Oil at $40

[Nilesh Singh]

Oil @ 40 is just not possible in long term, but for the next 1 to 2 years it seems ME and OPEC can forget about the price to go beyond 80$. As far as American shale is considered for the next two years there will not be any drop in production as the investment is already put only future ones might get stuck, it depend upon America weather it want the $$ to go to ME and OPEC or to its own home grown company who will put money into their economy. I think US is not going to give OPEC any more bargaining power again. It might cost US little extra but on economic front it make perfect sense to keep on drilling and subsidizing it accordingly.

In India also there is Shale drilling is going to start in Damodar Valley by ONGC, it will start in mid 2015. Its near my home town and large area of land are already barricaded and testing drilling is going on. So shale and Solar is the future.
Humankind did not come out of stone age because there was no stone, same way Countries will bypass Hydrocarbon in coming three to five decade weather ME and OPEC are having oil or not. In ME i see only UAE and somewhat Quatar and OMAN surviving after the oil boom. Rest ME is going back to Goat and Camel days after selling their Hummer and Ferari

 

[Nike]

What if US and China corporation (with mutual sharing benefits surely) cooperate to produce shale gas around Chinese coast? and what if China can produce their own gas and not importing them anymore?

 

[anant_s]

Though Good news for Pakistani/Indians

Indeed. The crude import bill is terribly huge. Any drop or negative sentiments in price is a very welcome news for countries that depend heavily on imported crude.

ALL HAIL SHALE

What if US and China corporation (with mutual sharing benefits surely) cooperate to produce shale gas around Chinese coast? and what if China can produce their own gas and not importing them anymore?

Wonderful suggestion. Even if it helps in bringing down the imported crude quantities, it will have a huge impact on global crude futures. Being the largest consumer of petroleum, China's demand of crude is a very vital support to sustain any kind of price level.

 

[Edison Chen]

I remember Brent oil price at $64

 

[anant_s]

I remember Brent oil price at $64

yes, & it is dipping by the day. it has fallen almost 45% from its price in June.

 

[Hurter]

Are we seeing Economy collapse again just like in 2008?

 

[anant_s]

Are we seeing Economy collapse again just like in 2008?

Perhaps not, but the so called signs of recovery aren't global. the road to recovery is really long

 

[New]

Are we seeing Economy collapse again just like in 2008?

Any economy shaking by reduction of oil prices, is better to be collapsed.

 

[Edison Chen]

yes, & it is dipping by the day. it has fallen almost 45% from its price in June.

The deflation is coming.

 

[opruh]

Cheap oil is good for consumers.

 

[Oldman1]

Actually it is a counter attack by G.C.C to US. US invest of its Shall reserve and its level is Minimum 80$/barrel to become operational profitable. After US investment and stating that they don't need ME anymore. The G.C.C decrease the price to below 80$/barrel and if this situation will go more then 3 months then all companies in US will become bankrupt because of operational cost. I think now G.C.C will sale their oil less then 80$/barrel from now on and in that case US will have to rely on ME. So it seems good news for Oil Importer countries.

Bottom line: ME buy more time for their oil until US came up with new cheap technology for her Shall reserve which reduce cost for drill till 40$/barrel.

Not sure how you reached that conclusion that all companies in U.S. will become bankrupt just because cost of oil has gone done.

 

[rmi5]

Actually it is a counter attack by G.C.C to US. US invest of its Shall reserve and its level is Minimum 80$/barrel to become operational profitable. After US investment and stating that they don't need ME anymore. The G.C.C decrease the price to below 80$/barrel and if this situation will go more then 3 months then all companies in US will become bankrupt because of operational cost. I think now G.C.C will sale their oil less then 80$/barrel from now on and in that case US will have to rely on ME. So it seems good news for Oil Importer countries.

Bottom line: ME buy more time for their oil until US came up with new cheap technology for her Shall reserve which reduce cost for drill till 40$/barrel.

You are very wrong. The shale oil production has less costs than what you have mentioned, and the cost has been decreased each year by a rapid trend. OPEC has not much increased their oil production. The fall of oil prices is due to the increasing of production of non-OPEC oil producers, and also shale oil production.
@LeveragedBuyout Your thoughts would be appreciated.

