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Page added on November 26, 2015
What it costs to produce a barrel of oil
Everyone in the energy industry is suffering as crude oil prices have slumped. But some oil producing countries are hurting more than others.
In the United Kingdom, it costs $52.50 to produce a barrel of oil — which is trading right now around $42.
Oil production in Brazil costs nearly $49 per barrel. Production costs around $41 a barrel in Canada.
In the United States, production costs are $36 a barrel — still below the trading price.
Those findings are from Rystad Energy’s UCube database, which has information from roughly 65,000 oil and gas fields around the world.
Of course, it’s hard to make money when the cost of producing oil is higher than the sales price.
It’s no secret that many major energy companies have already announced a range of cut backs in high-cost countries.
On the other side of the coin, Saudia Arabia and Kuwait can pump a barrel of oil for less than $10, on average. Iraq can produce oil for about $10.70 per barrel.
Rystad’s head of analysis, Per Magnus Nysveen, provided CNNMoney with the oil production data and said it clearly illustrates how Gulf states are in a much stronger position due to their low costs.
Oil prices plunged in the back half of 2014 after trading above $100 a barrel. The drop came after OPEC — a group of some of the biggest oil producing nations in the world — decided to continue pumping the same amount of oil despite clear signs that there was too much supply in the market.
Analysts say the OPEC move, which was led by Saudi Arabia, was designed to squeeze high-cost producers out of the market so they could reclaim market share.
“Vigorous production” from OPEC countries has created a “massive cushion” of 3 billion barrels of oil around the world, the International Energy Agency said in a recent statement.
The resulting crash in oil prices is pinching even the strongest OPEC members.
The International Monetary Fund warned last month that most countries in the Middle East — including Saudi Arabia, Oman and Bahrain — will run out of cash within five years if oil prices don’t rise above roughly $50 per barrel.
“Oil exporters will need to adjust their spending and revenue policies to ensure fiscal sustainability,” the IMF wrote.
57 Comments on "What it costs to produce a barrel of oil"
ennui2 on Thu, 26th Nov 2015 8:34 am
“In the United States, production costs are $36 a barrel — still below the trading price.”
This contradicts the peaker narrative bigtime.
paulo1 on Thu, 26th Nov 2015 8:37 am
Using averages is misleading. The $100 shale oil is in death throes. Conventional stripper wells doing just fine. The article is misleading, big time.
shortonoil on Thu, 26th Nov 2015 10:39 am
“In the United Kingdom, it costs $52.50 to produce a barrel of oil— which is trading right now around $42.”
This article is a stated attempt to add up the cost borne by producers to produce a barrel of oil. There are many parts of the oil production process that are needed for it to operate that producer do not pay for:
1) The roads they use
2) The operation and maintenance of the harbors they use
3) The military protection of sea, and land routes
4) The education of their personal
5) The judicial services they use
6) The legislative services to manage them
7) The ecological damage that they do
8) The regulatory services needed to manage them
9) etc.
There are actually several dozen categories that go into the above list. When petroleum can no longer support its total cost of production it will no longer be used. It seems likely that as producers are squeezed further they will appeal to governments to take on more of the burden. Passing health care costs to regional governments is likely to be a candidate as more jobs are lost in the industry:
http://www.zerohedge.com/news/2015-11-26/oil-jobs-lost-250000-and-counting-texas-likely-see-massive-layoffs-soon
As the energy to produce petroleum, and its products increases the cost to produce it will also. Who will be assuming that increase is the political question of the century?
http://www.thehillsgroup.org/
Pennsyguy on Thu, 26th Nov 2015 10:50 am
Short is correct: Externalities may be easy to ignore but they can be important. To those listed, I would add the costs of environmental degradation and health effects, especially of fracking. Oh, then there’s climate change. Happy Thanksgiving!
rockman on Thu, 26th Nov 2015 11:03 am
And again the confusing terminology. Regardless of how often it’s misused “production cost” is the cost to produce an EXISTING well. Development cost is what is spent to drill and complete a new well. They are obviously talking about development costs.
