Big oil companies like BP, Royal Dutch Shell and ExxonMobil have spent $20 billion buying out hydraulic fracturing companies, potentially setting the stage for another American oil and natural gas boom built on the infrastructure of the first boom, The Wall Street Journal reported.
Oil companies are investing $20 billion in fracking operations on the hopes the price of oil will start to rise again. They are betting on fracking making more in the long run than traditional oil production.
Offshore oil drilling platforms and import facilities are too costly an investment when oil is $45 a barrel. Major players like Exxon have actually lost money in the U.S. drilling business for six straight quarters because it hasn’t mastered fracking technology.
In 2014 and 2015, fracking wells drilled by BP,Shell PLC, Exxon and Chevron were on average one-third less productive than wells drilled by fracking companies, according to another recent Journal report. The sheer amount of money the big oil companies have could potentially set the stage for another American oil and natural gas boom built on the infrastructure of the first boom.
Fracking accounted for 51 percent of American oil production last year, according to a March report by the Energy Information Administration (EIA). The EIA reported that in 2000, about 23,000 fracking wells provided 2 percent of the nation’s oil — about 102,000 barrels per day. In 2015, the number of fracking wells had grown to around 300,000, producing 4.3 million barrels of oil per day.
Fracking, combined with horizontal drilling, has allowed America to increase its oil production faster than any time in history. The process helped America surpass Russia as the world’s largest and fastest-growing producer of oil last year. American oil production in 2015 was 80 percent higher than it was in 2008. The U.S. produced an average of about 9.3 million barrels of crude oil per day in June.
The surge in American fracking and the actions of the Organization of Petroleum Exporting Countries (OPEC) have caused the price of oil to fall by more than 70 percent since the summer of 2014. Despite today’s historically low prices, some analysts see a price spike in the future, leading to a huge American oil boom.
Oil experts like Harold Hamm, the CEO of fracking firm Continental Resources, believe that the price of oil will double to $60 by the end of 2016. That would pave the way for an American oil boom. Currently, the price of oil is around $46.47 per barrel.
The longer current prices stay extremely low, the worse it is for major foreign oil producers like Russia, Venezuela, Brazil, and Iran. These countries require the price of oil to be above $80 a barrel to balance their national budgets. Industry experts believe that most new American fracking will be profitable at around $40 a barrel. Such a set up means that the price of oil will be essentially permanently locked in at prices favorable to American fracking.
All this speculation should be taken with a grain of salt, however, as only a few years ago forecasters and analysts at Business Insider were suggesting that oil could hit $300 a barrel.
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