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Yergin: OPEC Underestimated Resiliency of U.S. Oil Output


OPEC was mistaken in thinking that U.S. shale oil production would be unprofitable once crude prices slipped below $90 a barrel, according to Pulitzer Prize-winning author Daniel Yergin.

The Organization of Petroleum Exporting Countries will have a tough time coming to an agreement about production when ministers gather Nov. 27 in Vienna, said the vice-chairman of IHS Inc., an Englewood, Colorado-based consultant. Oil prices plunged into a bear market last month, the result of a surge in shale drilling that lifted U.S. output to a three-decade high, as OPEC output rose and there were increasing signs of slower demand growth.

“One of the big surprises for many is how resilient the shale oil sector is in the United States because of technology, efficiency,” Yergin said in an interview today after speaking at the 10th Annual Columbia University Energy Symposium in New York. “The speed with which it’s going up the learning curve compensates for the speed with which they are going down the price curve.”

U.S. crude output rose to 9.06 million barrels a day in the seven days ended Nov. 7, the highest level in weekly data that started in 1983, according to the Energy Department’s statistical arm. U.S. production will rise to an average 8.57 million barrels a day this year and 9.42 million in 2015, the most since 1970, up from 7.46 million last year, the EIA said in its Short-Term Energy Outlook on Nov. 12.

About 80 percent of shale “oil production coming into the system in 2015 would be economic between $50 and $69 a barrel,” Yergin said. “I think there was an assumption among OPEC countries and, you know, Europeans and others, kind of below $90 the shale gas, the shale oil, would not be viable.”

Tumbling Prices

Brent touched a four-year low of $76.76 a barrel Nov. 14 on the ICE Futures Europe exchange. The benchmark for more than half the world’s oil advanced $1.03 today to close at $80.36, leaving it down 27 percent this year. West Texas Intermediate on the New York Mercantile Exchange is down 22 percent in 2014.

“People will focus in on the most productive plays,” Yergin said. “They’ll kind of put aside the peripheries, they’ll put aside new land acquisition and really focus on the productivity of their wells, and people know a lot more about producing than they knew a few years ago.”

OPEC pumped 30.97 million barrels a day in October, exceeding its collective output target of 30 million barrels a day for a fifth straight month, according to a Bloomberg survey.

“I think this highlights the fact that OPEC is an organization of countries with very different positions, very different economic and political situations,” Yergin said. The members are “only united by one thing, they all export oil. OPEC is an association of countries of whom a few members are really key.”


11 Comments on "Yergin: OPEC Underestimated Resiliency of U.S. Oil Output"

  1. nemteck on Sat, 22nd Nov 2014 2:30 pm 

    “…. would be economic between $50 and $69 a barrel ….”. Are all other cost such as taxes and transportation included? How about debt service? It is reported that some producers use 40% of income to pay for the interest on debt.

  2. ghung on Sat, 22nd Nov 2014 3:06 pm 

    “One of the big surprises for many is how resilient the shale oil sector is in the United States because of technology, efficiency,” Yergin said

    Then again, maybe not. Ron has a new post over at

    Bakken Sweet Spots are Petering Out

  3. dissident on Sat, 22nd Nov 2014 3:28 pm 

    Why would anyone listen to this clown who has been systematically wrong?

  4. Nony on Sat, 22nd Nov 2014 4:23 pm 

    1. We need more time to see how resilient or not shale is. (Cautioning both sides here.) We just need to see it play out.

    2. Ron’s data is mostly pre price drop. So implies a geologic limit not a pricing one. Not relevant to this discussion.

    3. I think it’s pretty evident whether you think shale is resilient or not that it has the power to set price. THat it is the marginal barrel. It HAS stopped the climb to 150 that would have happened without it. In the end we will settle out where supply and demand match. Maybe we overshot low and some supply will dry up and we go up a bit. Maybe we stay here or go down a bit more. But clearly shale has some MASSIVE impact at 100ish. Price defining impact.

    4. There’s kind of no point for OPEC to try to constrain output. Shale will just rise and fill the void if price goes up substantially.

