Closing the ”fracking valve”

Posted on March 19, 2015

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Bloomberg riggs fracking

Bloomberg riggs fracking

Since last autumn there has been overproduction of oil in the USA compared to what the market, OPEC and Saudi Arabia had planned. I have previously discussed how there is insufficient storage for this excess oil. It is fairly easy for the producers in the Middle East to close the taps and reduce production but closing the “fracking tap” is a completely different story. Bloomberg has published an article describing how, at the moment, the fracking tap is being closed in the USA, “Watch Four Years of Oil Drilling Collapse in Seconds”.

“The crash in oil prices kicked off intense debate over when, and how, American producers would react. So far they’re still cranking out oil, but there are signs that a slowdown is looming. Chief among them: the record drop-off in drilling for new oil.”

In October 2013 I travelled to the University of Texas in Austin to study and do research on fracking. At that time there were 1372 rigs drilling wells for fracking. (The total number of drilling rigs in the USA at that time was 1591.) When I travelled back to Sweden in February 2014 the number had grown to 1416 fracking rigs.

In January 2011 oil production in the USA was 5.3 Mb/d and in October 2014 this had grown to 8.9 Mb/d. The increase of 3.6 Mb/d came mainly from thousands of wells that had been drilled for fracking. When oil prices crashed last autumn the oil companies began to reduce the number of rigs drilling for oil but one cannot close down the dynamic process of fracking overnight. The oil companies have contracts with those doing the drilling and fracking and breaking these contracts costs money. Although the price of oil fell dramatically, the number of fracking rigs stood at 1595 on October 24. By 13 March the number of rigs had fallen by 866 and in the most recent week an additional 56 rigs were taken out of service. Since 2 January the approximate rate of decrease has been 68 rigs per week and they now estimate that the decrease in rig number will continue until summer or longer. If the decrease continues at the current rate then new drilling will have ceased completely in six months. (866 divided by 50 per week gives a maximum of 18 weeks.) That’s how fast the fantastic “fracking revolution” can be closed off. (The week from March 13 to March 20 41 rigs were taken out of service.)

Approximately 40% of the cost of opening a fracking well is the drilling itself. The fact that they produce the larger part of the well’s oil in the first year means that many companies will delay the process of completing their wells. A so-called “fracklog” is developing. The companies are waiting for the oil price to rise. It is this “fracklog” that means that oil production in the USA is currently continuing to increase despite the rapid decline in drilling activity. On 6 March the USA’s total rate of oil production was 9.4 Mb/d. Everyone is waiting with some suspense for the decline in US oil production. Here is the conclusion to the Bloomberg article:

“Just as worrisome to oil investors is the so-called fracklog—thousands of nearly completed wells that are being left untapped. As soon as oil prices start to rise, these wells can start pumping crude after just a few weeks of finishing work. The fracklog has become America’s de facto backup storage.

Rig declines are likely to continue for the next few months, and may not stabilize until the third quarter, according to an analysis by Bloomberg Intelligence. In three previous oil slumps, it took about 32 weeks for rigs to bottom out. In highly productive shale regions with big fracklogs, production could still climb for months even if rig counts fall to zero.

For drilling companies, it’s an industry in crisis. Thousands of jobs have been lost, and more will follow.”

(Swedish)

Sedan i höstas råder det en överproduktion av olja i USA jämfört med vad marknaden, OPEC med Saudiarabien, hade planerat. Jag har tidigare diskuterat det faktum att det inte finns tillräckligt med lagerutrymme i USA för denna överproduktion. Det är ganska enkelt för producenterna i Mellanöstern att stänga kranarna och minska produktionen, men att stänga ”frackingkranen” är en helt annan historia. Bloomberg har precenterat en artikel som beskriver hur man just nu stänger “frackingkranen” I USA, “Watch Four Years of Oil Drilling Collapse in Seconds”.

”The crash in oil prices kicked off intense debate over when, and how, American producers would react. So far they’re still cranking out oil, but there are signs that a slowdown is looming. Chief among them: the record drop-off in drilling for new oil.”

I oktober 2013 åkte jag till University of Texas i Austin för att studera och forska om fracking. Då fanns det 1372 riggar som borrade för fracking (totala antalet riggar i USA var 1591). Då jag åkte hem i februari 2014 hade det ökat till 1416.

I januari 2011 var oljeproduktionen i UDA 5.3 miljoner fat om dagen och i oktober 2014 hade den öka till 8.9 Mb/d. Ökningen med 3.6 Mb/d kom framförallt från tusentalets brunnar som man borrat för fracking. Då oljepriser rasade under hösten började oljebolagen att minska antalet riggar som borrade efter olja, men man stänger inte den dynamiska frackingprocessen över en natt. Bolagen har kontrakt med företag som borrar och frackar och att bryta dessa kontrakt kostar pengar. Fastän priset på olja rasade ökade antalet riggar fram till den 24 oktober då det fanns 1595 frackingriggar. Den 13 mars 2015 hade det minskat till 866 och minskningen den senaste veckan var 56 riggar. Sedan den 2 januari har minskningen varit 68 riggar i veckan och man räknar med att minskningen skall fortsätta fram till sommaren eller ännu längre och om minskningstakten fortsätter som nu har man stängt av borrningen för nya brunnar helt om ett halvår (866 dividerat med 50 per vecka ger att max 18 veckor). Så snabbt går det att stänga av den fantastiska fracking-revolutionen.

Ungefär 40% av kostnaden för att öppna en frackingbrunn är själva borrningen. Det faktum att man tömmer större delen av brunnen de första åren medför att många bolag kommer att stanna upp processen att fädigställa sina brunnar. Man får det man kallar för ”fracklog”. Man väntar på att oljepriset skall stiga. Det är denna ”fracklog” som gör att oljeproduktionen i USA ökar fastän man stänger ner riggaktiviteten. Den 6 mars var den 9.4 Mb/d. Alla väntar med spänning på nedgången i den Amerikanska oljeproduktionen. Här är slutklämmen i Bloombergs artikel:

“Just as worrisome to oil investors is the so-called fracklog—thousands of nearly completed wells that are being left untapped. As soon as oil prices start to rise, these wells can start pumping crude after just a few weeks of finishing work. The fracklog has become America’s de facto backup storage.

Rig declines are likely to continue for the next few months, and may not stabilize until the third quarter, according to an analysis by Bloomberg Intelligence. In three previous oil slumps, it took about 32 weeks for rigs to bottom out. In highly productive shale regions with big fracklogs, production could still climb for months even if rig counts fall to zero.

For drilling companies, it’s an industry in crisis. Thousands of jobs have been lost, and more will follow.”

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