Now that we have that cleared up: all their numbers (as far as the development cost of oil in the various countries) are complete bullsh*t. As an example forget the entire US: what does it cost to develop oil in just the Eagle Ford Shale? And once more there is no such f*cking number. LOL.
I can post Eagle Ford wells that came on in the last 6 months that cost between $15/bbl and $100+/bbl to develop. There actually were 3 wells that cost about $1,400/bbl to develop: the each produced about 5,000 bo before depleting. And as far as PRODUCTION COSTS there are many EXISTING EFS wells costing less than $5/bbl to produce.
Now lets jump to another common and totally undocumented bit of bullsh*t tossed out about Saudi Arabia. First the only source of valid numbers would be the KSA…and they don’t release such documentation. And this is where most “armchair petroleum engineers” even f*ck up there own terminology when they say the KSA production costs are very low: in this case they are actually referring to production and not development costs.
So lets take a stab at estimating the latest KSA new reserve DEVELOPMENT COSTS. So can someone tell what was the latest new oil field the KSA has discovered and developed, how much NEW reserves were discovered and what the KSA will spend to fully develop those new reserves?
And while your pulling those numbers together let us know how much oil is coming out of Ghawar Field today and how much the KSA is spending every month to produce those wells. That would give a good guess at what is their PRODUCTION COSTS for that field.
Yes: it does allow for an easier flow of conversations when we use generalities that have little or no bearing on reality. So carry on, amigos. LOL.
Dredd on Thu, 26th Nov 2015 11:29 am
“What it costs to produce a barrel of oil”
It costs integrity.
(The King of King Tides Approaches).
GregT on Thu, 26th Nov 2015 12:19 pm
@ennui2,
““In the United States, production costs are $36 a barrel — still below the trading price.”
This contradicts the peaker narrative big time.”
If you understand what is wrong with this statement it is you that is being misleading. If you do not understand, then you have been misled.
BobInget on Thu, 26th Nov 2015 1:11 pm
EVERYONE covered that question in a more informative manner then the article itself.
From now on I’ll just read these comments and keep OPEC concerns to myself.
Ted Wilson on Thu, 26th Nov 2015 1:36 pm
Excellent piece of information.
Yes the cost of oil production in UK and Brazil are so high because they are producing lot of oil from offshore which involves drilling 30,000 – 40,000 feet / 10,000 – 14,000 meters under the seabed.
In USA, still lot of onshore conventional oil is produced at much cheaper cost and that is why the average cost is just $36 / barrel.
Now I would like to know what sort of oil is produced. There a big difference between light crude oil and heavy crude which needs to be mixed with Natgas or Natgas Liquids to produce motor fuels.
For ex – if UK is producing Heavy oil at $52 / barrel, then the cost of diluting it will may another $10 / barrel in the refinery to produce motor fuels.
shortonoil on Thu, 26th Nov 2015 1:41 pm
“If you understand what is wrong with this statement it is you that is being misleading. If you do not understand, then you have been misled.”
If a company is not replacing their reserves then the difference should be an expense. They are merely deprecating out their assets, and not replacing them. In 2013, the last year for which we have data, 4 Gb of the world’s 32 Gb produced was replaced with newly discovered oil. 12% of the total consumed was replaced, so in actuality most producers are going broke. When they have finished pumping their present reserves they will be out of the oil business, if those reserves can not be replaced.
The question is then what would the price of oil have to be to replace 28 Gb per year. No one seems to even be asking that most important question? The Etp Model does, however, give a means to estimate that value. By our calculations it would require an oil price of somewhere in the area of $580/ barrel to replace the 28 Gb that is now being used but not being replaced. To put that number into perspective the price of gasoline in the US would then be $19.50/ gallon. A price that would obviously collapse the present economy.
The next most important question is then how long can the present reserves remain productive. We know that 60% of the world’s production now comes from its Giants, and they are on average over 60 years old. Many of those are badly depleted out; Ghawar the largest of the Giants, according to its water cut is over 90% depleted. When the Giants, which constitute less than 1% of the world’s fields, are no longer productive the cost of replacing those reserves will obviously be prohibitive.
