Robert Perkins examines the delicate balance act of financing shale oil production in the US in this week’s Oilgram News column, Petrodollars.
In this month’s highlight of material from Platts Energy Economist, managing editor Ross McCracken delves into the best places to sink capital in a time of low oil prices and whether recent investments have truly trickled through the industry yet.
It is not hard to find proponents of the view that the current clampdown on capital expenditure by oil and gas companies will cause a shortage of oil in the future. Weak investment now causes low production in years to come. At the same time, low prices prompt greater demand. As soon as these two processes become entrenched, oil traders will look ahead to the impending shortage and prices will rise. Boom time returns.
Shale oil’s investment cycle is shorter and its decline profile sharper than conventional oil production. Current indicators suggest legacy declines from shale will catch up fast with the industry. This points to a sharp deceleration in US shale oil output. But, while conventional oil takes time to slow down, it also takes time to speed up. It will be shale that is best placed to benefit from any oil price recovery, as Ross McCracken, managing editor of Platts Energy Economist, explains in this month’s selection from the publication. The full analysis can be found in the February 2015 issue, which is also issue 400 of Energy Economist.
In the controversial 1940s book The Fountainhead, arch-villain Ellsworth Toohey, who above all seeks power and control of other people, comments — and this is a paraphrase — that the way to topple a system is to make one small negative but still-key move in just the right place, and then sit back and watch the whole edifice implode as its members scramble for self-preservation.
Although Ayn Rand, the author of that book and fierce champion of individualism, hated the popular notion that “we’re all in this together,” the fact is that in oil markets and economic systems, we are. One ominous signal — and even worse, a handful — can start a rumble that creates an earthquake.
Do rig counts tell us much about oil and natural gas supplies anymore?
Consider the facts: Lower-48 gas production averaged at 72.1 Bcf/d in January, close to all-time highs, according to the US Energy Information Administration. Gas rigs, meanwhile, were at 14-year lows, averaging at 434 for the same month.
Simple answer to the question: Not if you’re trying to gauge supply, they’re not.