popular articles

Economics of Shale Projects: Rising Costs of Oil Production

The continued increase in development costs of upstream oil projects is testing the economic viability of new oil production. A recent study by Rystad Energy reveals an increase in breakeven costs, while still remaining below current oil prices.

Please share:

The cost of developing new upstream oil projects continues to rise due to ongoing inflationary pressures and persistent supply chain issues. According to new research from Rystad Energy, the average breakeven cost of a non-OPEC oil project has reached $47 per barrel of Brent crude, marking a 5% increase over the past year alone. Despite this rise, breakeven costs remain below current oil prices.

Offshore deepwater and shale projects remain the most economical sources of supply, while oil sands remain the most expensive. By analyzing breakeven costs, it is possible to estimate the amount of crude oil that will be delivered in the future based on the economic viability of different supply sources. The new research suggests that, despite rising costs, an increase in supply is likely by 2030, primarily driven by production from OPEC countries, where costs are low and resource potential is high.

Evolution of Breakeven Costs

The new equilibrium oil price for a demand of 105 million barrels per day in 2030 is estimated to be around $55 per barrel. The research includes a detailed global cost-of-supply analysis for remaining liquid resources, divided into producing and non-producing fields. The non-producing fields are further divided into different supply segment groups. The report found that onshore Middle East is the cheapest source of new production, with an average breakeven price of just $27 per barrel. This segment also boasts significant resource potential.

Production Segments and Economic Viability

The offshore shelf segment follows with a cost of $37 per barrel, then offshore deepwater at $43 and North American shale at $45. Conversely, oil sands breakeven costs average $57 per barrel, reaching up to approximately $75 per barrel. The rise in breakeven prices reflects increasing cost pressures in the upstream industry, posing challenges to the economic feasibility of some new projects.

Future Perspectives on Oil Supply

However, certain segments, notably offshore and shale, continue to offer competitive costs, ensuring that supply can still be maintained to meet future demand. Managing these cost increases will be crucial to sustaining long-term production growth.

Impact of Corporate Strategies on Supply

From 2014 to 2020, shale and OPEC were the clear winners, with each segment reducing its breakeven price and increasing potential volumes. Since 2020, the potential supply from shale has decreased, and shale production is now expected to reach around 22 million barrels per day by 2030, including natural gas liquids (NGL). This reduction is due to a shift in company strategy, with more cash being paid out to investors and industry consolidation.

CO₂ Emissions Analysis

Beyond breakevens, the average payback period for new projects, internal rate of return (IRR), and carbon dioxide (CO₂) intensity are vital metrics for evaluating the economics of oil development. The shale sector has a payback period of just two years, assuming an average oil price of $70 per barrel, demonstrating how quickly operators recover their investments. In contrast, the payback period is close to 10 years or more for other supply segments.

Shale also leads in terms of IRR, with an estimated IRR of around 35% in the same average oil price scenario. Conversely, oil sands, the most expensive supply source, have the lowest IRR at approximately 12%.

Environmental Considerations

Over the past three years, the average CO₂ intensity for shale has been 14 kilograms per barrel of oil equivalent (kg per boe), while offshore deepwater has a slightly higher average CO₂ intensity of 15 kg per boe. The oil sands sector remains behind other segments, with future estimated emissions around 70 kg per boe.

Register free of charge for uninterrupted access.

