Wilt low price shale production

For more than three years of existence of the transaction on the reduction of oil production increase in shale production of “black gold” in the United States was the main factor, which negates all the efforts of the participants of OPEC to stabilise the supply and demand in the market. Only Feb 2020 it took the place of honor coronavirus, eventually lowered his price to 30 dollars per barrel. Despite this considerable drop in prices, the Agency and US energy information (EIA) in its latest medium-term forecast expects growth of oil production in the country in 2020. It is expected to increase by 0.8 million barrels per day, and only in 2021 can happen the first 2016 decrease in average production volumes.

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“During the existence of the oil shale industry can be traced to the following pattern: production begins to decline after 3-4 months after the fall of oil prices,” explained research Director VYGON Consulting Maria Belova. In its opinion, the lower will be the price of oil, the greater will be the reduction. So, with the drop in the price of WTI crude oil to $ 20 per barrel average daily production volumes in the US by the end of 2020 could be reduced by almost 10% from the current level, while maintaining prices near $ 30 a barrel production will not change, said Belov.

This means that to reduce the proportion of us shale oil on the market is possible only by holding the minimum value of the barrel. The problem is that for countries oil exporters, including Russia, the lowest price for their product in the long term is highly undesirable.

If the U.S. government will not support the industry, even months of low prices will have a negative impact on investment in the shale sector

“to inflict serious damage on the US oil shale industry, the quotations should be set at 20-30 dollars a barrel on the horizon more than a year,” explained managing partner of the consulting company Bright Denis ABAKum. He stressed that any other scenario of oil shale industry in USA will survive without significant losses.

However, Russia, to fight the shale industry and do not particularly need. Production in the United States seriously affected the efficiency of the transaction OPEC+. But the competition of Russian oil with us is greatly exaggerated. “Our the quality of oil differs from the oil of the United States, also, different refineries – its customers,” said Maria Belova. In her opinion, the competition here is rather expressed in a negative impact on prices in the context of a General excess of “black gold”.

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“After OPEC+ failed to agree on further joint action in the oil market actually started a price war,” – said the head of the national energy security Fund Konstantin Simonov. He believes that the main opponents in it for Russia are not American kancevci and former partners in OPEC+, has already announced plans to increase production and sales to your product. And Russia, given the accumulated reserves, has all the chances to win this game.

as for oil shale mining, it is still unknown how will the future American President in relation to the oil industry (U.S. elections will be held this year). “If the government will support kancevica, they may be able to get through the hard times,” – said Konstantin Simonov. From his point of view, the American economy is already far not so liberal, and the oil industry depends on the policy of the state not less. than in Russia.

“under the Current US government has already declared its readiness to support the producers by purchasing from them products for the strategic reserve and the provision of tax incentives and preferential loans”, said Maria Belova. Due to this, the industry may be more resistant to the impact of adverse market conditions.

Photo: Konstantin Michalczewski / RIA Novosti In the state Duma has proposed to reduce petrol prices due to reduction in price of oil

on the other hand, is well aware of the debt load of American small and medium-shale companies. The cost of shale oil varies widely – from 35 to 50 dollars per barrel. “From loans totaling about 940 billion dollars provided to the energy sector of the United States, about 10-15% being graded as “junk” with a very low credit rating and very high probability of default,” – said the partner of the consulting Department of Deloitte CIS Joerg Dowser. He stressed that even before the sharp drop in oil prices, many shale producers were in distress. In 2019 the number of bankruptcies of oil and gas companies in the U.S. and Canada increased by 50%. If the US government will not provide financial support to industry, even a relatively short period of low prices in 6-9 months can have a very negative impact on investment in the shale sector, which will lead to a large number of bankruptcies.

However, after the previous decline in prices in 2015-2016, and after the assassination of Iranian General Qasem Soleimani, the vast majority of miners of shale oil in the US has insured its business, noted an analyst “Finam” Alexey Korenev. This will allow them to safely stop in time production, and then quickly restore it. However, insurance will help them survive just a few “hungry” months. That shale companies will be able to quickly increase production at higher oil prices, solidarity, all the experts. “Even in the worst scenario, the shale industry will recover in a maximum of six months, and will take a year to reach pre-crisis production levels,” – said Denis Abakumov.