OPEC’s Gigantic Blunder

With WTI falling below $40 and perhaps heading for $20, one needs to wonder if OPEC’s strategy is working out as planned? Why are they following this course and what are their goals? The face value explanation, accepted by many, is that OPEC is protecting market share especially against rampant supply growth in the OECD, namely in the US LTO (light tight oil) patch. This post examines how OPEC’s market share has evolved with time and with past swings in the oil price.

This turned out to be more complex than expected. But scrutiny of the data shows that following each of the three oil shocks since 1965 (Figure 1) OPEC market share AND oil price fell (Figure 3). The most recent trend follows the 2008-2014 highs and I believe it is this observation that is driving current behaviour.

Had OPEC decided to sacrifice about 5% market share they could have maintained price above $100 per barrel for years to come in which time the US shale bonanza may have burned out. It seems that OPEC may have made a colossal error that threatens to de-stabilise their member countries. This post originally appeared on the Energy Matters blog.

Figure 1 OPEC market share is simply OPEC production / global production. It is very difficult to make sense of the data from this plot. In Figure 2 the variables are cross plotted against each other which does enable some sense to be made. Shock 1 = Yom Kippur, Shock 2 = Iranian revolution and Shock 3 = peak cheap conventional oil.

Figure 2 This chart cross plots the two variables shown in Figure 1. It should be obvious that there is no overall correlation between OPEC market share and price.  The chart is a time series that needs to be read in a counter clockwise direction beginning in 1965.  The arrow 2014 to today is conceptual since I do not have the BP C+C+NGL YTD data available. The arrow shows a very slight increase in OPEC share since their production has risen this year. The trends are summarised in Figure 3. The picture is clouded by the 2008/09 crash. These years are labelled 08 (8) to 14 (4). See text for further details.

Cross plotting market share against price produces a curious pattern which is a time series that describes different market behaviour for different time segments (Figures 2 and 3). To read the plot you have to begin in 1965 and work your way around in a counter clockwise direction. Note that by 1992-2003 the market had almost gone full circle. The period 1965 to 2003 is marked by two major events – the Yom Kippur war and the Iranian revolution that was followed by the Iran-Iraq war. Combined, these two shocks sent the oil price over $100 / bbl. The period 1979 to 2003 may be viewed as one of relaxation and adjustment back to the starting point. Post 2003 a new ball game began with a plateau in cheap conventional oil production. Using pre-2003 behaviour to predict what might happen now is likely a major mistake!

OPEC’s market share has varied enormously from a high of 51.2% in 1973 that coincided with low price and a low of 27.6% in 1985 that coincided with an intermediate price of $60 / bbl.

Figure 3 Summary of the trends evident in Figure 2.

There are three periods when OPEC enjoyed rising market share. The first, 1965 to 1973 had essentially flat prices. The second, 1985 to 1992 saw market share rising against a backdrop of falling price. The third, 2004 to 2014 saw OPEC market share increase marginally against a backdrop of rapidly rising prices.

The three cycles of rising market share are cancelled by three cycles of falling market share AND falling price. Each of these cycles occur after oil price shocks and OPEC therefore found itself in the early stage of such a cycle in 2014.

If one looks at prior falling share cycles, 1974 to 1978 was not that bad for OPEC. They lost 5% market share and the oil price shed $5. The second falling share cycle, 1979 to 1985, saw market share fall 18% (39% in relative terms) and price fall by $45. This was truly a bad period for OPEC and I dare say it is this that Saudi Arabia wants to avoid this time. This period also witnessed global oil demand in decline as the global economy adjusted to the sharply higher oil price. Hence at this time OPEC were getting a smaller share of a smaller pie. The third falling share cycle, 2008-2014 has seen market share fall a trivial 2.5% and price fall about $8 from record highs. And in this period most OPEC countries have been pumping at capacity and at record combined levels over 36 M bpd C+C+NGL. 2008-2014 has been an amazing pink patch for OPEC, too good to be true and too good to last.

