Crude Oil Production Costs Vary Widely Around the Globe

by S. Tom Bond on March 12, 2020

Rystad Energy Cost Curve for Various Crude Oils Globally (1/12/2015)

Petroleum Production Costs are Under Study, Market Manipulation is Widespread

From an Essay by S. Tom Bond, Lewis County, March 11, 2020

Energy is a key to production, transportation, comfort and many other things in our world. War is a profligate use of energy. Until the use of steam power and electricity, technology changed slowly. The citizens of ancient Babylon or Assyria could adapt easily to the technology of Great Brittan of George III or the Germany of Wilhelm II, at the time James Watt developed the first widely used steam engine.

Today, cheap energy is the most sought commodity on earth. It is the key to both industrial and military power. For the present, oil is the preferred source of energy, and who has petroleum reserves, and the lowest cost of getting it to market, is the winner. Looking for a comparison of the cost leads to Rystad Energy data presented in graphical form below:

NOTE: Pumping costs by nation are in green and the total costs including capital and transportation in grey:

Petroleum Production Costs ($/bbl) by Country Vary Widely

Theoretically, oil prices should be a function of supply and demand. However, geopolitics and environment are also important concerns. The combined OPEC countries produce more oil than the United States but the U. S. is the top-producing nation, as well as the top consuming nation.

The United States imported 9.10 million barrels a day in 2019, while exporting 8.57 mb/d giving net imports of 0.55 mb/d in 2019. The two principal nations importing U. S. oil are Mexico and Canada. They also export to the U. S. so in net we send 0.54 mb/d to Mexico and receive 3.41mb/d from Canada.

As of late 2019, only four nations produced fracked oil and gas, the United States, Canada, China and Argentina. Many nations have frackable reserves, but the abundant reserves of easy to get oil and the high environmental costs outweigh it for many. The money cost of fracking is substantially more, even when the law allows externalization of environmental and health costs. Externalized costs are a most contentious subject in America today, and in other nations. In places fracking has been banned because of this, and we won’t get into that further here.

As for the greater cost of fracking to drillers, that is hard to track down. Sites are larger. Rigs are larger. More pipe is needed because wells are deeper. More cement is needed, more water, a larger impoundment, plus larger, more powerful equipment is needed. Special, imported, sand is used to keep the cracks open so the product oil and gas will flow. Several times as much water is produced than product, andmust be disposed of. Endless lines of trucks are needed to supply materials and carry away wastes, and vast amounts of diesel fuel.

There is a fracking cost given in the Rystad Energy graphic above, but it may be unrealistic, “politically correct.” More reliable is the following:

Shale oil costs more than conventional oil to extract, ranging from a cost-per-barrel of production from as low as $40 to over $90 a barrel.

A final point we want to consider is geopolitics. The four nations with lowest cost production are, first, Saudi Arabia, which can kill a famous journalist living in the U. S., visiting Istanbul, and carry away his remains in a brief case (Khashoggi). He was considered less valuable than the $110 million arms sales to the Saudi’s. Then Iran, Iraq and Russia. No need to say anything to this audience about the United States geopolitical stance toward them.

Indonesia trades mostly with the Oriental countries. The U. S. is pretty openly fomenting an overthrow of the government of Venezuela which has the world’s largest known reserves of oil. Nigeria is a mess, essentially the oil companies there do as they please. Brazil is essentially a dictatorship on good terms with United States.

Control of oil and gas is one of the reasons for the United States big military, larger than the next ten nation’s militaries combined. Unsurprisingly, this huge U. S. military is also the world’s largest single user of oil. The United States was the first nation to drill for oil, and for generations exported its resources. The “easy stuff” is gone here. Now the US must resort to other methods to retain its power.


See also: Oil Price News: Saudi Arabia Aramco to Pump Record Crude in April – Bloomberg, March 10, 2020

Saudi Arabia escalated its oil price war with Russia on Tuesday, as its state-owned company pledged to supply a record 12.3 million barrels a day next month, a massive increase to flood the market.

The supply hike — more than 25% higher than last month’s production — puts Aramco above its maximum sustainable capacity, indicating that the kingdom is even tapping its strategic inventories to dump as much crude, on the market as quickly as possible.

