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So, weve been waiting over a year now for super high decay rate shale wells to start rolling off. Its happening, but at a much slower pace than was initially predicted. Ultimately we need to shave off another 700k bbl/day, give or take, for things to start equalizing. Global demand increases have been poo poo thanks to China and the global economy in general (this is actually good if you care about like, the environment). One thing that always struck me as funny is that a 1-2% oversupply in the market has cratered prices over 70%, talk about sensitive! The thing that worries me is that swings both ways, and a 2% under supply...ugh... So you have a lot of the majors taking 20-40% CAPEX reductions (no new wells), a US rig count somewhere in the 'lol' range, massive industry layoffs and hostile acquisitions, all with no end in sight. Basically, we are demolishing the infrastructure needed to equalize production/demand and risk heading directly into under supplied. One interesting driver in this has been smaller, high cost, producers that exploded in the 'shale revolution' investment boom. Even though prices are poo poo and they lose money on every barrel, they have to keep producing just to service debt - reducing prices further. Eventually they will die, they're effectively dead already, and Im sure all that wonderful debt has been sliced, diced, and CDO'd into all sorts of great financial products. Who knows what, if anything, that will lead to but at the minimum a lot of banks are going to be sitting on oil and gas assets going "what the gently caress am I supposed to do with this exactly?" Not only could cutting too hard, too fast, result in prices going through the roof once production craters past equilibrium (inventory has to roll off too which adds a cushion. My confidence in the industry as a whole to act accordingly is about 0) - Saudi Arabia, Iran, and others stand to pick up a lot of market share if they time it right. I know no one really like fracing but if the choice is between that and further funding terroristic and inhumane dictatorships I'd have to go with the former.
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Jan 12, 2016 23:31
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| # ¿ May 22, 2024 07:17 |
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Not always possible. Everything has a cost including shutting a well in and ensuring it stays that way safely. Companies, smaller ones particularly, look for investment for projects, and that has to be paid back. Often it means they have no choice but to produce and sell. Prices are hitting the point where shutting in is economical in some cases though. edit: a lot of what you may see as 'on hold' is drilled but uncompleted. Companies making use of cheap rig rates to drill the hole but not putting in the hardware it takes (and perforating/fracing) to bring the well on line. Acelerion fucked around with this message at 23:54 on Jan 12, 2016 |
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Jan 12, 2016 23:51
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It's a drastic departure from past policy and is specifically to drive higher cost producers out of business and maintain market share. They could cut production by 5% and double what they sell a barrel of oil for. Incidentally it may put other opec members out of business and is creating serious tension. I don't have a good frame for how different it may be from other busts but p much everyone but sa is pushing for cuts. Russia has even hinted they would go along with it.
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Jan 13, 2016 04:02
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It's probably an economic decision. A lot of this stuff is regulated at the state level causing variances. You can't just reuse waste water, it needs treatment, so if your costs of disposal and aquiring suitable water are lower than treatment, off you go. Plus the Atlantic side does not have the abundance of porous formations found in the mid continent, making suitable injection locations harder to find.
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Jan 14, 2016 17:36
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I want to say this stuff was first noticed in the north sea back in the 70s or 80s - or at least the result of activity from then. As they started draining reservoirs they noticed subsidence and seismic events. This led to some array microseismic studies and people going 'huh looks like depletion is causing earthquakes' but being at the bottom of the sea, no one really cared. I think now days there may be requirements for monitoring the surrounding areas for seepage. This is not tied specifically to fracing - in fact I doubt the process itself is capable of causing earthquakes in areas that were not previously seismically active - its the leniently regulated spacing/use of water disposal wells and local geology. 'Earthquake' is a bit of a misnomer - everyone knows if you go about drastically changing reservoir pressure (up or down) the surface deforms in response. The technique is used to estimate reservoir volume and drainage patterns. Its when people have buildings on top of it that it becomes a problem. Getting anyone to admit to it legally is another question entirely.
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Jan 15, 2016 23:25
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So Iran is back in business with an additional output of 500k bbl/day. Here is a nice article full of charts and graphs that details how production has seesawed between major producing countries. The short story is that we are basically right back to being as oversupplied as we were when this whole thing started. Despite the US rig count being what it is, production is still not falling enough to counteract increases from overseas. This is going to be a long, long down cycle and the end result will be massive market share gains for OPEC. Unless a war breaks out or something... In related news Citibank, Wells Fargo, and others have increased reserves to cover expected defaults. WF looks particularly exposed, but the magnitude of dollars involved is no where near housing crisis level.
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Jan 19, 2016 02:12
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Very little frankly. There is way more oil being produced per day than there is demand for it so in this case its mostly supply/demand driven. Oil is very demand driven and is what it is. More oil around does not mean demand increases to compensate so the difference between 2% over supplied and 2% under supplied is massive price swings.
Acelerion fucked around with this message at 19:06 on Jan 21, 2016 |
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Jan 21, 2016 15:31
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Zeroisanumber posted:I rather like the fact that an 18-month window for a price crash probably caught a lot of speculators off-guard and that there are a bunch of white collar, country club assholes sweating bullets right now. No doubt. When this initially started people were 'right-sizing' for 40 dollar oil and getting called extreme. Everyone expected things to turn around in 12-18 months. Now all the hedges have rolled off and the industry is staring down the barrel of another massive round of layoffs. It's a panicky time.
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Jan 21, 2016 19:05
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You know, painting with that broad a brush is pretty loving dumb. Not to mention it's a whole lot more than field hands getting the axe. It's a fair discussion that reducing consumption is a good thing and this could have environmental benefits but blaming people for getting let go is very FYGM.
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Jan 21, 2016 19:25
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Last Buffalo posted:I think it comes more from a mentality of "gently caress your lovely dirty job." The same thing happens with the coal industry, where they worry about coal being regulated until there aren't any jobs for people. If the market doesn't support your polluting, inefficient extraction industry, then too bad. This, I think, is fair. But let's call it that and not blame the people trying to make a living. Edit: blame is probably the wrong word. Enjoy the misery of...perhaps. Acelerion fucked around with this message at 20:34 on Jan 21, 2016 |
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Jan 21, 2016 20:30
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Most of these little boom towns are in poor as poo poo areas. Big companies roll in offering more money than people have ever seen in their lifetimes, not to mention what it does to the local service economy. It may be asking too much for those people to have a more mature economic understanding. There are also the mercenary folks who jump from boom to boom chasing work. They tend to be the more savvy players and more likely to hedge against the next bust.
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Jan 21, 2016 20:48
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The Republicans in Congress finally managed to get the oil export ban lifted, which has for the most part been met with 'meh' from the industry. Who was pushing this hard enough for it to be a political issue? The only benefit I can see is internal supply chain fuckery from multinationals moving it to easier/cheaper to refine locals and such. It doesn't exactly 'open new markets for us oil' and it's doubtful it ever would considering costs to produce.
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Jan 26, 2016 17:42
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Opec, being the aparent adults in the room, has been hinting along with Russia that they would be open to production cuts provided other nations (hello usa) were willing to join in. In this type of prisoners delima nonsense that only the free market can create: IOCs and local producers, bound by shareholder responsibility, continue to vigorously punch their own balls hoping someone else will step up and take the pain so they don't have to.
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Jan 26, 2016 17:52
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| # ¿ May 22, 2024 07:17 |
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I'm not really suggesting it be done, just musing at the absurdity of the whole thing. I do see the appeal of something like strong US control of production, import/export, even price controls on gas and oil, etc... Acelerion fucked around with this message at 18:32 on Jan 26, 2016 |
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Jan 26, 2016 18:16
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