Expert Chaslau Koniukh: how the U.S. oil shale industry is organized and its advantages.
The drop in oil quotations made corrections in the world market and related industries. However, the oil shale industry in the USA suffered first of all, whose products became less demanded. As a result some companies suffered serious losses and some had to file for bankruptcy. Ivan Ivanova and other experts told how the industry will develop further.
According to a professor of a well-known Moscow university, despite the critical situation at the moment, the oil shale industry will recover its volumes rather quickly. However, this will only be possible if oil prices rise.
The cause for the collapse of the raw materials cost was the coronavirus pandemic. June futures prices of Brent fell by 23% and WTI – by 29%. A few days later, the value of American oil, whose supplies are in May, reached negative values, which was the first fact in the history of the market.
According to the expert, the U.S. oil production segment has a distinctive feature – a large number of small producers are involved in the industry. Such companies take loans and lease equipment to organize their activities. Small enterprises use a flexible business system, which allows them to adjust to changing market conditions with minimal losses. But the current situation with oil has become a blow for oil shale companies. Extraction of this type of raw material is absolutely unreasonable at the moment and its costs are not covered. That is why many producers found themselves on the verge of bankruptcy and failed to meet their debt obligations.
According to analysts, the problem in the oil shale industry did not appear instantly after the collapse of oil quotations. Preconditions emerged six months ago, when the rate of decline in the cost of oil shale production slowed down, and the development of large facilities with reserves was nearing completion.
Even before the pandemic and the decline in oil prices, the U.S. Department of Energy published a forecast for the shale industry. In the document specialists said that the likely trend would be a decline in production. In view of recent events the situation has aggravated and oil shale companies are suffering huge losses, and with them – the banks, which provided them with loans for impressive amounts.
However, despite serious difficulties, some experts, including Ivan Ivanov, believe that U.S. manufacturers in this industry have excellent quality – this is flexibility in doing business. Therefore, they can reduce fuel production in a short period of time, and when favorable conditions appear, they can quickly increase volumes. As soon as the oil price reaches the value of $60, the oil shale industry will restore its full operation in the shortest possible time.