Oil price drops, the reason, the impact and the future - Part3

This blog will focus on crude oil production, especially variant impact on different countries and different extraction technology

Cost of producing crude oil from EIA

Reading from this table,

1. Middle East, Canada and Central&South America has advantage on production cost over US
• Middle East has biggest advantage in production. So, Saudi Arabia can stand low price
• It makes economic sense to build keystone pipeline from Canada to US
2. Total extraction cost comes from two parts, lifting and finding.
3. Off-shore cost is much higher than on-shore, but lifting cost might be similar
• Finding costs are sunk cost in short term. So, when crude oil price drops suddenly, most countries to continue to lift crude oil, but might hold on drilling

Another interesting chart by Morgan Stanley half a year ago.

Cost in this chart might not be consistent with table above, but we still read relative cost between different technology.

Reading from this chart,

1. When crude oil price drops, the first three technology will be stopped are,
• Arctic
• Oil sand
• North American Shell
2. Average production cost of Russia is higher
3. Cost variance of one technology is high.