Welcome to DU!
The truly grassroots left-of-center political community where regular people, not algorithms, drive the discussions and set the standards.
Join the community:
Create a free account
Support DU (and get rid of ads!):
Become a Star Member
Latest Breaking News
General Discussion
The DU Lounge
All Forums
Issue Forums
Culture Forums
Alliance Forums
Region Forums
Support Forums
Help & Search
Environment & Energy
Related: About this forumOpinion: OPEC is wrong to think it can outlast U.S. on oil prices
But there are at least three big problems with this strategy. One, North American crude isnt as expensive to produce as it used to be. Two, theres more than you think in the pipeline to make it even cheaper. And third, OPEC nations, including Saudi Arabia, have squandered their edge in cheap oil supplies on welfare states rulers cant easily cut back.
In 2012, when U.S. shale burst into public consciousness, common wisdom was that it would cost at least $70 to $75 a barrel to produce. As recently as last week, saying U.S. producers could tolerate $60 oil seemed aggressive. But data from the state of North Dakota says the average cost per barrel in Americas top oil-producing state is only $42 to make a 10% return for rig owners. In McKenzie County, which boasts 72 of the states 188 oil rigs, the average production cost is just $30, the state says. Another 27 rigs are around $29. Thats part of why oil companies arent cutting capital spending much and they say they can keep production rising without spending more, by getting more out of wells they have already drilled.
...snip...
Yes, it costs Saudi Arabia only about $2 a barrel to get crude CLF5, -2.46% out of the ground. But analysts insist the Saudis real pain point is more than $100 a barrel more than $30 higher than its price now because of what they do with the money once they have it. In 2010, for example, the Saudis spent $130 billion to combat the Arab Spring, the Persian Gulf Fund reports. Some of that money went for better education and health care, and a little for infrastructure. Then there was a 15% raise for government employees, higher unemployment benefits, a government-subsidized minimum wage hike and 500,000 new homes in a nation of 28 million people. It cost 30% of Saudi gross domestic product.
Exxon Mobil and Devon have no such burdens. Naimis strategy to squeeze North Dakota and Texas is a bet that in the long run, low prices will force a cut in production and a return to Saudi leverage. But it will be much easier to further trim North American production costs than to convince whole nations to eat less.
http://www.marketwatch.com/story/opec-is-wrong-to-think-it-can-outlast-us-on-oil-prices-2014-12-02
In 2012, when U.S. shale burst into public consciousness, common wisdom was that it would cost at least $70 to $75 a barrel to produce. As recently as last week, saying U.S. producers could tolerate $60 oil seemed aggressive. But data from the state of North Dakota says the average cost per barrel in Americas top oil-producing state is only $42 to make a 10% return for rig owners. In McKenzie County, which boasts 72 of the states 188 oil rigs, the average production cost is just $30, the state says. Another 27 rigs are around $29. Thats part of why oil companies arent cutting capital spending much and they say they can keep production rising without spending more, by getting more out of wells they have already drilled.
...snip...
Yes, it costs Saudi Arabia only about $2 a barrel to get crude CLF5, -2.46% out of the ground. But analysts insist the Saudis real pain point is more than $100 a barrel more than $30 higher than its price now because of what they do with the money once they have it. In 2010, for example, the Saudis spent $130 billion to combat the Arab Spring, the Persian Gulf Fund reports. Some of that money went for better education and health care, and a little for infrastructure. Then there was a 15% raise for government employees, higher unemployment benefits, a government-subsidized minimum wage hike and 500,000 new homes in a nation of 28 million people. It cost 30% of Saudi gross domestic product.
Exxon Mobil and Devon have no such burdens. Naimis strategy to squeeze North Dakota and Texas is a bet that in the long run, low prices will force a cut in production and a return to Saudi leverage. But it will be much easier to further trim North American production costs than to convince whole nations to eat less.
http://www.marketwatch.com/story/opec-is-wrong-to-think-it-can-outlast-us-on-oil-prices-2014-12-02
IMO - It isn't so much the Saudi's that are the fair comparison (they have tons of cash piled up for just such a challenge). But much of the rest of OPEC is in a much tougher bind - as are non-OPEC exporters that fund their government expenditures through those profits.
InfoView thread info, including edit history
TrashPut this thread in your Trash Can (My DU » Trash Can)
BookmarkAdd this thread to your Bookmarks (My DU » Bookmarks)
3 replies, 779 views
ShareGet links to this post and/or share on social media
AlertAlert this post for a rule violation
PowersThere are no powers you can use on this post
EditCannot edit other people's posts
ReplyReply to this post
EditCannot edit other people's posts
Rec (1)
ReplyReply to this post
3 replies
= new reply since forum marked as read
Highlight:
NoneDon't highlight anything
5 newestHighlight 5 most recent replies
Opinion: OPEC is wrong to think it can outlast U.S. on oil prices (Original Post)
FBaggins
Dec 2014
OP
upaloopa
(11,417 posts)1. When I put gas in my car, how important is it
where the oil came from? If fracking can be stopped I'd rather the oil didn't come from the US. I don't think being self sufficient in oil is any plus if we ruin our environment doing it.
FBaggins
(26,748 posts)2. Consider the reverse of that
Will we ever reduce our consumption of environmentally-damaging substances if the most visible impacts of that consumption (the damage done by the drilling/digging/etc.) is offshored to countries that would rather have the dollars than the clean environment?
upaloopa
(11,417 posts)3. My next car will be a hybrid. Not because I can't afford
gas but because I want to consume less. Consumption is our leverage. We can have an impact on the externalities of oil production worldwide.