The economic feasibility of US shale producers amid lower oil prices is under scrutiny, following Energy Secretary Chris Wright’s assertion that they can profitably ramp up production at $50 per barrel. Experts like Pulitzer Prize-winning energy historian Daniel Yergin argue that such an assertion is misguided, asserting, “The economics of shale don’t work at $50 a barrel,” which contradicts the administration’s enthusiasm for boosting domestic production.
Current data shows that most shale producers would find it challenging to sustain operations at this low price point. S&P Global Commodity Insights projects an average breakeven price of $45 per barrel by 2025, indicating that the profit margins are precariously thin post-transportation costs and royalties.
Andrew Gillick from Enverus emphasizes that operators likely forecasted prices above $70 for 2023. He warns that at $50, drilling rigs would likely diminish, slowing production, and adversely affecting the LNG industry’s gas supply. As oil prices have recently dipped, approaching $70 per barrel, concerns mount over the industry’s ability to thrive under the current economic climate.
Wright’s comments at this week’s CERAWeek in Houston have sparked anxiety among executives about balancing profitability with the administration’s pressures for heightened production levels. Drawing from a 2014 price war scenario, Wright noted that even though many producers faced disruptions, it ultimately led to operational efficiencies.
Critics argue such views oversimplify the current economic realities, as most producers have exhausted easily accessible efficiency improvements and would need higher prices to justify newly drilled wells, particularly in less productive regions. Despite Trump’s pledge to halve energy costs, specifics regarding target crude oil prices remain undetermined, underscoring the ongoing uncertainty in the sector.
Industry experts dispute US Energy Secretary Chris Wright’s claim that shale producers can profitably increase production at $50 per barrel, arguing that many would struggle to break even. Data suggests that breakeven prices are approaching $45 per barrel, and lower prices could reduce drilling activity. As global oil prices fluctuate, the economic challenges facing the shale industry intensify.
In conclusion, the viability of shale production at a $50 per barrel price is heavily debated among industry experts. With rising breakeven costs and a challenging economic landscape, many argue that increased production amidst these prices may not be feasible. The future lies in the industry’s adaptability to economic pressures and the unpredictable nature of oil markets.
Original Source: thedeepdive.ca
