IEA, Slump In Oil Price, And North American Energy Revolution -- October 14, 2014

Updates

October 17, 2014: the NY Times on the slump in oil prices.  My feelings, exactly, in general. 

October 14, 2014: readers can compare my "pain" list (at the bottom of the original post) with the Financial Times story published today:  

Saudi Arabia needed an oil price of $89 a barrel in 2013 to balance the budget, up from a “fiscal break-even” of $78 a barrel in 2012, according to the International Monetary Fund.

But Riyadh’s regional political rivals, such as Iran and Iraq, as well as other OPEC members such as Venezuela, have much higher fiscal break-evens.

Original Post

Note: in posts this long, there will be typographical and factual errors. If this information is important to you, go to the source.

Rigzone has a number of interesting articles today. The first one is the most important.

Rigzone is reporting:

The vast majority of shale oil in the United States is produced at costs far below the current price of crude, the head of the west's energy watchdog said, which means U.S. projects can withstand the market slump squeezing other producers. [Not just "below," but "far below."]

Brent oil stands at around $88 per barrel, down more than 23 percent from the year's peak above $115 in June, raising concern that some shale oil projects will become un-economic.

However Maria van der Hoeven, executive director of the International Energy Agency said that only a tiny minority of shale oil production would be affected by the slump in prices to near-four-year lows.

"Some 98 percent of crude oil and condensates from the United States have a breakeven price of below $80 and 82 percent had a breakeven price of $60 or lower," she told Reuters in an interview on the sidelines of the launch of the Africa Energy Outlook publication.

About a month ago or thereabouts I posted a note suggesting that folks would be surprised by the break-even price of oil in the Bakken, particularly in northeastern McKenzie County. The break-even price is so low that I do not post it; I don't need all the pushback. However, it's readily available in corporate presentations.

In addition to the above linked Rigzone article, John Kemp has an article concerning Saudi Arabia and the slump in prices: 

Ultimately, Saudi Arabia and OPEC would end up with a combination of lower market share and lower prices, the worst of all outcomes, just as they did in 1985. The best strategy for the Saudis, indeed the only effective one, is to allow prices to fall until the market rebalances naturally, with slower growth in shale and bigger increases in demand. 

In general, I am in full agreement with Kemp's analysis: Saudi Arabia is simply along for the ride as is the rest of the oil industry.

And finally this article on Russia and shift in focus, also in Rigzone:

Russia is diverting more of its crude oil east with deliveries to China hitting a new record last month at the expense of Europe as geopolitical tensions between Moscow and the West dictate the latest shift in flows.

As Russia's relations with the West deteriorated over the Ukraine crisis, the European Union and United States imposed wide-ranging sanctions on Russian firms, including oil and gas producers, leaving Moscow trying to forge closer ties with energy-hungry China.

Russia's energy ministry says crude oil supplies to China surged in January-September by almost 45 percent year-on-year, to 16.8 million tonnes (450,000 barrels per day), while shipments from the Baltic Sea port of Primorsk plunged almost 20 percent to 33 million tonnes.

Oil product exports to Europe have been rising and plans for state-owned monopoly Transneft to use crude oil pipelines for exports of diesel show the trend will likely continue.

The decline in Russian crude oil exports comes as increasing volumes of crude oil are being processed at domestic refineries, reaching a post-Soviet high of almost 6 million tonnes in August as plants undergo a huge $55 billion modernisation programme.

"By diverting crude to Asia and cutting exports of straight-run fuel oil and vacuum gasoil, Russia will deprive European refiners of feedstock. By exporting growing amounts of ultra low-sulphur diesel, Russia will hammer refining margins (in Europe). Really, the candle is burning at both ends for Europe," said Andrew Reed, an analyst from the U.S.-based ESAI Energy consultancy.

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Geo-Politics And Other Things

All of this is going to get very, very interesting. Based on comments and e-mail I am receiving, I get the feeling that folks think that the Bakken is the only "play" that is affected by the "slump" in oil prices.

Before I go on, one data point: Saudi Arabia requires $89-oil to finance their annual budget. Prices in the past year have been so high for so long that Saudi Arabia can go for several months at prices as low as $39/bbl. So, we've gotten that out of the way. I agree with John Kemp's analysis of Saudi Arabia, in general, as noted above.

Back to what I was saying: I get the feeling that folks think the Bakken is the only "play" that is affected by the "slump" in oil prices.

Hardly.

In order of pain: those at the top are feeling the most pain; those at the bottom, the least pain.

OPEC, outside of Saudi Arabia. Venezuela is in deep trouble, for example.

Russia. The ruble is crashing; Russian companies scrambling to come up with dollars for expenses.

Iran. On top of sanctions.

Alaska.

Iraq. Isis.

Mexico. Price slump couldn't come at a worse time as country tries to privatize oil industry.

Norway.

Great Britain.

Canada.

Off-shore oil.

American shale plays outside of the Bakken, Permian, and Eagle Ford.

Bakken.

Eagle Ford.

Permian.

Saudi Arabia.