Red oil barrels image via ezioman/flickr. Creative Commons 2.0 license.

Three things you shouldn’t miss this week

  1. Chart: Oil production break even prices:

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Image source: Energy tracker via FT
 
  1. Article: Oil price plunge means survival of fittest – Crude at $70 puts at least 1.5m b/d of projects for 2016 at risk
  1. Article: Fracking could carry unforeseen risks as thalidomide and asbestos did, says report produced by Government Chief Scientist – Historic innovations that have been adopted too hastily with grave unforeseen impacts provide cautionary examples for potential side effects of fracking.

 

The price of oil crashed below $65/barrel this week, its lowest level since 2009. The speed of the fall, from $100/barrel as recently as September, has caused mayhem in the financial markets. The price drop may be seen by some as a Christmas present for motorists, but for oil companies already struggling with spiralling costs, and oil producing nations trying to balance state budgets, this is a crisis in the making.

Some commentators gloated that the price plunge signalled the death of OPEC, since the oil producers’ cartel is apparently ‘unable’ to stem the slide – implying low oil prices for the long term. But this seems wide of the mark; it’s much more likely Saudi Arabia is happy to see the oil price slide and put upstart US shale producers out of business.
 
And it may well work, because current prices are below the break-even price for many new shale oil projects – not to mention the Canadian tar sands and a lot of deepwater offshore. If shale drillers start to fold, and big international oil companies defer major production projects, the oil supply could soon tighten once again. Reuters reported this week that new permits for US wells fell by 40% in November – a sign of things to come?
 
Not according to Exxon, the world’s biggest energy company, which anticipates a fracking bonanza out to 2040 as demand for energy soars in the developing world. Exxon anticipates that North American unconventional gas production will nearly triple by 2040. This forecast is in conflict with new research reported this week from the University of Texas which found that EIA forecasts for growing shale gas production to 2040 are based on future wells being as productive as past wells – an unlikely scenario given that the best resources are typically exploited first.
 
Exxon’s vision of the future was also in stark contrast to statements coming from the latest UN climate talks in Lima this week. President of the World Bank Jim Yong Kim called for zero carbon energy emissions by 2050 and Ed Davey warned pension funds of the risk of investing in fossil fuels that may need to left in the ground, saying that they could become “the sub-prime assets of the future”. The Bank of England is to conduct an investigation into this so-called carbon bubble. Good news then that the alternatives are growing in strength – wind power in the UK hit a new record on Sunday, powering 43% of our homes on that day.
 

Related Reports and Commentary
Could Falling Oil Prices Spark A Financial Crisis? – The oil and gas boom in the United States was made possible by the extensive credit afforded to drillers.
Energy Access: why coal is not the way out of energy poverty – Carbon Tracker