Have OPEC just made a gigantic blunder?

Has the current OPEC strategy of flooding the market with their cheap oil turned out as planned or has it turned into a gigantic blunder? Figure 4 shows schematically three scenarios and alternative courses that may have been followed. The first is where we were heading. With the flood of oil that has come to market in 2015 combined with weak demand it is likely that OPEC would have had to cut production incrementally to have maintained the trajectory of slowly falling share and price. Scenario 2 shows what might have happened with a continuation of recent policy of supporting price. Trimming 4 M bpd from production (5% share) incrementally may have maintained prices of $100 / bbl. Scenario 3 shows what has come to pass and where we are heading.

Figure 4 Three conceptual scenarios for different courses of action that OPEC may have followed.

I think it is safe to presume that, with the benefit of hindsight, OPEC’s preference would be within the vicinity of the 2008-2014 cluster. At present it therefore looks like OPEC have made a gigantic blunder. Their actions can only be vindicated if they do manage to break the back of the US LTO producers and other OECD and non-OECD producers like Gazprom and to some time soon end up with significantly increased share and price. Since OPEC is already pumping flat out, the only way to significantly increase share is if global production falls. This would herald another global recession since GDP and oil consumption are generally correlated.

Had OPEC pursued option 2 they may have benefited from unpredictable global events working in their favour. In choosing option 3 they now appear to have elected economic suicide for many members. I’m sure that was not the intention.

What happens next? I believe that OPEC and Russia will hang tough for a while yet, until at least US oil linked debts are re-determined at the end of the third quarter. The outcome of that is in itself uncertain. While most predict a blood bath in the LTO patch, and I am not disagreeing that this is likely, strategic events are unpredictable. There is much hubris involved on both sides. Will the USA really sit back and watch its shale industry get kicked into the long grass?

Near term I think it likely we see WTI flirt with $20 and Brent below $30. At that point the global oil industry will be on its knees, including OPEC, the OECD and Russia. Russia may then either join or form an alliance with OPEC and we then see production cuts, incrementally up to 4 Mbpd and the price rise back towards that magic $100 / bbl number. I think it is safe to say that the oil industry and global economy are equally focussed on stability as they are price and many will be asking what was the point? Meanwhile, in an increasingly meta-stable world, events may sweep all this into oblivion.

Finally, a concluding thought. Had OPEC defended price as opposed to share they may have seen production fall by 5 M bpd and a price close to $100 maintained. The current course of defending 36 M bpd may take the oil price down to $20.

32 M bpd @ $100 is worth $1168 billion per year
36 M bpd @ $20 is worth $263 billion per year

The difference of $905 billion per year could make this one of the costliest blunders of all time.

Figure 5 The notional value of OPEC production calculated by multiplying daily production by price by 365.

All data from the 2015 BP Statistical Review.

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45 Responses to OPEC’s Gigantic Blunder

  1. Tony Noerpel says:

    Euan, how much of this falling price can be attributed to supply glut and how much to demand destruction?

    Thank you


    • Euan Mearns says:

      I have speculated about this since the oil price crash began. Best I could say is 50:50. Weak demand and over supply are most certainly both at work:


      Figure 18 This and the following chart are new additions to Vital Statistics. Quarterly data are taken from table 1 of the IEA OMR. Overall the data show growing supply and demand since 2010. Two things to note are the last nine quarters have shown continuous supply growth and the last two quarters show a decline in demand. This translates to a surge of surplus oil (Figure 19).

      Figure 19 The change in oil inventory is the difference between supply (production) and demand. I imagine that the IEA may actually monitor stocks and production and calculate demand on that basis. The key observation is that since 2010 supply and demand have been in balance, until recently, showing cyclical deficits and surpluses. We have OPEC to thank for maintaining that balance. Since OPEC abandoned their swing production role last year the surplus production has swollen to over 3 Mbpd during the 2Q of 2015. That is almost 100 Mbbls per month. We must surely run out of storage tanks at some point. There is little sign of production being pegged back anywhere and with large uncertainties in parts of the global economy – Grexit, China, interest rates – it is possible that demand continues to be weak although the IEA predict a cyclical recovery in demand the second half of this year. Note that the more recent quarterly data will be subject to future revisions by the IEA.

