Since last autumn there has been an overproduction of oil in the USA compared to what the market, OPEC, and Saudi Arabia had planned. I have previously discussed how there is insufficient storage for this excess oil. It is relatively easy for the producers in the Middle East to close the taps and reduce production but closing the “fracking tap” is an entirely different story. Bloomberg has published an article describing how, at the moment, the fracking tap is being closed in the USA, “Watch Four Years of Oil Drilling Collapse in Seconds.”
“The crash in oil prices kicked off intense debate over when, and how, American producers would react. So far they’re still cranking out oil, but there are signs that a slowdown is looming. Chief among them: the record drop-off in drilling for new oil.”
In October 2013 I traveled to the University of Texas at Austin to study and do research on fracking. At that time there were 1372 rigs drilling wells for fracking. (The total number of drilling rigs in the USA at that time was 1591.) When I traveled back to Sweden in February 2014, the number had grown to 1416 fracking rigs.
In January 2011 oil production in the USA was 5.3 Mb/d and in October 2014 this had grown to 8.9 Mb/d. The increase of 3.6 Mb/d came mainly from thousands of wells that had been drilled for fracking. When oil prices crashed last autumn, the oil companies began to reduce the number of rigs drilling for oil, but one cannot close down the dynamic process of fracking overnight. The oil companies have contracts with those doing the drilling and fracking and breaking these contracts costs money. Although the price of oil fell dramatically, the number of fracking rigs stood at 1595 on October 24. By 13 March the number of rigs had fallen by 866, and in the most recent week, an additional 56 rigs were taken out of service. Since 2 January the approximate rate of decrease has been 68 rigs per week, and they now estimate that the decrease in rig number will continue until summer or longer. If the decrease continues at the current rate, then new drilling will have ceased completely in six months. (866 divided by 50 per week gives a maximum of 18 weeks.) That’s how fast the fantastic “fracking revolution” can be closed off. (The week from March 13 to March 20, 41 rigs were taken out of service.)
Approximately 40% of the cost of opening a fracking well is the drilling itself. The fact that they produce the larger part of the well’s oil in the first year means that many companies will delay the process of completing their wells. A so-called “fracklog” is developing. The companies are waiting for the oil price to rise. It is this “fracklog” that means that oil production in the USA is currently continuing to increase despite the rapid decline in drilling activity. On 6 March the USA’s total rate of oil production was 9.4 Mb/d. Everyone is waiting with some suspense for the decline in US oil production. Here is the conclusion to the Bloomberg article:
“Just as worrisome to oil investors is the so-called fracklog—thousands of nearly completed wells that are being left untapped. As soon as oil prices start to rise, these wells can start pumping crude after just a few weeks of finishing work. The fracklog has become America’s de facto backup storage.
Rig declines are likely to continue for the next few months, and may not stabilize until the third quarter, according to an analysis by Bloomberg Intelligence. In three previous oil slumps, it took about 32 weeks for rigs to bottom out. In highly productive shale regions with big fracklogs, production could still climb for months even if rig counts fall to zero.
For drilling companies, it’s an industry in crisis. Thousands of jobs have been lost, and more will follow.”
(Discussion on Aleklett’s Energy Mix)