How will falling petroleum prices affect US shale play production “boom”

North Dakota recently passed Alaska as the second leading oil producing state in the United States. It boasts one of the lowest unemployment totals in the nation, a fact that is driven by the state’s small population and very large job of building the infrastructure required to extract oil from the Bakken shale formation.

That shale production is a huge money maker when oil sells for $100 or more per barrel, but due to the high costs of drilling, the effort barely breaks even at oil prices of $55 – $70 per barrel. If the producers have to sell into a market where oil costs less than $55 per barrel, they will lose money on every sale.

That is why this report from the Wall Street Journal on the world’s oil markets should worry the people who have recently decided that it is a good time to seek their riches in North Dakota. In natural resources, booms are often followed by painful busts.

Of course, it is unlikely that oil will fall below $70 per barrel and remain there for very long, but it does not take very long at all for drilling companies to decide that there are better ways to spend their money than to invest in plays where every barrel sells at a loss. For the less prudent oil field workers, the difference between comfort and poverty can be a single paycheck.

Like most Americans who drive a car (or a power boat) and are not involved in oil production, I think falling crude and gasoline prices are great news. I simply want to remind readers that there are others with different points of view who might be motivated to try to do something to encourage prices to rise again if at all possible.

About Rod Adams

5 Responses to “How will falling petroleum prices affect US shale play production “boom””

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  1. DV82XL says:

    I bears repeating that the price of carbon-base fuels does not reflect the price. While arguments that cheap energy from fossil-fuels spurs economic growth, it is at the price of literally burning our children’s birthright and contaminating the environment they will live in. While it is difficult during hard times to keep a focus on the distant future we are still bound by both morals and ethics to do so.

    It is unlikely that hydrocarbon fuels will ever be fully displaced, especially in light and medium transport, this should not deter us from seeking to eliminate their use where we can.

  2. Cal Abel says:

    Oil price is a great indicator of the status of the world economy. Price goes up, economy is growing, price goes down, economy is contracting. That is for the global economy.

  3. Pete51 says:

    This is more than a little off topic, but Rod’s Atomic Show was recently mentioned in a Bloomberg article about Allison Macfarlane. Senate hearings start tomorrow!
    http://www.bloomberg.com/news/2012-06-11/atomic-agnostic-named-for-u-s-nrc-ties-industry-growth-to-aid.html

  4. richtfan says:

    I’m not so sure that this unofficial floor price of $70 is real. I think that once the rig is in place that they can make money at well below the $70 figure. they don’t make as much, but they make plenty of money even at $50.

    • JimHopf says:

      That sure appears to be what’s happening with gas. I’m sure that the total cost of (shale) gas production is well over the $2 gas is selling for today. (I had heard ~$6). I’m even surprised that the going-forward incremental cost of an existing well is that low.

      Does anyone have any data on what the raw production cost is for shale gas (on average)?

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