  2. Peter Lang says:

    Some preliminary thoughts:

    I have not taken much interest in oil prices. It is not my area of expertise.

    Low cost energy is good for economic growth over the long term and, therefore, for humanity

    High price oil caused high inflation in the 1970s and damaged world economic growth.

    Therefore, it seems, low price oil may have the opposite effect over the long term – i.e. stimulate economic growth – although there are inevitably adjustment costs with any such massive and sudden change.

    We may be better off in the long run.

    I suspect there is a lot of high level strategy behind what Saudi Arabia initiated (perhaps encouraged by the US Administration; e.g.:

    1. Putting significant pressure on Russia’s economy and therefore weakening it (and hopefully it will decide to leave Eastern Ukraine in Ukrane, stop threatening gas supplies to Europe and cooperate to stop ISIS)

    2. Putting significant pressure on Iran to get serious about moving towards compromise with the west

    3. Giving US an economic advantage over Europe

    • Euan Mearns says:

      Peter, just a few thoughts:

      A lot of the world’s cheap oil has been produced. What remains is expensive oil that cannot be produced at a profit with low price.

      Sure, low price is good for economic growth. But growth also needs more not less energy. A high price is required to assure that energy flow.

      High price is also required to underpin expensive renewables, though many will not mourn their passing.

      The global economy would give its right arm right now to have some inflation. Current low energy prices may exacerbate deflation that could be fatal for the heavily indebted.

      I’m sceptical about the ideas of grand political manipulation. If Russia cooperates with OPEC, this would be the exact opposite of these outcomes. And a massacre in the LTO patch is still expected. It would be strange for the USA to pursue this strategy.

    • Lars says:

      “Stop threatening gas supplies to Europe…”

      This is a myth. Russia has never threatened to stop supplies to Europe, but to the Ukraine because of failed payments.
      There is probably a lot that can be said about Russia, but they have always been a reliable energy exporter.

      • Willem Post says:


        The main problem with Russian gas has been dysfunctional, corrupt Ukraine being a major transit country of the gas.

        There were too few meters to monitor the transit, so Ukraine was habitually stealing gas that was meant for Europe.

        When Russia told them to stop it, they just laughed (they were being goaded by the US, NATO and Brussels), and Russia (to everyone’s surprise) cut of ALL the gas flow to and through Ukraine in 2006 and, after more stealing, again in 2009.

        Many people suffered, but meters, remotely monitored, were quickly installed, and those meters, purposely disabled, were enabled again, all due to pressure from Brussels on Ukraine. As a result, the gas started flowing again.

        Most people read western newspapers and get the impression Russia is to blame, but Russia would like nothing more than sell more gas to Europe, already its biggest customer.

        Europe pays for that much-needed gas with goods and services (jobs in Europe) which are much desired by Russians; a win-win all around.

        On a long-term basis, Europe’s own gas production is declining by about 2%/y and its consumption is increasing by about 1%/y.

        Europe would need at least half a dozen countries to supply the gas quantities it needs, if it tried to do without Russian gas, which likely will always be less costly than LNG.

        Here is an article with all the details:


  3. Peter Lang says:

    Thanks Euan,

    I agree with first and second paragraph. However, regarding:

    A high price is required to assure that energy flow.

    I believe the market is better at finding the right price rather than central controls. Eventually, the price will be set by the market. The oil industry has the best understanding of what reserves and resources are out there. And the experts have been predicting the world is running out of oil since I was at school. So, I am skeptical about these claims (while admitting I next to nothing about the details). .:)

    Skip third.

