December 21, 2015 – Forbes
Shale Wars Round Two Congress Acts On Exports. Russia Capitulates On Price. And OPEC Blinks
By: Mark Mills
The year 2015 marks the end of the old oil era.
Last week the U.S. Congress finally repealed the four-decade-old legislation that, until now, prohibited American firms from selling their product, crude oil, to willing buyers overseas. No other oil-producing nation had such a self-inflicted ban.
It was finally rescinded in the face of overwhelming evidence that America’s situation is precisely the inverse of that which inspired the misguided legislation back in 1975: America was gripped with the fear of limited oil supplies, shortages and ever-escalating prices. The new era is defined by oil gluts, price collapses and a limit on how fast and high prices can increase.
We have some idea as to the price needed to cause another shale land rush. While year-end 2015 data won’t be available until the first quarter of 2016, industry experts at RBN Energy estimate that many shale fields are still (marginally) profitable at $40 per barrel assuming that drilling costs have dropped 25% since 2014. Data already show that costs have dropped from 20% to 30%, and more efficiencies are still coming. Thus the magic number that could spark a new boom is something not too far north of $45.
The Russians think that $40 to $60 per barrel is the new normal for the next decade for a good reason.
The global oil market is undergoing a once-in-a-generation transformation. The future is now destined to be one of serial gluts with prices capped by the rapid addition of thousands of shale wells that can over-supply markets every time prices rise a little bit (by historic standards) for only a short time.