The cost price of oil shale in the US in 2014

The world media is exasperating the public, announcing the fact that a "shale revolution" occurred in the United States. On the basis of what facts can such statements be relevant? There is, in particular, the thesis that the cost price of shale oil production in the USA in 2014 has decreased so much that the American branch for the production of "black gold", in principle, does not care what the current world prices for this product. Is it legitimate? What are the factors affecting the production cost of shale oil production by US companies?

What is shale oil

First a little theoretical digression into the subject matter. What is shale oil? What product cost are we going to determine?

The fact is that there are actually two types of oil that have a common name in the Russian language at the level of the layman - "slate". The first is a product that, like the one extracted in the classical way, is contained in special layers of earth rock. They are called "slates". But there is one more product. Under the appropriate type of oil can also be understood as such shales, also called "combustible." In them, in fact, contains a product very similar in properties to oil - shale resin. And it is also extracted and processed by certain technologies.

Thus, the term "shale oil" can be interpreted in three ways. Namely:

- as a synonym for "oil shale";

- the closest analogue of traditional oil, but located in other types of deposits;

- Resin extracted from shale.

As a product, on the basis of which it is possible to produce fuel, there are thus used the second and third. Before we study the production cost of shale oil, we note that a number of experts hold the view that the costs associated with obtaining each of the two marked products can vary widely. As a rule, oil, obtained from oil shale, is more expensive.

Where does shale oil lie?

Considering the factors affecting the production cost of shale oil production, we will study the specifics of the fields where the relevant work is carried out. According to the reports of a number of analytical agencies, the United States is the world leader in natural fossil resources in question. The main oil deposits belonging to the category of shale, the Americans lie in the state of Texas, on the territories of the western coast and the northeast of the country. There are also significant reserves in the so-called "oil sands" that are located in Canada.

There are significant deposits of "slate" in many other countries of the world, including Russia, as well as those states that seem not to be considered energy powers today - Slovakia, Poland and Ukraine. Assessment of the potential for oil recovery from oil shale is very different between experts. In many respects, due to the fact that the figures that allow to conduct high-quality analytics are not always transparent, forecasts from various sectoral departments reflecting, in particular, the amount of reserves in the fields, may be inaccurate or repeatedly revised.

Cost parameters

To find out what the estimated cost price of shale oil in the US can be, let us turn to a number of expert sources. Published data on relevant studies conducted in different years give us very mixed data. Why? Is it true that the cost price of producing shale oil in the United States directly depends on the subtype of this product (we have identified two major ones above)? Based on the information in a number of sources, this is so.

In 2012, Time magazine published the following data. They, however, relate to global trends. However, we can provide information on what the cost of producing shale oil in the United States can be.

According to expert estimates, based on which Time magazine published figures, the production of 1 barrel of oil from oil shale in 2012 was about $ 100. In turn, the indicator for oil that lies between the layers, neither much nor little, and half lower - $ 50. Thus, the thesis we voiced at the very beginning of the article that the cost price of shale oil in the United States and other countries depends on the specific subtype of the product is confirmed if we take the data for 2012.

Oil in the USA and in the world

If we compare the indicator for the same year with those that reflect the costs of mining this type of mineral in Russia, then the difference, even in the case of a cheaper product, will be obvious. "Classical" oil, extracted in the Russian Federation, costs about 15 dollars. And in Saudi Arabia, by the way, and cheaper - about 8. True, on all these figures, the opinions of experts also diverge. Therefore, these are only approximate benchmarks.

What are the more recent data for the current year? Has the estimated cost of producing shale oil in the US increased or, in turn, decreased? 2014 - year of falling of the world prices for "black gold". Is there any relationship between the rate of extraction of shale oil and this market trend?

The opinions of experts on this score are incredibly different. First of all, the methodology of calculating the cost price is very different. The criterion that causes the greatest debate is the tax on extraction.

With or without taxes?

A number of economists are calculating the cost of oil shale oil in the US, emphasizing that its production is subject to a minimum tax. However, as for a similar product, produced by the traditional method, the fees are still necessary. Benefits are precisely with respect to oil shale. In Russia, for example, as well as in many other countries exporting "black gold", the corresponding fee is higher.

If the tax figures for the US and other countries were comparable, then, even if we take the figures for 2012, experts believe, US oil would have a very unattractive cost price. Now, the slate product from the United States, because of tax breaks, can really have, analysts believe, the cost price in the region of $ 50 or less.

In turn, there is a point of view that the appropriate form of fees to the US treasury is a criterion that is not significant in terms of calculating the costs of oil production, since the shale product produced in the US is mainly oriented to the domestic market. And because the American taxpayers themselves "provide" themselves cheap gasoline.

Trend to reduce the cost?

Among experts, there is a thesis that over the years the cost price of shale oil in the United States is falling. The basis of the argumentation is the increase in the technological level of production. The opinions of experts on this subject are also divided. There are estimates according to which a barrel of shale oil costs the Americans about $ 48 - and this is indeed lower than the world average recorded by analysts in 2012. And with a correction for inflation - in principle, it is quite indicative of a cheaper production. If, of course, we agree that for the US the figure in 2012 was the same as the average for the world (after all, the Americans are the absolute leaders of the global market). And again, if we take into consideration the oil extracted from the earth's interior, and not from the shales through their processing.

