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February 21, 2015
US gets ready for next round of oil boom
Gulf News takes a look at how last years oil price collapse is hitting the oil boom in the US Midwest state of North Dakota
Following last year’s surprise move by Opec (Organisation of Petroleum Exporting Countries) to counter the growing US shale oil industry, crude prices have plunged to below $55 a barrel. Everyone from governments to major corporations are watching to see how this on-going battle plays out.
Gulf News visited the heart of America’s newest boom towns in the remote state of North Dakota. Today, we bring you Part 1 of a 3-part series that investigates the shale oil phenomenon and its impact on global markets.
US oil production skyrocketed in recent years with production ramping up to 9 million barrels a day last year compared to 5 million in 2006. Production has soared because of new technology, hydraulic fracturing, that injects water underground to crack shale rocks in hard to reach places that contain oil. The only problem is that “fracking” is far more expensive than traditional drilling.
Global oil prices have sat above $100 a barrel for the best part of the past five years, partly due to soaring demand from China, which meant many big — and smalltime — producers in the US could invest in costly shale production knowing that the windfall would be huge. But a collapse in oil prices in the second half of last year has put the immediate future of shale production under a cloud.
Prices were already falling before 12-member Opec met in Vienna last November in what was one of the group’s most closely watched meetings.
Faced with an oversupply of oil, global benchmark Brent crude began its decline from $115 a barrel and US crude from $107.26 in June as demand from the world’s second largest economy, China, declined.
An upswing in the domestic production also meant the US would not need some of the global oil glut, despite a bounce back in its economy.
Many of the 12 members of Opec, which produces a third of the world’s oil, had signalled in the lead-up to the November meeting that the group should cut production to prop up supply.
But Saudi Arabia, backed by fellow Gulf Cooperation Council (GCC) Opec members, the UAE, Qatar and Kuwait, said it would chose market share over production cuts. Opec left group production unchanged at 30 million barrels a day.
Prices plunged again, with US crude finishing the year below $55 a barrel. This has hit the US shale industry, but it is unclear how long oil prices will have to stay low for it to have their desired affect.
Saudi Arabia, the group’s biggest producer, is testing the mettle of United States’ costly shale production, which has seen the world’s biggest economy cut back on oil imports from the kingdom that relies on oil revenues to fill its coffers.
Production in North Dakota, that has cashed in on newfound shale oil revenues, peaked at 1.2 million barrels a day last year, according to the North Dakota Petroleum Council, a group that represents the interests of more than 500 companies working in the state’s oil industry. In 2007, the state produced just 100,000 barrels a day.
Oil field
North Dakota production takes place in the western part of the state where a 31,000 square kilometre oilfield known as the Bakken formation is situated. The state’s current production is enough to cover 75 per cent of US imports of Saudi Arabian oil, according to the North Dakota Petroleum Council.
But North Dakota is feeling the pressure. At the end of January, there were 146 oil rigs operating in the state — around 40 less than in mid-December, according to state data. Production remained steady at 1.2 million barrels a day in January, according oil data firm Platts. However, since mid-December, the rig count has dropped a further 13 per cent.
Since the US shale revolution started around eight years ago, making the country less dependent on Middle Eastern oil, America has refocused its foreign policy on Asia. But crashing oil prices could see production in the US capped, depending how long Saudi Arabia, which was traditionally seen as the swing producer setting prices, is able to live with a weak price. The kingdom does have $750 billion in cash reserves, meaning it could wait it out for some time.
But in North Dakota,, oil producers will keep drilling across the oil rich Bakken formation located in the western part of the state, said Ron Ness, president of the North Dakota Petroleum Council. “The Bakken doesn’t stop. We will still produce 1.2 million barrels a day,” he said, when asked about the pressure from Saudi Arabia.
Instead, producers in North Dakota will rethink their operations to drive down costs.
Competitive
“The real question is what the new normal price threshold is and can you make these shale plays competitive at the new normal,” Ness said.
Global oil prices rebounded in February above $50, meaning that some of North Dakota’s rigs that stopped producing in January could possibly be switched on. The government is keen to see this, given the billions of dollars it has injected into state coffers.
Millions have been invested across the state as chain hotels and fast food restaurants rushed to cash in on the state’s suddenly wealthy petroleum workers.
The entire north side of Bismarck, North Dakota’s capital, is just two years old with kilometres of hotels, restaurants and department stores lining the highway. But low oil prices could be the end of that investment.
Republican Congressman Kevin Cramer recently told Gulf News that “a lot” of his time is now spent with worried colleagues from other oil producing states wondering when prices will rise again.
While Cramer said he is “confident” that prices will rise by year’s end, he is not concerned if it takes longer.
“This is a resource play that is abundant and that isn’t going anywhere,” he said at his office in the federal building in Bismarck.
