North America to Drown in Oil as Mexico Ends Monopoly

profdant139 wrote:
Doesn't it increase the supply? As supply goes up and demand stays constant, wouldn't the price fall?

I'll start with this first.

The price of oil we see in the media is for a certain type - the 'best' type of oil which is easiest, and cheapest to refine. Some types of oil are cheaper, but more expensive to refine. So cheaper oil at Cushing, OK doesn't mean the end product is cheaper.

Demand does not stay constant. The US demand increases constantly, though not as much as in the past. However several countries are increasing their demand at higher rates than the US - China being the biggest.

Remember the controversy over the Keystone XL Pipeline Phase 4?

There was a competitive offer from China to fully fund a pipeline from the oil sands in Canada to the Pacific Coast - to ship all the oil which has been coming from that region of Canada into the US since 2010. To ship all the oil currently coming into the US to China.

They were willing to pay more than that oil is currently selling for per barrel. But the environmentalists were really up in arms about running a pipeline across the Canadian Rockies and setting up a pipeline terminal in the Inside Passage.

profdant139 wrote:
I am going to display my ignorance, so beware -- but how could fracking drive UP the price?

Drilling for oil is expensive. And even with today's technology - there are still dry holes.

An oil company has to invest money in the drilling operation.

Back in the early oil boom times - wells were 500 feet to 1,000 feet deep. A lot of oil early in the 20th Century was available for less than $10,000 per well.

Today the shale and other formations where fracking occurs are 2 to 3 miles below ground. Imaging the additional expense of drilling 12,000 feet vs 500 feet. Add inflation and the stronger well materials required.

Also, fracking usually involves horizontal drilling.

Then after getting to the formation holding the oil - usually a few hundred feet tall but covering thousands of acres horizontally - they have to have the horizontal wells to give them access to areas of the rock.

The oil is trapped in rock - it is not a free pool of oil like in the 'gusher' areas we see in movies.

They have to pump water or mud down under extremely high PSI to break the rock and allow the oil to escape.

Then the oil has to be pumped to the surface.

It can cost between $150,000 and $200,000 per day to run the rig drilling the well. It can take 10-30 days to drill down to 2 miles.

Fracking is also an expensive labor intensive process - which can run $100,000 per day for two or three weeks.

Offshore drilling runs $450-600,000 per day and takes longer.

What all that means is that it can easily cost $10 to $30 million before the first drop of oil is brought to the surface. There are continuing costs for royalties to the owner of the mineral rights, for costs to bring the oil to the surface, for costs to transport the oil to a distribution points.

A well won't product 10 million barrels. If it produces a million - it is a great success - but by the time the well reaches the end of its life - the oil has averaged costing $30 or 40 dollars per barrel to get the oil out of the ground and to the selling point for crude oil. Which means the company needs to sell the oil for $60 or $75 per barrel to make a profit, and have money to invest in further exploration.