US Shale Industry Is Not About To Bow Out With Falling Oil Prices
What’s the future like for the shale industry in the United States?
For the past five years, the US shale energy revolution has created a boom in oil production in the country, growing from 5.4 million barrels of oil per day in 2009 to the present-day 8.6 million barrels of oil per day.
Increased Production Of Shale Gas Projected
Production of shale gas has also soared to more than 75 billion cubic feet per day from 59.3 billion cubic feet per day in 2009, based on report data released by the Deloitte Center for Oil and Gas Solutions. It is expected that by year end the oil production level in the United States should be close to 9 million barrels of oil per day. This projection came from the administrator of US Energy Information Administration, Adam Sieminski during the Deloitte Oil and Gas Conference in Houston on November 18.
Dropping Crude Oil Prices
However, the recent decline in crude oil prices has prompted numerous shale companies to reduce their capital expenditures in 2015 as profit margins thin out. The North Sea Brent and West Texas Intermediate crude oil prices have recently slid down which was compounded by the recent OPEC decision to keep their production level output despite the oversupply which caused speculation that the boom in shale exploration and production in the country may be severely impacted.
Impact On US Shale Oil Investment
In November, a report from the International Energy Agency has it that the dropping oil prices are likely to cause a cut in investment in US shale oil by 10% in 2015. According to Reuters, ConocoPhillips plans to cut its capital budget in 2015 by 20% or the equivalent of $3 billion. ConocoPhillips announced its plan to focus on Bakken and Eagle Ford shale but would defer significant investment on less developed Canadian shale projects as well as in:
- Permian Basin
Slow Down But Not End Of US Shale Boom
Industry analysts say that it remains unclear what oil prices will look like in 2015 although they predict that lower oil prices may likely slow but not end the boom in US shale industry. As oil and gas companies seek to boost production without spending more on drilling and materials, service providers are likely to take a hit. But most operators will still see profits even at current oil prices. Cutting costs will continue to be an effort to increase efficiency and productivity.
Overall shale oil production will still continue to rise, and according to Bloomberg, production growth shows few signs of abating. This means all other industries that have anything to do with shale gas production and that includes the smallest parts like tempered steel flat washers are not going anywhere but help the shale gas industry stand firmly on its feet.
Impact On Manufacturing Sector
On the manufacturing front, the impact the shale energy revolution has on this sector might be greater than what was perceived previously. Pittsburgh Business Times released a report by Pricewaterhouse Coopers which showed that the domestic manufacturing sector will continue to enjoy long-term employment gains and cost savings. According to PwC, the shale industry is projected to bring the manufacturing industry annual cost savings estimated at $22.3 billion by 2030. This figure is based on the assumption of low oil prices and high natural gas recovery rates.
More Jobs To Be Created
In terms of generating jobs, the ongoing shale drilling activity is predicted to create some 930,000 manufacturing jobs by 2030 and around 1.41 million by 2040. In Pittsburgh, for example the epicenter of the Marcellus Shale, the cost savings seen by manufacturers has significantly increased. This reinforces the perception that shale gas will remain a major player in creating a much stronger competitive advantage.
US Shale Industry Will Survive
And although many companies suffered severely as a result of the prevailing market conditions, the US shale industry sector is not about to bow out. Some analysts have a firm belief that the US shale industry can survive despite the falling prices of crude oil even if it falls below $50 per barrel. According to an energy economist, Philip Verlegar, US oil companies are bound to move ahead based on their learning curve with more expertise and knowledge, enough for them to continue their operations.
In the case of smaller companies, they may be acquired or absorbed by larger companies which would be a win-win situation for both the acquiring company and the company being acquired in terms of reducing overall costs of production, and surviving the market, respectively, until oil prices return to their stable and reasonable market price level.
Will the country get into more shale production for years to come?