Shale Drillers Are Outspending the World With $84 Billion Spree

[thackney]

Shale Drillers Are Outspending the World With $84 Billion Spree
https://www.bloomberg.com/news/articles/2017-05-09/shale-drillers-challenging-opec-with-84-billion-spending-spree

U.S. shale explorers are boosting drilling budgets 10 times faster than the rest of the world to harvest fields that register fat profits even with the recent drop in oil prices.

Flush with cash from a short-lived OPEC-led crude rally, North American drillers plan to lift their 2017 outlays by 32 percent to $84 billion, compared with just 3 percent for international projects, according to analysts at Barclays Plc. Much of the increase in spending is flowing into the Permian Basin, a sprawling, mile-thick accumulation of crude beneath Texas and New Mexico, where producers have been reaping double-digit returns even with oil commanding less than half what it did in 2014.

That’s bad news for OPEC and its partners in a global campaign to crimp supplies and elevate prices. Wood Mackenzie Ltd. estimates that new spending will add 800,000 barrels of North American crude this year, equivalent to 44 percent of the reductions announced by the Saudi- and Russia-led group.

“The specter of American supply is real,” Roy Martin, a Wood Mackenzie research analyst in Houston, said in a telephone interview. “The level of capital budget increases really surprised us.”

Drilling budgets around the world collapsed in 2016 as the worst crude market collapse in a generation erased cash flows, forcing explorers to cancel expansion projects, cut jobs and sell oil and natural gas fields to raise cash. The pain also swept across the Organization of Petroleum Exporting Countries, which in November relented by agreeing with several non-OPEC nations to curb output by 1.8 million barrels a day.

Oil prices that initially popped above $55 in the weeks after the cut was announced have since dipped to around $46, reflecting pessimism that the OPEC-led deal can withstand the onslaught of U.S. shale.So far, independent American explorers such as EOG Resources Inc. and Pioneer Natural Resources Co. are holding fast to their ambitious growth plans. Some recently finished wells in the Permian region yielded 70 percent returns at first-quarter prices, EOG Chief Executive Officer Bill Thomas told investors and analysts during a conference call on Tuesday.

EOG, the second-largest U.S. explorer that doesn’t own refineries, plans to boost spending by 44 percent this year to between $3.7 billion and $4.1 billion. Pioneer is eyeing a 33 percent increase to $2.8 billion. The sub-group that includes North American shale drillers like EOG and Pioneer is collectively targeting $53 billion in spending this year, up from $35 billion in 2016, according to the Barclays analysts led by J. David Anderson.

U.S. oil production is already swelling, even though output from the new wells being drilled won’t materialize above ground for months. The Energy Department’s statistics arm raised its full-year 2017 supply estimate to 9.31 million barrels a day on Tuesday, a 1 percent increase from the April forecast.

Next year, U.S. fields will pump 9.96 million barrels a day, 0.6 percent more than the department estimated last month....

[Frank Cannon]

OPEC is circling the drain. They can't control things like they used to back in the bad old days.

[thackney]

Getting close to back to the 2015 peak of 9.6 million barrels per day



4-Week Avg U.S. Field Production of Crude Oil
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=4

[thackney]

OPEC is circling the drain. They can't control things like they used to back in the bad old days.

Those gas lines were more a product of US government over-control than real market limitations.

[Frank Cannon]

Those gas lines were more a product of US government over-control than real market limitations.

Silly me. My memories tell me it had to do with the Rag Heads instituting an embargo because we backed Israel in a war.

[thackney]

Silly me. My memories tell me it had to do with the Rag Heads instituting an embargo because we backed Israel in a war.

That was the excuse used to put price controls and other regulations in place.  In reality, the embargo was mostly talk while the US government tried to force market changes by policy mandates.

How gas price controls sparked ‘70s shortages
http://www.washingtontimes.com/news/2006/may/15/20060515-122820-6110r/

[Suppressed]

That was the excuse used to put price controls and other regulations in place.  In reality, the embargo was mostly talk while the US government tried to force market changes by policy mandates.

How gas price controls sparked ‘70s shortages
http://www.washingtontimes.com/news/2006/may/15/20060515-122820-6110r/

From your source:

The controls were put in place by the Nixon and Ford administrations in reaction to a jump in fuel prices caused by cuts in production by the newly formed international oil cartel, the Organization of Petroleum Exporting Countries.

@thackney @Frank Cannon

[Frank Cannon]

From your source:
@thackney @Frank Cannon

Ah geez. Now I'm confused. I need to stop huffing spray paint for lunch.

@Suppressed @thackney

[Suppressed]

Ah geez. Now I'm confused. I need to stop huffing spray paint for lunch.

@Suppressed @thackney

Well, unless there's retrocausality...

@Frank Cannon

[InHeavenThereIsNoBeer]

From your source:
@thackney @Frank Cannon

Pretty much the only sentence in the article which could be chosen to even attempt to refute thackney's point that the MAIN cause of the gas lines was not the embargo, but the reaction of our expert Washington lawyers.  Here's another sentence (the next one), for example:

Back then, “price controls turned a minor adjustment into a major shortage,” said Thomas Sowell, author of “Basic Economics: A Citizen’s Guide to the Economy.”

[Smokin Joe]

Ah geez. Now I'm confused. I need to stop huffing spray paint for lunch.

Never before 5...

[DB]

Pretty much the only sentence in the article which could be chosen to even attempt to refute thackney's point that the MAIN cause of the gas lines was not the embargo, but the reaction of our expert Washington lawyers.  Here's another sentence (the next one), for example:

I'm inclined to accept Sowell's analysis.

