US Shale Hit Hard as Investments Halve This Year, Says IEA

The International Energy Agency (IEA) warned this week that the CCP virus crisis is resulting in “the biggest fall in global energy investment in history”—with the United States shale industry the hardest hit sector.

“The historic plunge in global energy investment is deeply troubling for many reasons,” said the IEAs Executive Director, Dr. Fatih Birol. “It means lost jobs and economic opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers.”

At the start of 2020, investment in energy projects around the world was set for growth of about 2 percent—which would have been the biggest increase in investment spending in 6 years, according to the IEA. However, the CCP virus has brought large sectors of the global economy to a standstill, and the IEA now projects that global investment in energy projects will will decline by a massive 20 percent compared to 2019—or some $400 billion.

Shale Under Pressure

Conventional oil wells in Saudi Arabia and Kuwait can produce a barrel of crude oil for as little as $10, according to Rystad Energy figures. However, shales unconventional oil extraction methods involve considerably higher costs, such as fracking processes, and much shorter well lifetimes. Shale frackers are often forced to truck in fracking fluids and water, and must continually drill in new locations to ensure that oil and gas keep flowing.

Producers are now being forced to cease production on already fracked wells.

Production costs per barrel for American shale oil producers lie at around $50, above current trading prices for crude oil. July prices for West Texas Intermediate (WTI) crude were hovering around the $33.50 mark in Friday trading.

During April, a perfect storm of decimated demand, persistently high U.S. production levels, and rapidly filling storage capacity meant that future prices for WTI briefly turned negative. Historically low prices have caused many shale producers to slash drilling and production activity, while letting actively producing boreholes peter out. Many land lease and fixed costs cannot be avoided, however, leading companies to hemorrhage cash.

According to the Baker Hughes rig count, the number of horizontal rigs across the United States stood at 285 on May 22—down 22 rigs from the week before and a 67 percent drop from the 863 rigs that were in operation a year previously.

“Global investment in oil and gas is expected to fall by almost one-third in 2020,” according to the IEA report. “The shale industry was already under pressure, and investor confidence and access to capital has now dried up: investment in shale is anticipated to fall by 50 percent in 2020.”

The industry is bracing for a wave of bankruptcies, with 17 producers filing for Chapter 11 to date in 2020 and many more expected to follow, according to the Financial Times.

Recovery in Sight?

Rystad Energy, however, predicts that crude supply and demand could rebalance as early as June. According to their data, the “largest oversupply in history” measured in April could transform into a slight undersupply as early as July, leading to withdrawals from storage facilities increasing through to the end of 2020.

The CCP virus falloff in oil and shale production is generally judged against record production levels measured in 2019. The bottom-of-the-curve production levels expected for June will only signify a two-year low, as current U.S. oil production is around 11,500 barrels per day. Measured against the March 2020 record of 12,900 bpd this is a significant drop, but the numbers remain on a par with 2018 production levels.

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