prices do not drop below $ 80 per barrel. Analysts from Citigroup, in turn, believe that to support the "shale" industry in the US, a figure of $ 75 will be sufficient.
There is an interesting version: if world oil prices go down, then American corporations that extract black gold will, one way or another, be forced to modernize their technological base in order to reduce costs. Experts who are close to this point of view believe that the “shale” industry has great potential in this regard. The existing technologies, they believe, are largely experimental and, in a number of aspects of efficiency, are inferior even to those used in conventional oil production. Over time, analysts say, Americans will increase manufacturability. Due to this, the cost of shale oil in America may decrease. Accenture estimates that associated costs could fall by 40%.
Barrel should grow
One way or another, the point of view is widespread among experts: even if the cost of US shale oil is about $ 50, its production will remain, one way or another, profitable for American companies. But on one condition - while maintaining oil prices, relevant around the beginning of the summer of 2014 - about 110 dollars per barrel. Only then will they not have to think about how to reduce the cost of shale oil. $ 80, however, is the current price of black gold. That is, if you adhere to this point of view, now American firms are on the verge of profitability. So far, the mass bankruptcies of firms, judging by the information background in the media, are still not talking.
Cost factors
Does it matter under what conditions shale oil is extracted? The cost of what factors is determined based on the content of production processes in the extraction of "black gold"?
Among the significant costs from the point of view of the circumstances is the life of the wells. The fact is that shale oil is produced through completely different technologies in comparison with the development of traditional fields. As a rule, the development of one well is several times faster. And therefore, the equipment that is installed for the production of shale oil, soon after the development of the local resource, has to be either written off due to wear and tear, or moved to other facilities. This, of course, can be accompanied by significant costs.
Another factor is the depth of oil shale. As well as access to fresh water nearby, which is involved in the extraction of "black gold" using appropriate technologies. Depending on the depth of the resource, the costs may vary significantly.
The next significant factor is the adequacy of the estimation of the size of oil shale reserves. It may well turn out that investments made on the basis of optimistic forecasts do not have time to pay off due to the fact that oil will simply run out at a particular field. There is an interesting precedent - a publication was published in the Los Angeles Times that said that for one of the oil fields in California, forecast estimates and real ones diverged 25 times.
Another circumstance is the presence of similar gas fields in the vicinity of shale deposits. The fact is that, according to some experts, the structure of the wells can assume profitability only if both types of fuel are produced.
Prospects for the “shale revolution”
At the same time, regardless of what figures reflect the cost of shale oil in the United States, 2013 and 2014 represent an uncontrollable increase in the extraction of this mineral by Americans through alternative sources.
According to forecasts of various experts and departments, in the coming years, indicators will only grow. For example, the Energy Information Administration (one of the industry departments in the United States) believes that in 2019, shale oil production in America will reach 9.5 million barrels per day (now about 3 million).
Among the factors that may prevent US corporations from developing are the trend we have already noted above, which consists in a relatively small resource of alternative deposits. If conventional deposits can be developed for many years, then the standard indicator for shale deposits is 3-5 years. During this time, the oil resource at the well can be consumed by 90% or more.
The forecasts of even American experts themselves regarding the prospects for the development of "shale" are very different. A simple example. The same Energy Information Administration predicts that in 2040, shale oil production at one of the largest US oil fields, Bakken, will be approximately 1 million barrels per day. At the same time, according to the assessment of the industry institute Post Carbon, the figure for Bakken will be no more than 73 thousand barrels. The difference in forecasts is more than tenfold. There are discrepancies between the estimates of these two structures also for some shale oil reserves in California. By the way, in some cases, the Energy Information Administration substantially revises its forecasts for deposits. In one case, the score was reduced by 96%. At the same time, as some experts note, investors, making a decision on how to invest in the industry, could focus on the first forecast.
However, experts urge not to rush to conclusions and forecasts. It is necessary to observe how the very technologies will be developed to ensure a more efficient and, most importantly, more environmentally friendly production of the product. The most important factor in the development of the American industry in the development of alternative deposits of "black gold" will also be world oil prices.