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Rystad: U.S. Shale Is Now The World’s Second Cheapest Source Of Oil Supply

Tsvetana Paraskova

U.S. shale oil—which just four years ago was the world’s second most expensive oil resource—is now the second cheapest source of new oil supply globally, just behind the giant onshore oil fields in the Middle East, Rystad Energy said on Thursday.

North America’s tight oil has reduced costs over the past four-five years and has proven to be a competitive source of oil supply even when oil prices are not very high, according to the energy research firm.

Rystad Energy estimates in its latest cost of supply curve update that the average Brent Crude breakeven price for tight oil is now US$46 a barrel, just four dollars above the average $42 per barrel breakeven oil price for the giant onshore fields in Saudi Arabia and other Middle Eastern countries.

To compare, in 2015, North America’s shale ranked as the second most expensive resource in Rystad Energy’s global liquids cost curve, with an average breakeven price at $68 per barrel.

In 2019, onshore Middle East leads the cheapest source of supply, followed by North American shale, offshore shelf with average breakeven price of $49 a barrel, deepwater with a $58 breakeven price, and Russia onshore with $59 a barrel breakeven. The most expensive source of oil supply is the oil sands, where the average breakeven oil price is $83 a barrel, Rystad Energy’s cost curve analysis shows.

“Tight oil is a short cycle investment with a relatively brief lead time from the sanctioning of new wells to the start of production. This gives E&P companies the flexibility to adapt to market conditions and easily change activity levels,” Espen Erlingsen, Head of Upstream Research at Rystad Energy, said, commenting on the analysis.

“In the ever-changing oil price environment, this implies tight oil investment has less uncertainty compared to offshore,” Erlingsen added.  

According to the Q1 Dallas Fed Energy Survey, with executives from 82 E&P firms chiming in, average breakeven prices to profitably drill a new well in the U.S. range from $48 to $54 per barrel, depending on the region. Drillers need $50 a barrel on average to profitably drill a new well, down from $52 per barrel when the same question was asked last year. Average breakeven prices in Midland in the Permian were $48, the lowest-cost in the U.S., and the lowest-cost region in the past three years.  

By Tsvetana Paraskova for Oilprice.com

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