Will Domestic Fracking Remain Profitable?
Oil prices are going down. It looks like this is a lasting market condition. If that is the case, how profitable is fracking technology? Since 2008, U.S. oil production has almost doubled. Fracking has helped the U.S. become more energy independent and created hundreds of thousands of new jobs.
Oil from fracking is called “tight oil” because it comes from tight shale and sandstone that are difficult to penetrate. In the past, experts have said that tight oil has to sell at $85 or $90 a barrel in order to be profitable. Now that oil is selling below $35 a barrel, it seems obvious that shale oil is in peril. Many small and medium-sized shale exploration and production companies have been running large cash deficits. It’s a tense picture.
Jim Burkhard, the head of oil market research at research firm, IHS, says that because of different drilling methods, wells can have different break-even costs even in the same oil field. Producers have gotten more efficient in designing and operating their fracking wells. They have increased their production through what is called, “super fracking.” By inserting more sand into their wells when they fracture the oil shale, they can raise their production by 50%.
In their efforts to raise productivity to lower production costs, U.S. oil producers are feeding a significant world-wide glut in oil supplies as demand slows throughout the world. Technology is drastically driving down the break-even point for tight oil, but the new price lows are causing significant pain in the U.S. shale industry. To make matters worse, many experts believe that the OPEC oil producers can still find room to make a profit at the $30 a barrel