    I am usually sceptical about conspiracies, especially ‘grand conspiracies’. However, there are many examples where they have occurred and been kept hidden for a long time and later revealed/exposed: US, UK and Russia did various agreements between them at the end of WW II and others similar on a much grander scale happened after WWI. And Kennedy and Khruschev, and many more, so I am not totally dismissing that Saudi Arabia was ‘urged’ to do this by USA.

    • Euan Mearns says:

      I agree the market is best placed to discover correct price. But the oil market has never been unregulated. And I believe a good argument can be made for that. Had Saudi Arabia been left to Exxon, Shell and BP we would have seen a Saudi production peak of maybe 30 Mbpd in the 1990s, $1 oil and the world going on an enormous party. Followed by a gigantic hangover. So I believe OPEC restraint has been enormously beneficial for them and the global economy. What they are showing now is a lack of restraint.

      Now its possible to construct several very good arguments against that position – so fire away.

      • Peter Lang says:

        Thank you. I certainly defer to you on this subject. I do however seriously doubt that Saudi Arabia acted alone and didn’t get the nod of the US Administration, or perhaps even lent on.

        • Willem Post says:

          I agree. The Saudis and the US are very close, linked at the hip. The US says jump and the Saudis ask how high.

    • Jeff Edzier says:

      Former Saudi Oil Minister interviewed by the Guardian in 2001;

      “At this point he makes an extraordinary claim: ‘I am 100 per cent sure that the Americans were behind the increase in the price of oil [1973]. The oil companies were in in real trouble at that time, they had borrowed a lot of money and they needed a high oil price to save them.’

      He says he was convinced of this by the attitude of the Shah of Iran, who in one crucial day in 1974 moved from the Saudi view, that a hike would be dangerous to Opec because it would alienate the US, to advocating higher prices.

      ‘King Faisal sent me to the Shah of Iran, who said: “Why are you against the increase in the price of oil? That is what they want? Ask Henry Kissinger – he is the one who wants a higher price”.’

      Yamani contends that proof of his long-held belief has recently emerged in the minutes of a secret meeting on a Swedish island, where UK and US officials determined to orchestrate a 400 per cent increase in the oil price.”

      Another tinfoil hat conspiracy theorist?


  4. Euan:

    A few miscellaneous ramblings:

    Last year I wrote an impeccably-reasoned post detailing how OPEC was going to bury the shale oil producers. Well, so much for that.

    Undeterred, I am now going to make another prediction. The next meeting of OPEC, whenever it happens, will have a much larger effect on future global energy supplies than will the Paris Climate Conference.

    Predicting what the oil market will do in the future would be so much easier if we could figure out what made it behave the way it did in the past. The only common thread I can pick out of your graphs is that OPEC loses share after oil shocks, presumably because high prices stimulate production from non-OPEC countries. OPEC is now of course trying to buck that trend, which as you note takes us into terra incognita.

    Below Figure 1: Shock 3 = peak cheap conventional oil. I assume “conventional” excludes shale oil. So when is peak non-conventional oil going to occur?

    • Euan Mearns says:

      Roger, conventional crude does exclude shale. There is a lot of good data on when US shale oil is expected to peak – certainly before 2030 (that may mean before 20:30hrs today BTW ;-), but I don’t have links to hand. And so far no other country has managed to begin to replicate the US debt driven shale revolution.

      The one bit of the macro puzzle I’ve never been able to understand in detail is the debt, global economy thingy.

      Black day on the markets. Brent off 6.5%.

  5. Florian Schoepp says:

    Thanks for this informative post.
    Just a thought re LTO producers: a substantial amount of LTO is transported by rail. Looking at the freight companies such as BNSF, shows a decline of at least 10 to 15% in oil transported. Still, EIA shows increased production. Something does not rhyme here…
    In my opinion, the back of LTO producers is already broken, less oil pumped.
    And what about the hundreds of thousands of stripper wells? I don’t think they are profitable at current prices and quite a few will be shut in.
    Could be the perfect storm this winter.