It is very apparent that there is no solution to our present situation; the oil age must end, and in fairly short order. If anyone attempts to put a positive spin on the state of our present dilemma they are either very deluded, or more likely, rather touched in the head.
http://www.thehillsgroup.org/
Ted Wilson on Thu, 26th Nov 2015 1:57 pm
Last week 1.008 million barrels of Ethanol / day was produced. This is the first time, a million barrels / day mark has been crossed. If more bio-fuels is produced and used for running our vehicles, then the demand for oil will remain low and this will reduce the oil production from countries like UK, Brazil with the oil prices being less than $40 / barrel.
https://www.eia.gov/dnav/pet/pet_pnp_wprode_s1_w.htm
Ted Wilson on Thu, 26th Nov 2015 2:00 pm
Hello rockman.
Thanks for providing info that in 3 wells, it cost $ 1,400 / barrel to produce since those wells depleted after producing just 5,000 barrels. And that is the case in shale play where there is 40% depletion in the very first year.
Its very simple to get the averages.
Just sum up all the oil produced and sum the the cost of oil produced.
Then divide the cost of oil / barrels of oil and you get the cost / barrel.
If you don’t know this, then you are NOT smarter than a 5th grader.
antaris on Thu, 26th Nov 2015 2:34 pm
So Ted. If one was using Ethanol to produce Ethanol, how many barrels would it take to produce a barrel of Ethanol.
You claim to be a smart guy, enlighten us please.
shortonoil on Thu, 26th Nov 2015 2:38 pm
“Last week 1.008 million barrels of Ethanol / day was produced.”
You must be kidding, Ethanol just barely supplies enough energy to run a Fondue Pot. Ethanol has 63 thousand BTU per gallon. You can build a hotter fire with a pile of dried leaves. Ethanol is a fuel additive to change the combustion properties of hydrocarbons to prevent production of various pollutants. It reduces your gas mileage by a lot.
joe on Thu, 26th Nov 2015 3:40 pm
Costs of production should include things the oil pays for. In oilistans costs should also include costs of social services and government. They don’t have others sources of income. In the US oil is just a slice of the pie used to pay for economic life. Simply put, the oilistans would be able to produce at 10dllrs if they still rode camels. The true cost to them is much higher.
peakyeast on Thu, 26th Nov 2015 3:56 pm
I agree concerning the externalities to oil production cost.
But a lot of them can be reduced significantly.
Thus all of them are elastic constraints.
However eventually all surplusses will have been eliminiated, all low-hanging “fruits” gone and then it will become a systemic worldwide problem.
We are already very well on the way to that point.
idontknowmyself on Thu, 26th Nov 2015 4:32 pm
Cost don’t matter, it is how much energy is left after extraction and processing of brut energy ( coal, oil, natural gas) to power modernity and complexity (transportation, manufacturing, extraction).
The weakest link of modernity (transportation, manufacturing, extraction, electricity generation, food production) could well be transportation.
It is possible that when transportation go down, everything will go down with it including all the human specie.
shortonoil on Thu, 26th Nov 2015 6:07 pm
“But a lot of them can be reduced significantly.”
How do you reduce them without getting rid of a vast army of highly paid government workers. There in lays the rub!
Ted Wilson on Thu, 26th Nov 2015 8:26 pm
Hello antaris and shortonoil.
Here is the simple fact on Ethanol.
It has a input : output ratio of 1 : 2.3.
Its not great.
But let see what is there in this 1 unit.
30% of the energy required to produce Ethanol comes from Diesel (Trucks & Tractors to produce Corn) and the other 70% of it comes from Electricity & Heat (which comes from Coal, Natgas, Nuclear, Hydro, Wind, Solar, etc).
So for the 0.3 units of energy from Diesel (Petrofuel) used, we get 2.3 units of energy from Ethanol. So we are still able to reduce petroleum a lot using Ethanol.
And this is only for the regular Ethanol, now few larger Cellulose Ethanol plants have opened which does not use Corn which means they don’t use any Diesel.
But they do use some Electricity / Heat which are just domestic sources.
And all subsidies for Ethanol were phased out by the end of year 2011 itself.
