US shale market going strong despite low oil price

US research company FTR has released data showing that US shale oil production – which has positively affected flatbed, liquid tank and bulk tank demand in the past – is not falling despite weak oil prices and a dramatic reduction in new drilling activity.

According to FTR, the answer to the North American conundrum is two-fold.

First, according to FTR Senior Transportation Economist Noël Perry, competition and “excellent engineering” continue to drive the break-even price for fracked oil steadily lower. 

“Where several years ago that price sat at $65-$75 per barrel, the most optimistic observers put the price below $30 per barrel now and the pessimists have it below $50. With the global price of oil above $50 per barrel, many such wells deserve attention,” he said.

Second, the same engineers are learning how to mitigate the very steep fracked well deterioration curves, Perry said. “It used to be assumed that a fracked well would lose more than 10 per cent of its production per month. Now the number is much less and the existing wells are still producing copious amounts of oil.”

The result is that although there has been an almost five per cent reduction in new wells started, total production numbers are still strong in the US.

“Energy pessimists have been predicting the end of petroleum since the Club of Rome published their seminal study almost forty years ago,” Noël said. “I reported that the energy crisis was over at least two years ago. Market dynamics are making fools of the doomsayers again.”

Perry’s comments come on the back of Olivier Appert, President of the World Energy Council French Committee, announcing that shale could become be the new ‘swing’ producer in setting the price of oil on global markets, replacing the Organization of the Petroleum Exporting Countries (OPEC).

“For the last 40 years, OPEC has been the major player in setting global oil prices. It has been the ‘swing’ producer, increasing its production when markets are tight, and reducing quotas when there is over-supply,” said Appert.

“However, in the last few years, with the advent of non-conventional shale oil and gas production in the US, the dynamics of the global market could be about to dramatically change.

“With the role of shale producers in the US becoming more predominant, they may become the ‘Swing’ producers in setting global market prices.”

Appert added, “The question that these new market dynamics raises is, Are we entering a new paradigm of the oil market?”

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