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Gefira

Gefira

The Gefira Foundation is a part of the Pan-European think-tank focused on current geopolitical and financial instabilities.Gefira provides in-depth and comprehensive analysis of and valuable insight…

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Is U.S. Shale Nearing Collapse?

Crude oil production in the United States has decreased by more than 10 percent since the record high of 2015, from 9.6 million barrels per day (mmbpd) to less than 8.6 mmbpd. However, the drop in shale oil production has reached almost 20 percent. Moreover, if the increasing Permian Basin production were left out of the equation, the decrease in U.S. shale oil output would be about 33 percent! And this fall will deepen as the number of new wells is still not sufficient. The collapse of the shale oil production is related to the decline curve of tight oil, but shale oil well production starts to decline much faster than that from regular wells.

(Click to enlarge)

U.S. shale oil production has increased steadily as has the number of new wells in the last ten years. The 2015 drop in the number of new rigs by 70 percent was followed by a decrease in production soon after.

Last year’s decrease is not unnoticeable and has reached almost one fifth. The reason why it does not look so dramatic is the Permian Basin: the only one region that has increased its production level. The output of the other regions has already fallen by a third, as we predicted one year ago.

The Permian basin seems the last man standing, and while this basin is now the most promising, the rig count has dropped in this area with 65 percent. The reason why Permian is better off is obvious: lower costs. Permian has a convenient location (close to the Gulf) and a developed pipeline infrastructure within the state, which allows to ship crude out of the basin to coastal refineries where prices are higher. Related: How Low Oil Prices Failed To Stimulate The Economy

However, given the low oil rig count in the Permian region, it cannot be guaranteed that the output increase will last as long as the oil price is low.

(Click to enlarge)

The number of oil rigs has risen only slightly from its minimum and still will not allow for sufficient oil production in the next years. As long as the oil price does not spike, the U.S. shale oil output is doomed to fall sharply. And as long as Russians and Saudis have the fiscal and financial capacity to manipulate the oil market with fake announcements, there will be no oil production level freeze because neither of them want to rescue the American shale industry.

By Gefira

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  • David Williams on September 21 2016 said:
    I have two Christmas wishes. First I wish Trump gets elected. Number #2, I hope the US oil industry nears a state of collapse! Wow.... we would see an immediate 45% tariff on all OPEC oil with an equal tariff on any of the non-OPEC friends that don't do the same. To hell with OPEC and the Middle East. We used to need them back in the 1960's and 1970's and they ripped us off and set in motion oil embargoes to control our politics. Now we don't need their BS and should just kiss the Middle East goodbye. Let them screw over each other! America First!

    By the way, a tariff of OPEC oil is not a new idea:

    https://www.google.com/search?hl=en&as_q=tariff+on+OPEC+oil&as_epq=&as_oq=&as_eq=&as_nlo=&as_nhi=&lr=&cr=&as_qdr=all&as_sitesearch=&as_occt=any&safe=images&as_filetype=&as_rights=

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