A coming oil glut? Part 1

The other day a post in the Intelligence Wheeling News-Register caught my attention. "Two geology professors do not expect to see a slowdown in Marcellus and Utica shale drilling just because the price of oil dropped from a recent high of $107 per barrel in May to $82.75 Monday." I agree with that conclusion although I'm not sure whether geologists have a better record than bloggers at predicting energy trends. One of the geologists makes the point that $70 per barrel oil might kill that boom and again I agree and would note that both bloggers and geologists have a better record than politicians in the area of energy trends. Governor John Kasich seems willing to bet the solvency of his state in the oil futures market. If only he can persuade enough Republicans to join him and his many friends from across the aisle to place a higher severance tax on oil and gas there will be tax cuts and Medicaid for all. Right now I would give him an outside chance of being rated as the best governor since Ted Strickland.
I have a sister who would line up behind Kasich to kill the goose that lays the golden eggs. Taxing oil companies more seems to be a panacea to cure any economic ill. But they have all that money! Yes, but they didn't get all that money by selling oil below their production costs and a severance tax only adds to the cost.
I have been bullish on Ohio's Utica Shale since before the first well was drilled but let's face it; it is expensive oil. It probably will not produce oil below $70 and we may find ourselves at that point sooner rather than later. Of course the wells will continue to pump but new drilling will decline. Currently the Utica is working 46 rigs and produces 40,000 barrels of oil per day. Let's look at the competition. Note-production figures are approximate.

Oil field	Working rigs Oct. 14	Barrels per day
Bakken	192	1.1 million
Eagle Ford	216	1.5 million
Permian Basin	568	1.7 million

The Permian Basin is located in West Texas and New Mexico and is larger than the entire state of Ohio. Production figures declined through 2007 and the basin was generally considered to be drilled out. With the advent of fracking and horizontal drilling it will make the United States energy independent in the very near future. Everyday sees a new production record and the Permian could double production in just 2 years. Here the $70 per barrel price becomes relevant as the country's oil production runs up against its refining capacity. Good luck getting a new refinery permitted by Obama's EPA and crude cannot be exported owing to legislation enacted in the golden age of Jimmy Carter. Drilling will not cease but only the most productive fields will see new drilling. Tar sand oil from Canada may not be competitive meaning that permission to begin construction of the Keystone pipeline may moot.
It's not that Obama's obdurate unwillingness to further the common good has not had some success. The lack of pipelines has hobbled production in North Dakota's Bakken and much of the oil must be shipped via the Burlington Northern Santa Fe Railway, a concern owned by Obama crony Warren Buffet. It should be noted that the EPA killed construction of a new refinery in North Dakota after delaying the permit for 5 years.


I'll explore the impact of cheap oil on Ohio and the nation in another post.