    • Euan Mearns says:

      Strippers are a totally different ball game. Everyone has forgotten about them, but they are bound to be closed down under this new regime. Any idea how much oil they produce?

      • Florian Schoepp says:

        I did not have time for a proper search but found this on another blog: “In any event, there were over 300K wells in 2009 producing less than 15 barrels per day. The vast majority were under 5.”
        If time permits, I will research this theme more. “stripper ” means marginal to me. So reduced price for the product oil means that the fixed costs which must be disproportionately higher than for “normal ” wells will soon kill all profit.

        • Florian Schoepp says:

          It is hard to find average cost data for stripper wells. Range is 15 to 55 $/barrel. According to the National association of stripper wells, 11.3 % of all US oil is coming from these wells – roughly one million barrels.

    • Jeff Edzier says:

      Florian, from what I have read, a significant portion of the difference is now being transported by newly built pipelines including at least one from Canada that somehow avoided becoming a political circus.

  6. K Yamaguchi says:

    The math was obvious from the beginning – it was/is a blunder. Sure, OPEC can put a lot of small shale producers out of business, but the shale oil will still be there, and will be pumped by new owners as soon as prices rise. Then next time there will be even more hedged production, mandated by the banks that lend them the money. OPEC is the only group that can “regulate” supply, maybe with the help of Russia – and it is still in their best interest to do so, even at the risk of reduced market share. Not sure why they didn’t recognize this in December – which leads to the other conspiracy theories as to the rationale for the increases pumping.

  7. jacobress says:

    “Eventually, the price will be set by the market.”

    Isn’t that what is happening right now? Opec Governments sit back and do nothing (i.e. don’t curtail supply), letting markets work.

    Nothing they did in the past made sense. So, maybe they saw the light and decided not to interfere? To let markets work? (Hard to believe that they can act reasonably, for once).

    Markets will continue doing what they always do – fluctuate – and experts will continue too – making predictions – usually wrong ones.

  8. Javier says:


    I see it somehow different. 105 $/b oil was not sustainable for the world economy, despite being the price between 2009-2014. The economy during the first half of the business cycle (2009-2012) was capable of accepting that high price in part due to extreme central bank policies. But by 2010 the highly indebted PIIGS went into debt crisis and deep recession, and by 2012 all mayor OECD economies except the US joined the recession or had negative GDP just at mid-cycle. They were not accepting the high price and their demand was cratering. China was capable of accepting that price due to a dynamically growing economy and an amazing debt expansion as the world has never seen, but by 2013 with the reduction in global commerce China’s oil demand was also growing more slowly.

    It was clear for anybody following the world economic situation that with the advance of the current economic cycle both economic growth and oil demand were weakening. With oil above 100 $/b the world economy was headed for another recession. The worsening of the global economy took place over the entire 2013 and by the first half of 2014 it was evident to all, with China’s data showing continuous deterioration, as I showed in those graphs that I sent you to publish in your blog a while ago.

    So OPEC never really had the choice of maintaining high oil prices through production reduction. Oil prices were coming down one way or another as recessions depress oil prices through demand destruction.

    The thing is that although low oil prices are supportive of economic growth, they are not enough to prevent recessions, as recessions reflect the end of the business cycle when multiple factors can weight on a bad outcome.

    The current global situation is so bad that I believe a global recession is unavoidable within the next 24 months, and more probably in the first half of that period. Global trade value is at levels that have only been seen in the last decades associated with global recession, and commodity prices are so low that commodity countries are going to fall into recession. On top of that China continues its slide, and stock markets are so overvalued as to make a profound correction a very probable outcome.

    OPEC people know a lot about economy and global oil demand and supply. Their demand forecast over the last year has been quite good. I am sure they knew perfectly well that the drop in oil prices was coming months before it happened. They were not going to repeat the mistake of 1985 when they lost almost half of their market share and took them decades to recover. This time somebody else will lose his market share.