Moscow responded within minutes, with Energy Minister Alexander Novak saying Russia had the ability to boost production by 500,000 barrels a day. That would put the country’s output potentially at 11.8 million barrels a day — also a record.

{ 3 comments… read them below or add one }

Steve Curwood March 14, 2020 at 1:18 am

Living on Earth: This Week’s Show, March 13, 2020

Amid the turmoil of the novel corona virus pandemic, oil prices recently had the largest one-day plunge since 1991, with major implications for the shale industry and workers, the climate and national security. Lorne Stockman, senior analyst at Oil Change International, joins Host Steve Curwood to discuss how a Green New Deal framework with clean energy could reduce the impact of the boom-bust oil price cycle. (09:01)


Jon Queally CD March 15, 2020 at 8:25 pm

At ‘Shock Doctrine Press Conference,’ Trump Bails Out Oil Industry, Not US Families, as Coronavirus Crisis Intensifies — “Trump has once again put the interests of oil and gas executives ahead of the interests of people and communities.”

By Jon Queally, Common Dreams, March 13, 2020

Climate action groups and progressive critics expressed disappointment and outrage on Friday afternoon after President Donald Trump—despite a continued failure to offer far-reaching support to the U.S. public—moved to bolster the bottom lines of oil and gas companies by announcing a massive federal purchase for the nation’s Strategic Petroleum Reserve (SPR).

“Based on the price of oil, I’ve also instructed the Secretary of Energy to purchase at a very good price large quantities of crude oil for storage in the U.S. strategic reserve,” Trump announced during a White House press conference—surrounded by CEOs from major corporations, including Walmart, CVS, and Target—in which he also declared an official national emergency in order to combat the outbreak of the coronavirus.

“With this move, Trump has rolled out a plan to prop up U.S. oil companies before he has even bothered to guarantee paid sick leave for US workers who are going to be on the frontlines of the coronavirus crisis for weeks to come.” —Alex Doukas, Oil Change International

“We’re going to fill it right up to the top,” said of the SPR, but critics were quick to point out that move has everything to do with helping his wealthy friends and cronies in the fossil fuel industry, and nothing to do with helping average people now under threat from the spreading pandemic.

“Trump has once again put the interests of oil and gas executives ahead of the interests of people and communities,” said Alex Doukas of Oil Change International. “With this move, Trump has rolled out a plan to prop up U.S. oil companies before he has even bothered to guarantee paid sick leave for US workers who are going to be on the frontlines of the coronavirus crisis for weeks to come.”

The news came Friday as additional school closures were announced for states nationwide, grocery store shelves were wiped clean, and worry continues to spread about just how extensive the outbreak will become.

Greenpeace warned that the total cost of the oil purchase “could exceed $2.6 billion in public funds,” a stark comparison when put next to the proposal put forth by House Democrats just hours earlier. Introducing the “Families First Coronavirus Response Act”(pdf), which calls for an estimated $1.7 billion aimed at helping working families and children to weather the public health crisis, House Speaker Nancy Pelosi said, “The American people expect and deserve a coordinated, science-based and whole-of-government response to keep them and their loved ones safe: a response that puts families first to stimulate the economy.”

By putting his adminstration’s emphasis on bailing out the oil industry, John Noël, a senior climate campaigner for Greenpeace USA, said the president is doing the opposite of putting people first.

“Trump’s response to a global pandemic is to put billionaires and corporate polluters ahead of American families. There’s no evidence that this handout would protect jobs, pensions, benefits, or ease the hardships facing fossil fuel workers or communities confronting the COVID-19 outbreak right now. It’s nothing more than a gift to the industry that created the climate crisis.”

Doukas agreed, calling it “wildly inappropriate” for Trump “to abuse the Strategic Petroleum Reserve as a tool to prop up the oil and gas industry at a time when the White House should be focusing on how to help everyday people in the US.”

“Where is the relief for workers grappling with caring for their families, retail workers risking exposure every day, families grappling with debt and mounting bills while their livelihoods are put at risk?” he asked. “No, today President Trump focused on propping up polluting industries and trotting out CEOs to sell their wares.”

Despite the criticisms from those focused on the needs of families, it appeared the announcement during what was dubbed Trump’s “Shock Doctrine press conference” had the desired result.