Publicite

Recently published in

The United States enacts new financial sanctions against an international network moving Iranian oil to China, with generated revenues funding military activities, according to Washington, sparking debate over the economic impact of such measures.
The proposed eight new oil wells near Arcachon have sparked internal government disagreements. Agnès Pannier-Runacher, Minister of Ecological Transition, has voiced her opposition to this initiative, contradicting the previous statements of Christophe Béchu.
The proposed eight new oil wells near Arcachon have sparked internal government disagreements. Agnès Pannier-Runacher, Minister of Ecological Transition, has voiced her opposition to this initiative, contradicting the previous statements of Christophe Béchu.
Africa Oil Corp. and its investee Impact Oil & Gas are accelerating their offshore operations in Namibia. Following the drilling of Tamboti-1X, work continues with Marula-1X, targeting Albian reservoirs. The Venus project, scheduled for 2026, could mark a key milestone.
Africa Oil Corp. and its investee Impact Oil & Gas are accelerating their offshore operations in Namibia. Following the drilling of Tamboti-1X, work continues with Marula-1X, targeting Albian reservoirs. The Venus project, scheduled for 2026, could mark a key milestone.
Ecopetrol has finalized the purchase of Repsol's remaining 45% stake in Block CPO-09 for $452 million. This strategic acquisition strengthens the Colombian company's presence in the Llanos Orientales basin and consolidates its role in hydrocarbon exploration and production.
Ecopetrol has finalized the purchase of Repsol's remaining 45% stake in Block CPO-09 for $452 million. This strategic acquisition strengthens the Colombian company's presence in the Llanos Orientales basin and consolidates its role in hydrocarbon exploration and production.
U.S. crude oil reserves saw an unexpected increase of 8.7 million barrels last week, far exceeding market forecasts. This rise is attributed to low refinery activity and higher imports, amid a context of downward pressure on prices.
OMV, the Austrian hydrocarbons group, has announced a slight decline in its net profit for the year 2024. The company's financial results reflect a decrease in its margins in an economic environment marked by energy price volatility.
OMV, the Austrian hydrocarbons group, has announced a slight decline in its net profit for the year 2024. The company's financial results reflect a decrease in its margins in an economic environment marked by energy price volatility.
OPEC+ continues to increase its oil production, responding to global demand while ignoring Donald Trump's calls to slow down the rise. This decision to maintain the production increase schedule has direct implications for global markets.
OPEC+ continues to increase its oil production, responding to global demand while ignoring Donald Trump's calls to slow down the rise. This decision to maintain the production increase schedule has direct implications for global markets.
After two record years of mergers and acquisitions in the oil and gas sector, upstream M&A activity is expected to slow down in 2025. Despite a deal pipeline valued at $150 billion, geopolitical tensions and restrictive fiscal policies are limiting new opportunities.
After two record years of mergers and acquisitions in the oil and gas sector, upstream M&A activity is expected to slow down in 2025. Despite a deal pipeline valued at $150 billion, geopolitical tensions and restrictive fiscal policies are limiting new opportunities.
Tullow Petroleum is focusing on reducing its debt after the cancellation of its merger project with Kosmos Energy. The company is exploring options to lighten its balance sheet and concentrate on its strategic activities.
The visit of a U.S. envoy to Nicolás Maduro paves the way for potential discussions on the future of oil sanctions. Between geopolitical stakes and commercial interests, the United States is looking to redefine its approach toward Venezuela.
The visit of a U.S. envoy to Nicolás Maduro paves the way for potential discussions on the future of oil sanctions. Between geopolitical stakes and commercial interests, the United States is looking to redefine its approach toward Venezuela.
Saudi Aramco plans to raise its official selling prices (OSP) in March, driven by China’s economic recovery and the redirection of Russian oil flows. Asian refiners are adapting to these new dynamics, influencing premiums on Middle Eastern crude.
Saudi Aramco plans to raise its official selling prices (OSP) in March, driven by China’s economic recovery and the redirection of Russian oil flows. Asian refiners are adapting to these new dynamics, influencing premiums on Middle Eastern crude.
Ukraine has claimed drone strikes on Russian energy infrastructure, affecting strategic facilities of Gazprom and other players. These attacks raise questions about supply and market stability in the region.
Ukraine has claimed drone strikes on Russian energy infrastructure, affecting strategic facilities of Gazprom and other players. These attacks raise questions about supply and market stability in the region.
Ecopetrol Permian LLC and Occidental Petroleum Corp (Oxy) extend their agreement on the development of the Permian Basin, planning to drill 34 additional wells between April 2025 and June 2026. This extension aligns with the investment and expansion strategy of both companies.
After a record year with nearly $800 million invested in 2024, U.S. Energy Development Corporation announces an investment program of up to $1 billion in 2025, with a focus on the Permian Basin.
After a record year with nearly $800 million invested in 2024, U.S. Energy Development Corporation announces an investment program of up to $1 billion in 2025, with a focus on the Permian Basin.
The U.S. Senate confirms Doug Burgum, governor of North Dakota, for the management of federal lands and national parks under the Trump administration, reinforcing the strategy of hydrocarbon production in the United States.
The U.S. Senate confirms Doug Burgum, governor of North Dakota, for the management of federal lands and national parks under the Trump administration, reinforcing the strategy of hydrocarbon production in the United States.
TotalEnergies implements IFS Cloud to transform its global asset management, integrating maintenance and monitoring on a single platform.
TotalEnergies implements IFS Cloud to transform its global asset management, integrating maintenance and monitoring on a single platform.
Chevron reports mixed Q4 2024 results: increased production and rising revenue partially offset declining refining margins.
ExxonMobil records a net profit of $7.61 billion in 4Q, surpassing consensus estimates, while Chevron reports results affected by declining refining margins.
ExxonMobil records a net profit of $7.61 billion in 4Q, surpassing consensus estimates, while Chevron reports results affected by declining refining margins.
Trafigura, the major commodities trading giant, has been convicted by the Swiss Federal Criminal Court for corrupting a foreign public official in Angola, marking a precedent in the commodities sector.
Trafigura, the major commodities trading giant, has been convicted by the Swiss Federal Criminal Court for corrupting a foreign public official in Angola, marking a precedent in the commodities sector.
Shell Canada exchanges its remaining 10% stake in the Albian mines for an additional 10% interest in the Scotford upgrader and Quest carbon capture and storage (CCS) facility, focusing on refining and carbon capture projects while exiting oil sands operations.
Shell Canada exchanges its remaining 10% stake in the Albian mines for an additional 10% interest in the Scotford upgrader and Quest carbon capture and storage (CCS) facility, focusing on refining and carbon capture projects while exiting oil sands operations.
The administrative court of Melun ordered the prefecture to regularize the order authorizing oil drilling at the Nonville concession, deemed illegal on several points, awaiting a final decision in ten months.
The imminent prospect of U.S. tariffs on imports from Canada and Mexico is causing concern in oil markets. Combined with an unexpected rise in crude stocks in the U.S., this announcement is impacting global oil prices.
The imminent prospect of U.S. tariffs on imports from Canada and Mexico is causing concern in oil markets. Combined with an unexpected rise in crude stocks in the U.S., this announcement is impacting global oil prices.
After over a decade of restrictions, the European Union is beginning a gradual and conditional lifting of sanctions on Syria’s oil, gas, and financial sectors. A strategic move to support the country's reconstruction after the fall of the Assad regime.
After over a decade of restrictions, the European Union is beginning a gradual and conditional lifting of sanctions on Syria’s oil, gas, and financial sectors. A strategic move to support the country's reconstruction after the fall of the Assad regime.
Kazakhstan begins shale oil production in 2025, marking a new step in its economic strategy amidst growth challenges and energy dependency.
Kazakhstan begins shale oil production in 2025, marking a new step in its economic strategy amidst growth challenges and energy dependency.

Advertising