    If a global recession hits, as I predict, the problem for oil producers is going to become dire. And that problem will become the entire world’s problem a few years later. The main difference with 1985 is that the spare capacity is now a lot smaller with a consumption much bigger and a much higher decay. Once production starts falling, the situation could turn on a dime, and nobody will be able to satisfy the demand. Either we unplug the global economy from the oil, or the economy is going to start suffering from increasing arrhythmia and with a fatal prognosis.

    • Euan Mearns says:

      Javier, many thanks for this. I’m not going to disagree with any of it. But I don’t think the stage is set the same way as in 1985. And that perhaps lies at the crux of the blunder I believe OPEC is making.

      One thing I agree on is that OPEC have been very adept at reading markets. Its just difficult to rationalise how death of 50% of your members is a benefit….

      Haha, biggest fish in the pond maybe?

      • Javier says:

        Yes, countries without big reserves of affordable conventional oil are probably discounted as future significant players.

        In support of the unsustainability of high priced oil for the economy I can add this graph:


        There have been three periods with oil priced above $90 at constant price ranging from 13 to 33 months. The previous two ended in recession. The third was 2010-14.

        The oil accordion that Nate Hagens defined at The Oil Drum and that you mentioned some time ago seems to have arrived. Producers and the global economy no longer have a price at which they can both function.

  9. mbe11 says:

    A lot of graphs with one thing left out. The OPEC countries control the price which is to the advantage of the oil countries in the rest of the world or oil would always be under 20 dollars a gallon. I suspect the OPEC leaders want to break the fracking market and they are doing that. It will take several years but in the end the frackers will be bankrupt and to recoup the money, OPEC will simply raise the price to some point under the cost of fracking.

    • Euan Mearns says:

      It won’t take several years. But it hasn’t happened in 11 months – YET. The collateral damage to some OPEC counties is huge. And the volatility is very bad for global markets. Though we have to assume that KSA sits on the correct side of many colossal hedges.

    • roberto says:

      Yeash!… OPEC is eager to loose both legs, an arm and one eye to see the frackers dead.
      Great strategy!

      • Ralph says:

        SA has oil fields that decline in production at 4-6% a year without re-investment in new wells, improved technology, etc. at lifting costs of (at a guess ) $15-$30 /Barrel for existing production. They have $100B’s of financial reserves.

        The US shale oil drilling companies have oil fields that decline at 30-60% a year without new wells being drilled, costing $3-5M a pop. They have funded their drilling with cheap credit to the tune of $10B’s and they need to refinance this in the next couple of years , and the selling hedges have just about expired. They are working through their backlog of drilled but not fracked wells fast,

        Which bunch of drillers have the better financial strategy for retaining market share?

  10. Dean says:

    Hi Euan,

    tomorrow seems to be a very interesting day:

    “The lineup of officials in Moscow tomorrow:King of Jordan, King of KSA, Crown Prince of Abu Dhabi, Egypt’s President, Iranian Vice-President”

    “Just confirmed through my sources that Syrian Minister for National Reconciliation Ali Haidar will also be in Moscow tomorrow.”


  11. K Yamaguchi says:


    So $100 is too high and sub-$40 too low to support investment over the longer run. But it seems seem finding equilibrium around $55-$65, somewhere around the marginal cost, is improbable in the world of speculation. Are we doomed to wild swings in the price, assuming KSA/OPEC never again regulates production to support the price?

  12. luc says:

    A look at the past told us another story.

    In late 1985, oil prices dropped.

    Everybody stopped energy conservation

    Oil demand started to rise again and, outside the Middle East, many expensive drillings became unprofitable.

    So, U.S. production of crude oil dropped from 9 million barrels per day in 1985 to 5 million barrels per day in 2008.
    U.S. net imports of crude oil rose from 3.2 million barrels per day in 1985 to 9.8 million barrels per day in 2008.

    In 1990, when Iraq invaded Kuwait, the U.S. and the West were caught.

    10,000 Americans have been killed and tens of thousands have been wounded since 1990 because of the Middle East.

