What is the break-even dollar value per barrel of oil for major oil producing countries?
HI
To me there is no one break-even dollar value. The markets are in a flux and so is commodity or crude oil mining.
The myth that once i drill for oil , oil flushes constantly is pretty dead.
just out of curiosity , take a look at well logs. they are really interesting.
Once i find an reservoir ( a geological formation) , i need to explore around it and take a decision.
all that takes lots of cash.
and hence your costs shoot up and so the constant break even price is out of window.
technology takes a lot of investments.
and as of now we are 100 years into E&P , so most of the low hanging fruit is gone.
my gander is that all geological regions are more of less break even. ( OPEC and non-OPEC).
so who wins the game :
Now here is something for comparison:
The Actual Daily Natural Gas Marcellus Shale & Permian Shale Production & Royalty numbers
Shale Natural Gas Supply Snapshot
Marcellus Shale few years ago (around 2003) was nothing : zero
Permian Shale was not as much.
We are working on the crude oil numbers and will provide it shortly.
also take a gander at the daily Royalty numbers.
So to summarize :
The region that has :
1.more qualified manpower,
2.less wastage,
3.more efficient systems,
etc wins the game.
and you know the answer to that.
regards
Parag
The marginal cost of extraction per barrel is what you have referred to as the "break-even dollar value per barrel". The marginal cost covers only the daily operational and maintenance cost including material and labour. It does not account for any part of invested capital or debt. Contrary to popular opinion, the price of oil is always determined by supply and demand fundamentals. It is always commensurate with the marginal cost incurred by the producer who produces the last barrel on the demand curve.
For example, Saudi Arabia operates at the lowest marginal cost of $3 per barrel at the minimum. The rest of the middle-eastern OPEC countries incur around $6-$9 per barrel.
As we move along the merit order, we have the other OPEC nations like Algeria, Libya etc with a cost ranging between 15 and 30 dollars per barrel.
Moving further along the order, we have the oil fields in the North Sea and the Gulf of Mexico where the major international oil companies incur a cost of up to $50 per barrel.
The cost goes up to $60 for projects in the North Sea and in Angola. It is important to note that there are primarily offshore oil fields.
Next on the curve is the oil extracted using EOR (Enhanced Oil Recovery methods including fracking for shale) which is more expensive with the cost going up to $70 per barrel.
The rear end is brought up by the production from tar sands in Canada at around $80 per barrel. This means that the price of oil is set by the Canadian producers at around $80 which is their break-even point.
This also means that if the producers with lower marginal cost (especially Saudi Arabia and other OPEC members who do not produce up to their full capacity) decide to put more oil on the market, the expensive producers are eliminated from the market.
You may look at the following graph from Financial Sense (IEA: The Shale Mirage - Future Crude Oil Supply Crunch? ) to help illustrate the mechanism better. This analysis assumes the oil demand to be at 85 billion barrels. As you can see, the order is a little different from the one I have used.
A number of energy and financial analysts in firms around the world work on determining this figure and as it is not always possible to determine the exact marginal cost of production for countries, there are several sources of data which may or may not be in agreement with each other. One can also look up the analysis from Platts to see what their figures are.
There are three major producers today: Russia, Saudi Arabia and the U.S.
Russia produces at a breakeven of about $30 per barrel, and Saudi Arabia is under $10 per barrel, although it's not clear the exact amount it turns a profit at.
The U.S. is different because of the emergence of shale oil, which has quickly changed the profit point. Even two years ago shale was profitable at about $70 per barrel. Now EOG Resources (EOG) has said it can turn a profit at $40 per barrel; largely from the improvement in efficiencies forced upon it and other shale companies because of the oil price war going on.
For this reason it's almost impossible to put a breakeven point on U.S. oil production, because it's extracted in a variety of ways. Since shale is rapidly becoming the dominant oil resource in America, I would go with that. But even there breakeven can change from company to company, depending on where they are currently producing at and how good of a job they've done in cutting costs.
The break even dollar value only tells half the story.
It says how much the oil needs to be sold to break even to cover the production costs. But this value means nothing for producers like SaudiAramco, which needs to carry the whole weight of the country's economy. For Saudi, the break even price is about $60~$70 I believe, where they can sustain the countries expenses.
To more accurately answer the question as asked, look at this chart:
This only shows the OPEC countries and there are other national oil companies that are not members who also support most of the expense of their government the price of oil. As you can see, all of these are failing to make enough cash flow to meet their annual expenses at the current prices, some much more than others. Most have some cash put away to cover these type of situation and again, some more than others. It will not be long before some of these governments will be having to cut back severely on their citizen subsidies and handouts. That situation could end up being brutal.