As CNBC reported, following Trump’s late-day announcement, “crude futures jumped 5%” in the last hour of market trading.


Bloomberg News March 31, 2020 at 11:03 pm

Saudis Make Good on Oil Wave Promise

— Saudis Make Good on Oil Wave Promise —

By Javier Blas and Brian Wingfield, Bloomberg, March 31, 2020

(Bloomberg) — Saudi Arabia has made good on its pledge to ramp up oil exports in April, with a first wave of crude already on its way toward Europe and the U.S., a clear sign the price war remains in full swing.

The kingdom has loaded several of the supertankers it hired earlier this month to boost its ability to increase exports, according to ship-tracking data. In addition, Riyadh has used the last few weeks to shuttle large amounts of crude into storage in Egypt, a stepping stone to the European market.

The movements suggest that Riyadh is ramping up its oil production toward its target of supplying a record 12.3 million barrels a day in April, up from about 9.7 million in February, despite American pressure to end the price war.

Saudi Arabia earlier this month slashed its official selling prices and announced the output hike after Russia refused to join other nations inside the OPEC+ alliance to cut output. The announcement, interpreted in the market as an oil price war, sent Brent and West Texas Intermediate crudes tumbling. Since then, the collapse in oil demand due to lockdowns to stop the spread of the coronavirus has depressed prices even more.

In a sign that Riyadh is opening the valves, oil shipments have already surged in late March. For the first three weeks of March, Saudi Arabia was exporting at a rate of around 7 million barrels a day, but that jumped to more than 9 million barrels a day in the fourth week of the month.

With oil prices at the lowest in nearly two decades, U.S. Secretary of State Michael Pompeo last week directly asked the kingdom to “rise to the occasion and reassure” the energy market, diplomatic language for ending the oil price war.

American President Donald Trump and his Russian counterpart, Vladimir Putin, agreed in a phone call Monday that “current oil prices aren’t in the interests of our countries,” according to a Kremlin spokesman, though he declined to say what might be done to change the situation.

Trump earlier indicated that he was concerned about the impact of low oil prices on the American petroleum industry. In an interview on “Fox & Friends,” he said Russia and Saudi Arabia “both went crazy” and started an oil price war.

Despite the diplomatic pressure, Saudi Arabia is preparing to export more in the next few days. At least 16 very large crude carriers, collectively able to carry about 32 million barrels, are stationed near the Saudi oil terminals of Ras Tanura and Yanbu, according to shipping data tracked by Bloomberg.

“Regardless of the recent headlines about the U.S. pressuring Saudi Arabia, we do not see any change in Saudi or Russian policy for now,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd., a London-based consultant.

Riyadh has already loaded three supertankers that are likely to head to the U.S., and it’s loading a fourth right now, according to oil market intelligence firm Vortexa Inc. The tankers, all hired by the Saudi national tanker company in the past few weeks to boost its shipping capacity, include the Dalian, the Agios Sostis I, the Maran Canopus, and the Hong Kong Spirit.

Shipments to Egypt

Already through March, Saudi Arabia has exported about 1.3 million barrels a day into Egypt — the highest level in at least three years — to pre-position crude for re-export into Europe, according to shipping tracking data compiled by Bloomberg and people familiar with the operation.

The surge in shipments to Egypt was so large that the African nation may become the largest destination for Saudi crude in March, displacing China and Japan, which traditionally top the ranking every month.

The cargoes have gone to a terminal at the south end of the Suez Canal before getting pumped via pipeline across the country to a storage and export facility called Sidi Kerir on the Mediterranean Sea. From there, the crude will then get re-exported as part of Saudi Arabia’s plan to supply as much as it can, at deep discounts, into a market that doesn’t need the supply. The world’s largest oil tankers, known as VLCCs, cannot sail the Suez Canal fully loaded due to draft limitations.

The next sign of whether the oil price war continues will come around April 5, when state-owned Saudi Aramco is expected to release its monthly official selling prices for May. Oil refiners and traders believe that Riyadh will have to deepen its discounts to sell all the oil the kingdom wants. If Aramco does indeed deepen the discounts, it will trigger a fresh round of tit-for-tat actions with other oil producing nations, piling further pressure on prices.


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