But we are still subsidizing oil by protecting the countries in Persian Gulf and sending more troops to fight Islamic State.
Is this clear.
rockman on Thu, 26th Nov 2015 9:15 pm
Ted – “Just sum up all the oil produced and sum the the cost of oil produced.” Most excellent! Please post the link showing those DETAILS and we can all compute the average. Doing so will be very enlightning since I’ve not seen anyone proclaiming they’ve done so to generate the numbers they are putting out. All I’ve seen posted is numbers with no documentation on how these numbers were calculated. What I have seen is one “expert” repeating the numbers another “expert” has offered with no explanation of the source. If it’s a straight forward as you say the DOCUMENTATION should be readily available.
BTW some folk still don’t understand how to discuss this subject since they continue to confuse the cost to PRODUCE oil reserves and the cost to DEVELOP oil reserves.
BTW it isn’t uncommon for a Deep Water oil field to have the COST PER BBL much less then many onshore wells. While DW development costs are much more then onshore fields the typical reserves developed tend in a DW field can be many times that of an onshore field.
antaris on Thu, 26th Nov 2015 9:53 pm
Yes Ted, please show how or where you came up with 1 : 2.3.
Thanks
Ted Wilson on Thu, 26th Nov 2015 10:23 pm
Rockman
Oil production is available on a weekly basis from EIA.
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W
Cost of production from each company is available in their balance sheets which are submitted to their respective governments.
Trading agencies and statistical agencies collect these information and calculate the price.
Here is one such website which has published the cost of production.
http://marketrealist.com/2015/01/production-cost-crude-oil-affect-oil-prices/
apneaman on Thu, 26th Nov 2015 10:35 pm
Ted Wilson, when you are attempting to make an argument the burden of proof is on you. Most of us are perfectly aware of where to find specific information. You might as well just tell us to “google it”. If you cannot or will not provide direct links to all of your evidence, you have no argument.
Ted Wilson on Thu, 26th Nov 2015 10:41 pm
antaris
I read in the brochure from Corn industry that the EROEI of Corn Ethanol is 1 : 2.3.
As usual, you may question these facts.
But Ethanol production is surging without any subsidies and last week, it has crossed 1 million barrels / day mark for the first time.
Here are few reasons for the higher EROEI.
Corn yield / acre has increased.
Ethanol production from corn has increased.
Ethanol plants were sited near power plants and they get the waste heat for free from those plants.
BTW, how much is the EROEI of Oil when you take into account all the types of Oil like Shale Oil, Sands Oil, etc.
Ted Wilson on Thu, 26th Nov 2015 10:45 pm
apneaman
What is your point. Are you saying that Ethanol has EROEI of 1:1. If that is true, then no one would have produced Ethanol when the small 45 cent / gallon subsidy was phased out in 2011.
Last year, Worldwide biofuel production increased 7.4 % and the US production also increased significantly.
Since year 2000, biofuel production has increased 8 fold with Ethanol being a bigger component in it.
And its going to increase further.
antaris on Thu, 26th Nov 2015 11:29 pm
Ted, you actually believe an industry brochure?
It’s late and I”m tired but googling on this pad looks like corn substities are alive and keeping things growing. I don’t believe that given a 100,000 gallons of ethanol to work with you could grow, harvest and distill 100,000 back out. No other form of energy being used. In other words when diesel is dead so is ethanol.
apneaman on Thu, 26th Nov 2015 11:36 pm
“I read in the brochure from Corn industry”
That’s what I’m talking about.
peakyeast on Fri, 27th Nov 2015 4:12 am
@Short: Yes – getting rid of those types seems almost impossible. They proliferate until a revolution comes along and chops the useless ones heads off – which btw is way overdue.
