Question: Did domestic producers ramp down during the pandemic when the price of oil went negative? I'm wondering if part of this recent price spike is because it takes time for the frackers to wind down and wind back up production. I think I remember reading that fracking is only profitable at a certain price and that it could take a while to get things back up if they've been shut down.
Question: Did domestic producers ramp down during the pandemic when the price of oil went negative?
As best they could. Its not easy to shut down an "active" well, which is what forced prices negative in the first place. But we basically killed the exploration industry - I've got friends at Schlumberger who can attest to as much when they watched whole divisions get shuttered overnight. Deep sea drilling projects were abandoned in droves. The Balkan Reserves were just about abandoned.
I think I remember reading that fracking is only profitable at a certain price and that it could take a while to get things back up if they’ve been shut down.
The natural gas boom has heavily displaced coal fired power-plants, particularly in states like Texas where you can just throw up a plant, tie it to the grid, and immediately start selling onto the wholesale market. So while there's definitely a price point below which frakking isn't profitable, we're not about it hit it with electricity in steadily increasing demand. But natural gas wells produce a host of different products, including some amount of liquid gasoline. The demand for power plant fuel creates a certain natural subsidy for this liquid gas as a consequence.
You might be thinking of shale drilling. And that price point for production is significantly higher. Somewhere in the neighborhood of $70-80/bbl. But they've also got a distribution problem (not enough trains and pipelines) that the energy crash didn't do anything to fix.
Good info. So what's your sense of how transitory the fuel price increase is? I went through and checked the weights of the CPI and the biggest contributor to the 8.5% figure was gas for cars at 2%.
Honestly no idea. Domestically, there's no reserve shortage. But after the price plunged years back and COVID demand shock nearly killed the industry, I imagine the big players will be more conservative in how they develop new wells.
This, plus the fight with Russia and rising demand in China would make me think demand will continue to outstrip supply into the foreseeable future.
Question: Did domestic producers ramp down during the pandemic when the price of oil went negative? I'm wondering if part of this recent price spike is because it takes time for the frackers to wind down and wind back up production. I think I remember reading that fracking is only profitable at a certain price and that it could take a while to get things back up if they've been shut down.
As best they could. Its not easy to shut down an "active" well, which is what forced prices negative in the first place. But we basically killed the exploration industry - I've got friends at Schlumberger who can attest to as much when they watched whole divisions get shuttered overnight. Deep sea drilling projects were abandoned in droves. The Balkan Reserves were just about abandoned.
The natural gas boom has heavily displaced coal fired power-plants, particularly in states like Texas where you can just throw up a plant, tie it to the grid, and immediately start selling onto the wholesale market. So while there's definitely a price point below which frakking isn't profitable, we're not about it hit it with electricity in steadily increasing demand. But natural gas wells produce a host of different products, including some amount of liquid gasoline. The demand for power plant fuel creates a certain natural subsidy for this liquid gas as a consequence.
You might be thinking of shale drilling. And that price point for production is significantly higher. Somewhere in the neighborhood of $70-80/bbl. But they've also got a distribution problem (not enough trains and pipelines) that the energy crash didn't do anything to fix.
Good info. So what's your sense of how transitory the fuel price increase is? I went through and checked the weights of the CPI and the biggest contributor to the 8.5% figure was gas for cars at 2%.
Honestly no idea. Domestically, there's no reserve shortage. But after the price plunged years back and COVID demand shock nearly killed the industry, I imagine the big players will be more conservative in how they develop new wells.
This, plus the fight with Russia and rising demand in China would make me think demand will continue to outstrip supply into the foreseeable future.