US Shale Loses Oil Price War

By Rhod Mackenzie

Trumps tariff wars have caused havok with oil prices with the current oil price below $70 per barrel and this has caused  US shale companies to start shutting down drilling rigs and cutting back on production because the current global oil price are rendering them completely unprofitable. It also appears that the period of significant growth in the US shale industry is drawing to a close. Plus, analysts are confident that the US may not witness the same level of production growth as they witnessed a decade ago.
The period of significant growth in the US shale industry is drawing to a close. Despite promises made by Donald Trump to "speed up" production, oil and gas companies are shutting down drilling rigs and cutting costs. The Financial Times reports that lower il prices are having a negative impact on profits.

Estimates of shale producers' profitability vary. A quarterly survey conducted by the Federal Reserve Bank of Dallas indicates that U.S. shale companies require minimum pricing of at least $65 per barrel to reach ther breakeven point . So recently  the price of U.S. West Texas Intermediate crude has dipped below $62 per barrel.

According to Rysrad Energy, the breakeven point for production in fully undeveloped shale fields in the US is $55 per barrel. For comparison, the same figure for easy-to-extract fields in the Middle East is $27 per barrel, according to Sergey Tereshkin, CEO of Open Oil Market.
"The cost of production in the US varies significantly for shale projects, with costs ranging from low to high. However, it is important to recognise that the initial cost of extracting shale hydrocarbons can be substantial. The decision by Americans to commence shale oil and shale gas production was not driven solely by the prevailing economic conditions. In the 1970s, it became apparent that conventional deposits in the US were depleting, prompting the introduction of incentives for new developments to ensure consistent production levels. However, it was not until the 2000s that this strategy gained traction, coinciding with the shale revolution. They were able to combine two technologies that were already known to the industry, enabling the profitable production of shale gas. However, if the US had abundant classic deposits with low costs, then shale projects would not have been considered," says Igor Yushkov, an analyst at the Russian Financial University and a member of the National Energy Security Fund (NESF).

Initially, the focus was exclusively on gas production, with the subsequent development of the light sweet gas condensate, now known as shale oil, occurring in a subsequent phase.
Another factor that has driven the shale revolution is high gas prices.
"If gas prices in the US had not been so high by the beginning of the 2000s, then the shale revolution might not have happened."
Whilst there has been significant progress in production technology, the extraction of shale oil remains a costly process. Consequently, when the price of oil fell below $70 per barrel, statistics immediately showed a decrease in the number of drilling rigs in the United States. Production levels are currently below the record levels achieved back in 2022-2023.

According to Statista, the number of rotary drilling rigs for crude oil and natural gas production in the United States in 2022 was 723 units, and in 2023 it was down 687 units. In February 2024, only 590 units were in operation and the number continues to drop as the price of oil drops.

Plus, if we go back a decade, we can see that the decline in shale hydrocarbon production looks even more significant. In 2012, the United States had almost 2,000 drilling rigs. This is almost four times the current figure.

According to Yushkov, the more profitable fields in shale formations with the lower production costs and higher profits have been depleted, as they were drilled first, especially during the crisis periods of falling prices in 2015 and 2020. It is logical that in the US there remain only the areas with more complex wells in terms of geology and economics, work on which is more expensive.
The continued decline in shale hydrocarbon production is contingent on global market conditions. "Should oil prices rise to between $80 and $85 per barrel, then we can expect to see an increase in American production.
Conversely, should prices fall or remain low, then we can also expect to see the continued  decline in production. The volume of production in the US is determined solely by economic factors, in contrast to the price of oil on the global market, which is influenced by various factors, including US policy.
For instance, if the US were to impose more stringent sanctions on Iran or Russia, potentially leading to a reduction in their ability to make oil exports, then there is a possibility of rising prices. That would lead to , American projects will become more profitable, and the US would resume drilling and production of oil. However, it should be noted that there will no longer be an exponential growth in shale oil production, as was the case ten years ago. The period of rapid growth in the US is definitely over," says Igor Yushkov. He explains that new fields that will appear in development will not replace the lost volumes from old depleted fields.

The significance of the shale boom for the US economy was considerable. Firstly, the growth of shale gas productions led to some of the lowest prices for this commodity on the domestic market worldwide. Recently, the price of 1,000 cubic metres of gas in the US increased from $100 to $150. It is not surprising that the US is able to attract plants from the EU, where gas prices are several times higher.
A welcome by-product of this process was the production of gas condensate, now commonly referred to as shale oil. The US primarily exports light oil, while importing heavy sulfur oil from Canada and Mexico, as it is technically better suited to American refineries. However, the US has successfully reduced its oil imports.

In the  mid 2000 's  oil imports to the US exceeded 10 million barrels per day in but by 2024 they had dropped to 6.6 million. At the same time, oil exports from the US increased from 590 thousand barrels in 2016 to 4.1 million barrels per day in 2024, according to Sergei Tereshkin.

The shale revolution has had a significant positive impact on the American economy, contributing to increased GDP growth, strengthened the  labor market, and improved trade balance through higher exports. Furthermore, the US's own oil supply has reduced its reliance on foreign suppliers, such as Saudi Arabia.

"The political consequences of the shale revolution have enabled the United States to enhance its independence from the Middle East and to pursue a freer economic policy in that region.

Prior to the shale revolution, the US relied on oil from the Middle East, including Saudi Arabia, the UAE, and Iraq. Previously, Saudi Arabia could always rely on the US for political and economic support. Saudi Arabia was a key supplier of oil to the US, so the US had a strong interest in maintaining stability in the Middle East. Conflicts in the region could potentially disrupt oil supplies to the US, which would be a significant economic concern.
 It is important to note that the majority of Saudi Arabia's oil exports now go to China, which is the United States' main geopolitical competitor. The US is no longer a guarantor of security for Saudi Arabia; it is becoming a threat," says Yushkov.

What measures could the US take to impact China? "The US thinks it has the capacity to restrict China's access to oil from Russia and Saudi Arabia. Consequently, if the US were to seek to destabilise Saudi Arabia, it would be in China's interests to reduce their imports of Saudi oil, rather than in the US's own interests, as has been the case in previous years," the analysts concludes. But if they did that they would drive up the price of oil which would help their drillers but hurt their own economy by increasing gasolene prices.