The price of developing shale wells is falling fast, which could mean that lower oil prices will have less effect on production than many think, including the Saudis. Demand for crude is weak due to sluggish economic growth in Europe and Asia, and supply is plentiful, thanks to North America’s boom and a resumption of Libyan supplies. That has sent oil prices plunging in recent weeks, and some are worried about the potential effect on the U.S. shale boom, which has needed a relatively high price of oil to incentivize producers to keep fracking. But as the FT reports, even before this bearish market the American shale drilling industry has been busy looking for ways to increase production while reducing costs:
[C]osts have already fallen sharply, and could fall further. The median North American shale development needs a US crude price of $57 a barrel to break even today, compared with $70 a barrel in the summer of last year, according to IHS, the research company. […]Accenture believes the average cost of a US shale well could be cut by up to 40 per cent by better management of factors such as planning, logistics, and relationships with suppliers. […]The effort companies are putting into each well is rising. ConocoPhillips and others have been using much more proppant – the sand or similar material used in fracking to hold open cracks in the rock so the oil can flow out – to increase production. Companies are also fracking wells in more stages: up from an average of 18 sections per horizontal well in 2012 to an expected 23 per well next year, according to Pac West, another consultancy.
Here’s the important point in all of this: The rapid fall in the price of developing new wells suggests that much more tight oil may be recoverable than people think. The fall in the breakeven prices for fracking means that the technology is capable of enormous improvements. Moreover, new breakthroughs could make previously inaccessible deposits of oil and gas both technically recoverable and economically profitable.It also means that U.S. companies are extending their technological lead in the field. As they discover faster, cheaper ways to extract oil, they’ll be developing techniques and tools that the rest of the world will need, badly.There are limits to all forms of natural bounty, but the shale revolution so far has consistently beaten expectations.