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Image: Emiliano Ortiz

US fracking provides the lowest cost oil on earth (but still not low enough)

Energy consultancy Wood Mackenzie says that US shale oil is now the most economically viable source of the planet’s remaining oil.

According to Ed Crooks in the Financial Times the consultancy claims that:

“About 60 per cent of the oil production that is economically viable at a crude price of $60 a barrel is in US shale, and only about 20 per cent is in deep water.”

However, while some of the lower cost of US shale drilling is due to technology and improved drilling techniques, much of the difference is explained by the risks, difficulties and growing costs of accessing the remaining supplies of conventional crude oil from deep water and Arctic locations.

Moreover, energy experts like Art Berman argue that break even prices are misleading because they fail to account for business overhead costs – not least the cost of servicing the huge debts that are incurred in setting up drilling operations to begin with.

Certainly, the cost of a new hydraulically fractured shale well in the geologically and economically favourable USA is an order of magnitude lower than the cost of a new deep sea or Arctic well.  But this is more a measure of the collapse of the conventional oil industry than of improvements in shale drilling.  As Berman puts it:

“Shale is not a revolution–it’s a retirement party.  Shale plays were not some great new idea. They became important only as more attractive plays were exhausted.”

The reality is that even relatively low cost US shale oil is far too expensive for a global economy already mired in debt and falling productivity.  So that any increase in the price of oil that would allow shale oil to be profitable, would be too high for the economy to stand.

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