[Frank Cannon]

Pretty much the only sentence in the article which could be chosen to even attempt to refute thackney's point that the MAIN cause of the gas lines was not the embargo, but the reaction of our expert Washington lawyers.  Here's another sentence (the next one), for example:

Before I sniff glue, can you explain how price controls cause the '79 shortage?

[DB]

Before I sniff glue, can you explain how price controls cause the '79 shortage?

Really?

Artificially lowering the price - hence price controls - means no one will produce the product to sell at a loss. In addition less investment goes into the production of the product so future supplies dwindle. Oil in particular requires investment far into the future to bring supplies on line. So shortages soon follow.

[Oceander]

Before I sniff glue, can you explain how price controls cause the '79 shortage?

Take a look at Venezuela today to see how price controls cause shortages, even in widely available commodities like toilet paper.   

[Oceander]

Really?

Artificially lowering the price - hence price controls - means no one will produce the product to sell at a loss. In addition less investment goes into the production of the product so future supplies dwindle. Oil in particular requires investment far into the future to bring supplies on line. So shortages soon follow.

They also mean that demand will spike, and available supplies will sell out much faster than would ordinarily have happened, exacerbating the shortage caused by a lack of new production. 

[thackney]

Before I sniff glue, can you explain how price controls cause the '79 shortage?

From the same link:

The public — as it does today — wanted low prices. But the artificially depressed pump prices imposed during the oil crisis of 1973 — which stayed in place in various iterations through 1980 — brought about lines at gas stations and an artificial shortage of gas, he said.

[thackney]

...Serious problems also result when government sets prices below the equilibrium level. This causes consumers to want more of the product than producers have available. When the federal government restricted gasoline price increases in the 1970s, long lines formed at gas stations and only those motorists who waited long hours in line received the scarce gasoline.

In both cases of government price controls, serious welfare loss results because not enough of the good is sold. The wasted chance to create both producer and consumer surplus from those sales is known as ‘deadweight loss’ because it is income that is lost forever. In addition to creating deadweight loss, an artificially high price transfers profits from consumers to producers; these rents are often wasted because producers spend them on lobbying and other influence activities to maintain the regulated price. In the case of a low price, producers transfer profits to consumers. Consumers, in competing for a limited amount of the controlled product, may waste as much as they gain from getting it at a low price. For instance, the people who waited in the 1970s gas lines probably shouldered as much cost from the lost time queuing as they saved from the price controls on gasoline. (Researchers Robert Deacon and Job Sonstelie have even argued that the gas lines cost consumers more than they saved from the controlled gas prices.) Thus, the artificially low prices not only hurt producers, but also consumers....

https://www.cato.org/publications/commentary/problems-price-controls

[thackney]

... Jack Rafuse, who served as an energy advisor to President Richard Nixon, explains:

For those with memories shorter than mine, President Richard M. Nixon imposed wage and price controls on Aug. 15, 1971.  Oil and gas were two of many commodities affected...

Nixon kept the wage-and-price controls on oil, gasoline and petroleum products in place, as did Presidents Gerald Ford and Jimmy Carter.  The results were disastrous.  Oil exploration and domestic oil production slowed sharply...

Thanks to this misguided policy, gasoline lines snaked along highways for hours during oil crises in the mid- and late-1970s.  Stations ran out of gasoline and laws told consumers which days they could purchase gas.  A windfall-profits tax compounded all the negative effects, and the shortages lasted until President Ronald Reagan repealed controls in 1981.  The price of a gallon of gas at the pump fell by a third over five years.

With this kind of record, you might wonder what Congress is doing considering price controls and windfall profits taxes on gasoline...

After Katrina, while the market encouraged everyone to cut back, there were no 1970s-style gas lines or closed stations elsewhere in the nation.

Other producers - domestic and international - were motivated by higher prices to take up the slack.  In fact, oil exploration drilling is at a 20-year high and expenditures are at an all-time high.  That's how markets work....

https://www.nationalcenter.org/TSR082707.html

[thackney]

... such as bills imposing the kind of price controls that led to shortages and gas lines in the 1970s and early 1980s. Back then, Americans learned the hard way that Washington can’t simply force down the price at the pump....

The FTC’s Primer on Price Gouging
http://s3.amazonaws.com/thf_media/2006/pdf/wm1120.pdf

[IsailedawayfromFR]

Those gas lines were more a product of US government over-control than real market limitations.

@thackney , I think what @Frank Cannon was referring to is that OPEC was the ultimate cause of the gas shortages in his picture.

OPEC raised its prices and our over-eager government did something about it which they believed was helpful, although it was not.

Guess what I am trying to say you are both correct.

[thackney]

@thackney , I think what @Frank Cannon was referring to is that OPEC was the ultimate cause of the gas shortages in his picture.

OPEC raised its prices and our over-eager government did something about it which they believed was helpful, although it was not.

Guess what I am trying to say you are both correct.

What I am saying is without the price controls, there would not have been gasoline lines, only higher prices.

[IsailedawayfromFR]

This strengthens the fact that OPEC is now a follower, not a leader in the world energy scene.

This only spells good things for this country's future in cheap energy and the standard of living attributable to that, as well as the geo-political world.

As long as don't screw it up with energy or carbon taxes.

[IsailedawayfromFR]

What I am saying is without the price controls, there would not have been gasoline lines, only higher prices.

I realize that, but what I am saying is that without OPEC's action, there would have not been price controls.

[thackney]

I realize that, but what I am saying is that without OPEC's action, there would have not been price controls.

Nixon had started price controls before the embargo, as early as "temporarily" in 1971.  The embargo was used to justify extending the price controls making the situation worse.