Shale Oil: When 500,000 Barrels a Day Isn't Profitable


If you've paid attention to the news for any and all of the past year, you probably know two things above all else: the United States is drilling for shale oil in record quantities, and the cost of oil is dropping faster than a prom dress. These two facts have come to a very ugly confrontation given that shale oil requires a particular break-even point in order to remain profitable, and oil has stayed below that benchmark rather stubbornly for the span of the past few months. What is the United States' domestic production of shale oil going to look like in the foreseeable future if drilling costs more money than it brings in, and how will it affect the price of the commodity?

Bakken To The Future

The richest trove of oil in the continental United States, and possibly all of North America, exists in a small corner of southwestern North Dakota (or northwestern South Dakota, depending on your preferences). This formation is known as the Bakken shale deposit and it, more than any other factor, has been responsible for the turmoil of the global oil market. Bakken has anywhere between three and four billion barrels of oil sitting about three-quarters of a mile below the surface, in addition to a number of natural gas pockets that can be used in much the same fashion. United States energy concerns have only started drilling in Bakken fairly recently -- the first geological estimates of the trove were published in 1999. Prior to the turn of the millennium, shale oil was considered less feasible than well drilling and offshore drilling due to the need to keep the site highly pressurized and to have a large quantity of water on hand to sluice out the sweet crude. As markets rose, however, what was previously unfeasible became feasible, then experimental, then operational, and finally mega-profitable. The good times came to an abrupt end, however, when the supply glutted the market and began to drive prices down.

The Problem With Shale

A standard oil ...

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