Davy on Fri, 27th Nov 2015 7:42 am
Ted said “Corn yield / acre has increased”. Corn yields rate of growth in aggregate are stagnating from a variety of issues. Corn acres are stuck in a flat to down range for eight years now. We are very near the limits of growth with corn yields. There is a physical limit of growth for corn yields and the applications of industrial imputes. There are limits to the soil, water, and climate conditions. We know climate issues are increasingly unstable. We know soil erosion continues on just like oil depletion. Water issues are increasing and will likely be the first near term issue especially with irrigated corn acres. Ted if you are banking on corn yields to save ethanol you are probably pissing in the wind.
http://image.slidesharecdn.com/cornupdate2015-150427163223-conversion-gate02/95/corn-update-2015-14-638.jpg?cb=1430152397
http://farmdocdaily.illinois.edu/2014/07/perspective-on-high-yield-2014-us-corn-and-soybeans.html
http://farmdocdaily.illinois.edu/2014/07/02/figure1.jpg
shortonoil on Fri, 27th Nov 2015 7:43 am
“I read in the brochure from Corn industry that the EROEI of Corn Ethanol is 1 : 2.3.”
An ERoEI of 2.3:1 isn’t enough energy to run a hamster wheel. It takes a minimum of 6.9:1 to run modern civilization. Conventional crude presently has an ERoEI of 9.0:1. At 2.3:1 you’ll be sitting in your cave pounding the rocks together. A good horse does better than that!
rockman on Fri, 27th Nov 2015 8:39 am
Ted – Very good: you provide Market Realist as a credible source. Fantastic since that makes it dso easy to prove they are full of sh*t. LOL. Just look at their numbers for the offshore USA: they show a total cost of $100/bbl. Do you understand that in the last 15 years BILLIONS OF BBLS of those offshore reserves have been developed at oil prices LESS THEN WE HAVE TODAY? IOW if you accept their bullsh*t numbers then you must also believe that the offshore players have intentional invested $BILLIONS in money losing projects. After all the average inflation adjusted price of oil during the last 35+ years when the vast majority of Deep Water Gulf of Mexico oil reserves has been much less then their bullsh*t average.
But even with that clarification you still seem to miss the point: these
“experts” use their bullsh*t AVERAGES to show how drilling in each arena isn’t very viable in most plays. Companies don’t make such drilling decisions based upon such stats: they do so on the individual prospect economics. Again the Rockman’s economics for drilling 17,000′ Smackover wells in Mississippi: the full development and production costs is less then half of their average US onshore costs. The Rockman plans to drill at least 6 of those 17,000′ wells in 2016. And he doesn’t work for a pubco: he works for a private owner who would fire his ass if he thought thw Rockman was pissing away his family’s money. LOL. IOW when they imply there’s little drilling opportunity in the US they are wrong: there’s just less then there used to be.
Here’s another flaw in their “logic”: how many companies do you think are INTENTIONALLY drilling wells that aren’t economic at current oil prices? IOW whatever the average cost was to develop oil reserves when oil was $100+/bbl has no relation with those costs today. More specifically what the f*ck does the cost to develop oil reserves in 2010 have to do with the cost to develop oil reserves in 2015 since the wells being drilled at oil prices then would be very different then those drilled at current prices?
Or maybe you’re one of those people who believe all those boards of directors are letting their managements piss away $BILLIONS in capex. I mean you do understand that while companies have reduced budgets they are still planning to spend TENS OF $BILLIONS on future oil projects? But based on the numbers you’ve posted from all those “experts” perhaps you do believe those companies have decided have decided to convert to non-profit charitable organizations. LOL.
Kenz300 on Fri, 27th Nov 2015 10:08 am
All fossil fuels are costing the planet too much……….
Climate Change is real….. we need to deal with the cause (fossil fuels)
farmlad on Fri, 27th Nov 2015 11:48 am
Can someone explain how that ethanol price is at $1.50 while gasoline is$1.3. as it has less btu’s per gallon and messes up engines.
Apneaman on Fri, 27th Nov 2015 12:06 pm
Nothing personal – just business.
More rural water wells polluted in Barnett Shale
“As Texas oil and gas regulators continue to deny any link between drilling and underground water contamination, more families’ water supplies turn up polluted.”
http://www.wfaa.com/story/news/local/investigates/2015/11/25/new-water-wells-in-barnett-shale-contaminated-with-methane-fracking-related-chemicals/76391338/
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