US gets ready for next round of oil boom | GulfNews.com
US gets ready for next round of oil boom
Gulf News takes a look at how last years oil price collapse is hitting the oil boom in the US Midwest state of North Dakota
Following last year’s surprise move by Opec (Organisation of Petroleum Exporting Countries) to counter the growing US shale oil industry, crude prices have plunged to below $55 a barrel. Everyone from governments to major corporations are watching to see how this on-going battle plays out.
Gulf News visited the heart of America’s newest boom towns in the remote state of North Dakota. Today, we bring you Part 1 of a 3-part series that investigates the shale oil phenomenon and its impact on global markets.
US oil production skyrocketed in recent years with production ramping up to 9 million barrels a day last year compared to 5 million in 2006. Production has soared because of new technology, hydraulic fracturing, that injects water underground to crack shale rocks in hard to reach places that contain oil. The only problem is that “fracking” is far more expensive than traditional drilling.
Global oil prices have sat above $100 a barrel for the best part of the past five years, partly due to soaring demand from China, which meant many big — and smalltime — producers in the US could invest in costly shale production knowing that the windfall would be huge. But a collapse in oil prices in the second half of last year has put the immediate future of shale production under a cloud.
Prices were already falling before 12-member Opec met in Vienna last November in what was one of the group’s most closely watched meetings.
Faced with an oversupply of oil, global benchmark Brent crude began its decline from $115 a barrel and US crude from $107.26 in June as demand from the world’s second largest economy, China, declined.
An upswing in the domestic production also meant the US would not need some of the global oil glut, despite a bounce back in its economy.
Many of the 12 members of Opec, which produces a third of the world’s oil, had signalled in the lead-up to the November meeting that the group should cut production to prop up supply.
But Saudi Arabia, backed by fellow Gulf Cooperation Council (GCC) Opec members, the UAE, Qatar and Kuwait, said it would chose market share over production cuts. Opec left group production unchanged at 30 million barrels a day.
Prices plunged again, with US crude finishing the year below $55 a barrel. This has hit the US shale industry, but it is unclear how long oil prices will have to stay low for it to have their desired affect.
Saudi Arabia, the group’s biggest producer, is testing the mettle of United States’ costly shale production, which has seen the world’s biggest economy cut back on oil imports from the kingdom that relies on oil revenues to fill its coffers.
Production in North Dakota, that has cashed in on newfound shale oil revenues, peaked at 1.2 million barrels a day last year, according to the North Dakota Petroleum Council, a group that represents the interests of more than 500 companies working in the state’s oil industry. In 2007, the state produced just 100,000 barrels a day.
Oil field
North Dakota production takes place in the western part of the state where a 31,000 square kilometre oilfield known as the Bakken formation is situated. The state’s current production is enough to cover 75 per cent of US imports of Saudi Arabian oil, according to the North Dakota Petroleum Council.
But North Dakota is feeling the pressure. At the end of January, there were 146 oil rigs operating in the state — around 40 less than in mid-December, according to state data. Production remained steady at 1.2 million barrels a day in January, according oil data firm Platts. However, since mid-December, the rig count has dropped a further 13 per cent.
Since the US shale revolution started around eight years ago, making the country less dependent on Middle Eastern oil, America has refocused its foreign policy on Asia. But crashing oil prices could see production in the US capped, depending how long Saudi Arabia, which was traditionally seen as the swing producer setting prices, is able to live with a weak price. The kingdom does have $750 billion in cash reserves, meaning it could wait it out for some time.
But in North Dakota,, oil producers will keep drilling across the oil rich Bakken formation located in the western part of the state, said Ron Ness, president of the North Dakota Petroleum Council. “The Bakken doesn’t stop. We will still produce 1.2 million barrels a day,” he said, when asked about the pressure from Saudi Arabia.
Instead, producers in North Dakota will rethink their operations to drive down costs.
Competitive
“The real question is what the new normal price threshold is and can you make these shale plays competitive at the new normal,” Ness said.
Global oil prices rebounded in February above $50, meaning that some of North Dakota’s rigs that stopped producing in January could possibly be switched on. The government is keen to see this, given the billions of dollars it has injected into state coffers.
Millions have been invested across the state as chain hotels and fast food restaurants rushed to cash in on the state’s suddenly wealthy petroleum workers.
The entire north side of Bismarck, North Dakota’s capital, is just two years old with kilometres of hotels, restaurants and department stores lining the highway. But low oil prices could be the end of that investment.
Republican Congressman Kevin Cramer recently told Gulf News that “a lot” of his time is now spent with worried colleagues from other oil producing states wondering when prices will rise again.
While Cramer said he is “confident” that prices will rise by year’s end, he is not concerned if it takes longer.
“This is a resource play that is abundant and that isn’t going anywhere,” he said at his office in the federal building in Bismarck.
US gets ready for next round of oil boom | GulfNews.com