Profitability of production and oil prices

How does the cost of shale oil in the United States correlate, and in other countries also the world prices for "black gold"? The opinions of the experts are very different this time. But it is important for us to study them in order to better orient ourselves in the factors affecting the cost price of shale oil. The year 2014 is also very mixed in terms of oil prices. Now they have fallen significantly. There will be no growth, no one can say.

OPEC analysts in particular believe that if world oil prices remain for a long time below $ 90 per barrel, then the work of about half of the US "shale" corporations will be unprofitable. In turn, IHS experts believe that the oil production business will remain viable, even if world prices fall to $ 57 per barrel. A certain compromise in the evaluation is offered by the International Energy Agency. According to experts of this structure, the production of oil shale in the US will remain quite profitable if world prices do not drop below $ 80 per barrel. Analysts from Citigroup, in turn, believe that to maintain the "shale" industry in the US will be sufficient indicator of $ 75.

There is an interesting version: if world oil prices decline, American corporations that produce "black gold" will somehow have to modernize the technological base in order to cut costs. Experts who are close to this point of view believe that the "shale" industry has great potential in this regard. Existing technologies, they believe, are largely experimental and in some aspects of efficiency are inferior even to those used in the extraction of oil in the traditional way. Over time, analysts say, Americans will improve manufacturability. Thanks to this, the cost price of shale oil in America can decrease. According to the agency Accenture, the corresponding costs can fall by 40%.

The barrel should grow

One way or another, an expert opinion is widespread: even if the cost price of US oil shale is about $ 50, then its production will remain, in one way or another, profitable for American companies. But on one condition - while maintaining oil prices, relevant for about the beginning of the summer of 2014 - about 110 dollars per barrel. Only then will they not have to think about how to reduce the cost of shale oil. $ 80, however, is the current price of "black gold." That is, if you adhere to this point of view, now American firms are on the verge of profitability. About massive bankruptcies of firms while, judging by the information background in the media, it still does not go.

Cost factors

Does it matter in what conditions shale oil is produced? The cost price by what factors is determined based on the content of production processes during the extraction of "black gold"?

Among the significant circumstances from the point of view of costs is the life of the wells. The fact is that shale oil is extracted through completely different technologies in comparison with the development of traditional deposits. As a rule, testing one well goes several times faster. Therefore, the equipment that is installed for the production of oil shale, soon after the development of the local resource, either write-off due to wear or move to other facilities. This, of course, can be accompanied by significant costs.

Another factor is the depth of occurrence of oil shale. And also access to fresh water nearby, which is involved in the extraction of "black gold" using appropriate technologies. Depending on the depth of the resource, the costs can differ at times.

The next significant factor is the adequacy of estimating the size of the shale reserves. It may well be that investment, invested on the basis of optimistic forecasts, will not have time to pay off due to the fact that oil will simply end in a particular field. There is an interesting precedent - the Los Angeles Times published a publication that said that one of the oil fields in California predicted estimates and the real diverged 25 times.

Another circumstance is the presence of analogous gas deposits in the vicinity of the shale deposits. The matter is that, according to some experts, the structure of wells can assume profitability only if both types of fuel are produced.

Prospects for the "Shale Revolution"

However, irrespective of what figures reflect the cost of oil shale in the United States, 2013 and 2014 mark an uncontrollable increase in the production of this mineral by Americans through alternative sources.

According to the forecasts of various experts and agencies, in the coming years the indicators will only grow. For example, the Energy Information Administration (one of the industry departments in the US) believes that in 2019, the production of shale oil in America will reach 9.5 million barrels per day (now - about 3 million).

Among the factors that can prevent corporations from developing in the US is the trend we noted above, which is a relatively small resource of alternative deposits. If conventional deposits can be developed for many years, then the standard index for shale is 3-5 years. During this time, the oil resource at the well can be used up to 90% or more.

Forecasts of even US experts on the prospects for the development of "shale" are very different. A simple example. The Energy Information Administration forecasts that in one of the largest US fields - Bakken - in 2040, the production of shale oil will be about 1 million barrels per day. At the same time, according to the assessment of the Post Carbon Institute, the indicator for Bakken will not be more than 73 thousand barrels. The difference in forecasts is more than tenfold. There is a discrepancy between the estimates of these two structures also for some of the shale oil reserves in California. By the way, in some cases, the Energy Information Administration substantially revises its forecasts for the fields. In one case, the assessment was reduced by 96%. At the same time, as some experts point out, investors, when deciding whether to invest in the industry, could focus on the first forecast.

However, experts urge not to rush to conclusions and forecasts. It is necessary to observe how the same technologies will develop that are designed to provide more effective and, most importantly, more environmentally friendly production of the product. The most important factor in the development of the American industry in the development of alternative deposits of "black gold" will also be world oil prices.