    U.S. crude oil production and U.S. net imports of crude oil 1970-2013

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  14. Steve says:

    Excellent blog and article, Euan. Thanks!

    I don’t see the benefit of the Saudis causing mass BKs in the US…and therefore, I don’t think it will happen given they are the ones that started things in motion.

    If massive BKs, new buyers pick up assets for pennies and lower cost basis, thereby prolonging the Saudi’s problem. Much better to keep the E&Ps alive and let them slowly transfer the capital to endusers in the form of oil and natgas selling at below full cost of production…thereby spurring excess demand…like US small truck/SUV sales surging. brilliant!

    Also, why would the Saudi want to cause a “contained” US junk bond crisis? Not good for consumer confidence.

    Also, not so sure it was a mistake given the market-share-at-any-cost; go-forward-cost decision making going on in the US; plus the pull of the cheaper natgas BTU. Were the Saudis to continue to cut back to make room for a boatload US-wanna-be-Harrold-Hamms fueled by QE/ZIRP?

    Also guessing the Saudis will make some money these next few years as they start buying oil futures at the low price they want to maintain, and sell at the high ($40 to $50). Whatever their MIT/Wharton educated consultants advised. It will be like printing money as they can change mkt directions with a comment…or two…and if necessary, TEMPORALLY cut production to enforce your will…which is to keep the creditors from giving US drillers more money…since they will only drill.

    To me, this is just plain business sense. Obviously, there are political issues and other conspiricy theories, but i am going with the above.

    As an investor in 2019 natgas futures, I see all this as a positive. Less associated gas, and the rapid depletion of capital in the sector that enabled the go-forward cost decision making….and creditors with a much sharper pencil on future devlpt.

    I hope you will consider doing an article on medium/long term natgas pricing. I am betting there is much more upside in US-natgas pricing than World-oil pricing over the next several years. Many of us are here looking for ROI, but oil gets all the attn. 🙁

    Bernstein just released a report that indicates 5 INCREMENTAL BCF/day of production will be required out of Haynesville to meet the 102 BCF/day the US will require by 2020. (by the way, they include in their forecast 15 incremental BCF/day coming out of the Marcellus/Utica region; 3 BCF/day more coming from Associated gas.)

    Some believe the marginal mcf will be coming out of Haynesville.

    Last quote i read on what it cost for new devpt in the Haynesville play was $6 – 8 per MCF. That Oct/2013 quote (below) is obviously dated – and no doubt techniques have improved – but high grading has also occurred.

    Also, now that the service providers have joined the ‘go-forward-cost’ club, and many costs have fallen dramatically, but service providers can’t provide at a loss long-term any better than the E&Ps, etc.

    The tech/methods have improved – esp. in the Marcellus play. However, some of the techniques are not even transferable to areas of the Marcellus just a few hundred yards away let alone to the Haynesville play.

    Plus, the Haynesville is pretty drilled up already – that might eliminate some new methods.

    Not suggesting 2019 natgas will be $6+, but the current $3.50…in 2019 US$…whatever those look like given the Fed will not give up.

    ————— source:

    from Dion War, president of Baton Rouge Assoc of Landmen –
    October 4, 2013

    “…The Haynesville has entered the second phase of development – manufacturing and build out. This will be driven by revenues and cost metrics rather than the initial sunk costs of development (G&G, Land, Legal, Lease Acquisition). Production and profits will dictate the pace. Until the natural gas price ascends to a level that would warrant another wave of wholesale lease acquisition ($6 – $8+), depending on the source) and subsequent build out into the lesser tiers, or another “game changer” surfaces, things should remain static.”


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  16. kohlhaas says:

    Oil Prices went up when Quantitative Easing by the Federal Reserve started. They came down when it ended.

    • Euan Mearns says:

      Post 2008 I think oil prices also went up when OPEC cut supply and came down again when OPEC didn’t. No doubting that credit expansion 2002 to 2008 and QE are part of the story, but getting the complete picture is complex.

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