'Thylacine-2' pid='53897' datel Wrote: Kalliboo, thanks for your analysis. A place where I differ is that I don't see low oil prices being a long term phenomenon. Most of the increased production in recent years can be attributed to the bloom of shale oil, characterized by high decline rates. That's not a bad thing in itself. Another way of looking at it is that the wells have quick payout, with most of the ultimate recovery front loaded. Shale oil needs to be understood as something like mining. Got to keep digging in mining and got to keep drilling in the shale oil business. And I don't see how the shale oil companies can keep a high drilling rate if the price of oil is low. Granted that some companies can ramp up drilling in relatively short order. But, as I see it, they will only do that if the price of oil is a lot higher than it is now. So I don't see how low prices could last for years. Too much of the current oversupply is oil which is expensive to produce.
Further comments. I agree with an earlier comment that the supply/demand curve is rather inelastic and a lot of the other comments above. A tiny over supply has created a huge price drop. The industry is quick to start responding to either case which is the beginning of the self correction. But what is really different this time is that technology has driven this. No one saw it coming in either gas or oil even very recently. The velocity of the change is incredible to me, and I've worked in the industry for decades. Technology makes the future even less uncertain in my opinion. It is not just onshore shale, horizontal drilling and fracturing. It is applying the same technology to old, supposedly depleted oil fields (that used only vertical wells decades ago). There is shale oil and gas and then there is "oil shale." That's different stuff. That's the one you read about in Colorado that accounts for more volume than all of Saudi Arabia. Major oil companies have been looking at that for decades and still haven't figured out how to develop it and produce it economically and in an environmentally safe way. One day they may. There also are gas hydrates in the ocean - a virtually limitless supply of natural gas, again limited by technical know how, economics, etc. It will be something else down the road. All basins start off with the best producing, highest volume fields and quickly diminish to the smaller, less economic fields, however, infrastructure is most affordable on the front end, so the smaller, later fields are able to connect to it and leverage that benefit and allow continued production for a long, long time. The marginal cost to produce another barrel gets lower. True, you have to keep drilling, mining, etc. The old sayings "Drill or Die" and "Drill Baby Drill" capture that. The Gulf of Mexico has been pronouced to be "The Dead Sea" multiple times in the past decades as industry observers applied their Malthusian perspective, that it was emptied of opportunities. They've been dead wrong everytime as technology has unlocked new plays and huge fields.
