American shale oil is the world’s second cheapest source

Norwegian energy research and business intelligence company Rystad Energy says North American tight oil is emerging as the second cheapest source of new oil volumes globally, just shy of the Middle East onshore market. They estimate that total recoverable resources from North American tight oil has more than tripled since 2014. Four years ago, United States’ shale oil was the world’s second most expensive oil resource.

According to Rystad Energy’s global liquids cost curve, North American shale ranked as the second most expensive resource in 2015, with an average breakeven price of USD $68 per barrel. The average Brent breakeven price for tight oil is now estimated at USD $46 per barrel, just four dollars behind the giant onshore fields in Saudi Arabia and other Middle Eastern countries.

Head of Upstream Research at Rystad Energy Espen Erlingsen said, “As the majors are struggling to replace conventional liquids, a wealthy source of additional resources is tight oil. The North American tight oil industry has changed considerably since 2014, as it has proven to be a competitive supply source in a low price environment. While costs for tight oil have been reduced, the resource potential has grown considerably over the last four years.”

For oil companies struggling to replace conventional resources after years of disappointing exploration results, tight oil simultaneously offers a base for growth, increased flexibility, and attractive returns. Whereas offshore normally needs seven to 12 years to recover costs, tight oil typically requires only two to four years.

Mr. Erlingsen added, “Tight oil is a short cycle investment with a relatively brief lead time from the sanctioning of new wells to the start of production. This gives E&P companies the flexibility to adapt to market conditions and easily change activity levels. In the ever-changing oil price environment, this implies tight oil investment has less uncertainty compared to offshore.