Hopefully just a leveling off and not a bust, but rigs are shutting down and going idle:
After six straight months of plunging oil prices, U.S. shale drillers have sent the clearest signal to date that they’re retreating.
Thirty-five horizontal rigs, their weapon of choice for reaching oil deposits in tight-rock formations such as North Dakota’s Bakken shale and Texas’s Permian Basin, were idled last week alone. It was the biggest single-week drop since a drilling boom touched off six years ago that propelled domestic production to the highest level in three decades and eventually helped trigger the global price war that the U.S. and OPEC find themselves in today.
The decline, the largest in a decade and the seventh in a row, threatens to halt U.S. oil production growth by slowing drilling in tight-oil plays that make up virtually all of the nation’s new output. Bending to the pressure of crude below $50 a barrel, the country’s explorers idled the most rigs last quarter since 2009.
“The message from the market, that drillers need to start changing their behavior, has now been received by the big boys in the shale plays,” Harold York, vice president of integrated energy at consulting company Wood Mackenzie Ltd., said yesterday by telephone from New York. “The tight-oil players have received the message, and they’re taking action.”
Horizontal rigs made up more than half of this week’s decline in the U.S. oil count, which fell by 61 to 1,421, Baker Hughes Inc. (BHI) said on its website yesterday. The 61-rig drop was the largest since February 1991, which also followed a tumble in prices before the start of the Persian Gulf War.
This is quite potentially the oil boom starting to go bust. The Saudis have this as their secondary objective (behind harming Russian economic interests), and the EPA has shutting down oil rigs as their primary objective.
Gas prices are going to go back up, and idiot Republicans are arguing over how best to sneak in a gas tax and justify acting like Democrats.
It would be really, really nice if the newly elected Republicans would actually listen to voters and stop raising taxes and reduce spending. They control both houses but are acting like they can’t get anything done – and in this case, acting like they can’t resist the “THE TIME IS NOW” Democrat argument – an argument that is meant to shut up debate. It’s like the Republicans have forgotten they’re in charge and that they don’t have to listen to Democrat orders to have a tax collector at every gas pump taking from the citizen’s wallet.
“Unless oil prices recover, absolutely, this is the end of the drilling boom,” James Williams, president of energy consulting company WTRG Economics in London, Arkansas, said by telephone yesterday. “The total rig count should hit 1,000 by March or April, and oil production growth should be flat or declining by mid-year.”
Now, as a counterpoint, this might not actually be a bust. It can just be a leveling-off period as the market adjusts. A lot of the US oil resources being exploited now are being produced at lower costs than before. Plus with the infrastructure built and the technology developed, they’re more profitable and more efficient than before.
The problem is if government interferes… as usual. One of the reasons we have horizontal drilling for oil to begin with is because offshore rigs are driven to deep-sea locations that are prohibitively expensive, and as shown by the BP Deepwater Horizon accident, are more difficult and dangerous to operate. Another is the limited exploration for oil on federal lands, which take up huge percentages of western states where oil reserves are located.
Now government’s looking to raise gas taxes. The Republicans are telling us they’ll do us a favor by only raising it 12c to head the Democrats off… which is like saying “I’ll rob you for just your wallet so the carjacker won’t steal it, too.”
The bigger problem with this yet is the inability for Republicans to see that the increased growth in the last few months has been as a direct result of the fall of energy prices. The Saudis being scared of competition (and targeting Russia) has allowed American consumers and business some immediate surplus of cash and thus productivity. That increase in productivity also leads to an increase in tax revenue by volume.
5% growth is orders of magnitude more productive for both citizenry and government than a 12c gas tax on $2.50 gasoline, because that 12c gas tax will also reduce overall growth.