 

[anonymus]

The Americans are bluffing when they say their shale producers can return cash at 42 USD a barrel。

Some wells can, most cannot.

The deflation is coming.

Good for us and probably for China too.

We have problem of very high inflation, not deflation.

 

[Nike]

actually this News is a very good news for Indonesian people too

Indonesia`s fuel imports estimated to reach 575 thousand bpd
Jumat, 12 Desember 2014 20:01 WIB | 1.151 Views

Jakarta (ANTARA News) - Indonesia is expected to import up to 575 thousand barrels of fuel oil per day (bpd) to cover its supply deficit in 2015.

Agus Cahyono Adi, the director of oil and gas program development of the energy and mineral resources ministry, stated here on Friday that the deficit infuel oil supply will continue to exist as long as the production capacity of the refineries is not increased.

"Fuel consumption is increasing while the production of refineries tends to be stagnant, and so, unless the capacity is increased, shortage will continue to occur until the next few years," he pointed out.

Increasing the capacity of the current refineries and building new refineries are the two schemes being implemented by the government so far to increase the supply, he stated.

"A new refinery can be built using the national budget, through public-private cooperation, or fully by private parties," he noted.

With regard to public-private partnership, he stated that the government has already conducted a study regarding its technical and socio-economic feasibility as well as refinery configuration.

The government has also conducted market consultations in Singapore in February to attract investors who will later cooperate with the state-owned oil company, Pertamina.

Investors in the public-private partnership scheme are required to bring high technology, to be able to ensure crude supply, produce petrochemicals, and have professional human resources, he emphasized.

He remarked that the government will provide easy licensing and various incentives, land, and facilities to them, while Pertamina will offtake the production of the refinery, with a capacity of 300 thousand bpd.

He stated that the government has already set aside 500 hectares of land in Bontang, East Kalimantan, for the project.

In the meantime, the government has also given permission to Pertamina to build refineries in other regions, if possible.

Initially, the government was keen to build a refinery by itself but finally decided to cooperate with private parties under the public-private partnership scheme, he revealed.

Pertamina has, so far, made preparations to increase the capacity of its current refineries from 820 thousand bpd to 1.68 million bpd by 2018-2019.

The Refinery Development Master Plan (RDMP) program will be implemented in five refineries with an investment estimated to reach around US$25 billion, he stated.

On December 10, 2014, Pertamina signed a memorandum of understanding (MoU) with the world-class oil company Saudi Aramco to increase the capacity of three refineries located in Dumai, Riau, Cilacap in Central Java, and Balongan in West Java.

It has also signed an MoU with Sinopec for increasing the capacity of its refinery in Plaju, South Sumatra and with JX Nippon Oil & Energy for the refinery in Balikpapan, East Kalimantan.

Under the RDMP program, the capacity of the refinery in Dumai is expected to increase from 140 thousand bpd to 300 thousand bpd and that in Cilacap from 270 thousand bpd to 370 thousand bpd, in Balikpapan from 220 thousand bpd to 360 thousand bpd, and in Balongan from 100 thousand to 350 thousand.

In the meantime, regular gasoline production is expected to increase 3.3 times from 190 thousand bpd to 630 thousand bpd, diesel fuel by 2.4 times from 320 thousand bpd to 70 thousand and avtur from 50 thousand bpd to 120 thousand bpd.

Besides this, fuel oils production of petrochemicals such as propylene and polypropylene will increase 9.5 times from 200 thousand to 1.79 million tons a year, he noted.

Currently, Indonesia has eight refineries with a capacity of 1.166 million bpd.

Six of them belong to PT Pertamina: a refinery located in Dumai, Riau, with a capacity of 177 thousand bpd; Plaju, South Sumatra, 128 thousand bpd; Balongan in West Java 125 thousand bpd; Cilacap in Central Java 348 thousand bpd; Balikpapan in East Kalimantan 260 thousand bpd; and Kasim in Papua 10 thousand bpd.