  5. Davy on Sat, 22nd Nov 2014 5:39 pm 

    NOo said – It HAS stopped the climb to 150 that would have happened without it.

    NOo, I am not sure if that is an accurate statement. The economy may or may not have been able to sustain that kind of price. Maybe a short spike. I think you are reaching with that statement.

  6. Plantagenet on Sat, 22nd Nov 2014 8:13 pm 

    These low oil prices aren’t good for anyone in the oil biz. Offshore oil, conventional oil fields, tar sands, frakking tight shale—-they are all taking a hit right now.

  7. keith on Sat, 22nd Nov 2014 9:45 pm 

    Why has no other country duplicated the shale revolution of the USA? Is the USA the only place on earth with shale deposits? The only difference I can think of is unmitigated money printing and zero percent interest rates. If shale is such a boon then other countries would’ve already repeated it.

  8. shallowsand on Sat, 22nd Nov 2014 10:51 pm 

    I’m not seeing $50-69 based on what I have read. First, that puts Bakken $35-54? Second, have read enough EUR posts on here to know that the math at those prices doesn’t work for most of the wells. Third, what rate of return is economic? Last, agree we need to step back for a little bit and see what happens, particularly if debt and equity can continue to be raised at these price levels.

    Interesting quote from CEO of Diamondback Energy Inc. in 11/14 issue of The American Oil and Gas Reporter, “Hunkering down doesn’t mean you spend $500 million on acquisitions. I think you are going to see a quieting of acquisitions until we all figure out where the bottom is and have confidence of turning the corner.” In the meantime, he said, spending excessively out of cash flow when the commodity price was down 30% and equity was down 25% wasn’t a very sound business proposition. “If we are in a sustained period of lower oil prices, the companies that have the most opportunities are going to be those that conserve cash, keep a focused balance sheet, and have that balance sheet available to flex when distressed or troubled assets come on the market. As a publicly traded company, you can raise debt or sell equity, and right now both of those are kind of shut off.”.

    Some reality buried on page 143 of an industry magazine. Doesn’t quite jive with what Yeargin says eh?

  9. coffeeguyzz on Sat, 22nd Nov 2014 10:59 pm 

    Keith, that is a good question that has been repeatedly asked and answered satisfactorily (IMO) in many online venues.
    It has been an expensive, originally high-risk endeavor. The NOCs have zero expertise in this field although the Chinese – primarily through their several billions of dollars invested in Joint Ventures with Shale E&P companies – have gained valuable operational knowledge and experience. This has directly led to the much-under-reported news that Sinopec has actually ‘cracked the code’ in the Fuling field with about 100 producing gas wells … and increasing rapidly.
    The Polish government pissed off the US majors with ‘flexible’ regulations after they started work there and it was ‘hasta la vista’ toot sweet.
    Argentina is actually making significant – albeit halting – headway in their huge Dead Cow formation, but the majors are still a little skittish after the Argies ‘assed out’ the Spanish company Repsol a few years ago.
    In the US, the underground mineral rights belong to the surface property owner. There is thus a strong financial incentive to allow the ‘industrialization’ of one’s area if one is apt to reap financial rewards. No other country is like that.
    Finally, the US contains something like 2/3 of the world’s drilling rigs and punches something like 75% of the world’s wells every year (precise data is googleable … not gonna do it now).
    There are numerous other reasons as well, but more to the point, other countries HAVE started to venture into this arena … but the US little E&P guys have led the way.

  10. meld on Sun, 23rd Nov 2014 2:08 am 

    And keith gets the gold star this week. This is probably a major reason why it’s not happening anywhere else. It’s a huge debt bubble that is unsustainable, but when you can print billions every month, bubbles are easy to keep going. Until they aren’t. This is why I’m not particularly worried about fracking in the UK, they’ll try a few wells, realise it’s a waste of time and move on.

  11. .5mt on Sun, 23rd Nov 2014 9:17 am 

    Indeed the shinning light of the UK will lead us. 🙂

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