In the meantime, the refinery operated by PT Trans Pacific Petrochemical Indotama has a capacity of 100 thousand bpd, whereas that operated by Tri Wahana Unversal has a capacity of 18 thousand bpd.

With a total capacity of 1.166 million bpd, the refineries, however, have now been able to produce around 800 thousand bpd. (*)

Indonesia`s fuel imports estimated to reach 575 thousand bpd - ANTARA News

 

[LeveragedBuyout]

You are very wrong. The shale oil production has less costs than what you have mentioned, and the cost has been decreased each year by a rapid trend. OPEC has not much increased their oil production. The fall of oil prices is due to the increasing of production of non-OPEC oil producers, and also shale oil production.
@LeveragedBuyout Your thoughts would be appreciated.

Happy to comment, but I will steal a bit from my previous posts on this issue. As you say, shale oil is not going to be easy to kill. From the article:

Oil has dropped 38 percent this year and, in theory, production can continue to flow until prices fall below the day-to-day costs at existing wells. Stevens said some U.S. shale producers may break even at $40 a barrel or less. The International Energy Agencyestimates most drilling in the Bakken formation -- the shale producers that OPEC seeks to drive out of business -- return cash at $42 a barrel.

And with the diversity of shale fields we have, there will be many, many more places where $40 remains viable for drilling:

The U.S. Energy Information Administration estimated in 2009 that the U.S. had 1,722 trillion cubic feet of recoverable natural gas in six key shale formations, including the Marcellus in the northeastern U.S. EIA projected that identified natural gas deposits in the shale plays was enough to supply the country's needs for 90 years at then-current production rates. Other estimates of shale gas reserves extend the supply to 116 years.

Also, as you mentioned and has been said before, fracking technology continues to improve, thus improving productivity and bringing down the break-even price for drilling. Examples are new materials being injected into the rock that increase flow (such as Schlumberger's HIWAY, which adds fibers to the grain solution; more sophisticated pipe fittings that can target specific pockets of oil and gas, which cuts down on the need for water and time; and improved blast technology to break further into the rock to widen the funnel (and increase flow).

Unlike the OPEC members, who basically just had to stick a straw in the ground, fracking is a highly innovative and fast-moving industry. It's not sitting still, to OPEC's great misfortune, and gets harder to kill with each passing month. And between fracking and non-OPEC oil production, we can see that OPEC has been easily eclipsed. Look at this chart, showing the dominance of non-OPEC suppliers (light blue) dwarfing the contribution of OPEC (grey). Those negative grey bars are OPEC trying to cut supply to maintain the oil price, but they are getting swamped by the non-OPEC increases in production. Saudi Arabia finally threw in the towel and decided to join the party in order to protect its market share, which is why the grey bars (OPEC) turned positive. Now everyone is supplying oil:

We know that prices are determined by supply and demand. That's the supply side: fracking plus high output at OPEC. But demand is also weakening:

Europe, Japan, China, and even Russia have weaker oil demand than forecast, so the gap between production and consumption is growing faster than anticipated. As you can see, inventories (the blue bars) are starting to build rapidly, which is putting tremendous pressure on prices. Even as the US increases production rapidly, our demand is flat or declining:

(I guess the EPA fuel efficiency standards are good for something, after all).

The best part is that this low price range will probably last a long, long time. Even if demand picks up, it's unlikely OPEC will have the discipline to cut supply to the degree necessary to raise prices:

(OPEC consistently produces above its self-declared quotas).

Gentlemen, enjoy the windfall. For the oil importers, this will cut their import bills and boost GDP, providing a stimulus of several hundred billion dollars for the world economy. And the icing on the cake is that while the good guys win, the bad guys (Venezuela, Russia, Saudi Arabia, Iran, etc.) lose. Hopefully we'll see a knock-on effect where the mysterious money-and-weapons flow (where do all the Russian weapons and funding come from? No one knows, wink wink nod nod) to terrorist groups dries up. I'm sure it will be pure coincidence that the fiscal squeeze on the bad guys leads to a fiscal squeeze on the terrorist groups, right? Pure coincidence.