Could drilling for oil become too costly?

With the price of oil below $90 a barrel, some are beginning to wonder at what point does it become unprofitable to drill. Here, an oil rig stand near the hills of the Wind Wolves Preserve north of the Los Padres National Forest, Calif.

Stacey Vanek Smith: This morning, the price of oil is near its lowest level since last October: just a shade over $88 a barrel. Blame weak demand in Europe, among other things.

From the Marketplace Sustainability Desk, Scott Tong reports.

Scott Tong: For decades, $88 a barrel had oil companies seeing giant dollar signs. They could drill, refine, and sell it for a hefty profit.

Now, it costs a lot more to produce: With conventional oil fields depleting, companies go under the ocean, or mine it on land and cook it, or melt it to the surface. $80 can now be the break even price in places like Alberta and North Dakota.

So when prices tumble...here’s Deborah Gordon of the Carnegie Endowment’s Energy program.

Deborah Gordon: If there’s not enough demand, you can keep it in the ground a little longer and turn it back on when the price fluctuates.

Most analysts think this is a short-term dip. But that’s what many said in the early '80s when oil prices cratered -- and stayed in the valley.

Gordon: Those kinds of timeframes, decades at a time, that’s when projects start turning off. That’s when you see companies sell off, turn off. It’s just not economically viable.

Assuming prices rise again, Big Oil would cheer, but not too loud. If crude stays high for too long, consumer start buying alternatives, for good.

In Washington, I’m Scott Tong for Marketplace.

About the author

Scott Tong is a correspondent for Marketplace’s sustainability desk, with a focus on energy, environment, resources, climate, supply chain and the global economy.
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Hoo haw!...Considering the costs of offshore drilling rigs and production platforms, $80/bbl is not the floor...try closer to $50-60/bbl. N.D. Bakken not that costly, though, most of its oil has to leave by RR as no pipelines to traditional pipeline networks, yet. Take a look at the low end of the oil prices over the last 10 yrs, and that is the cost floor being used today. Big/small oil cos. do invest on future forecasted high oil prices; too much bad history from past doing that.

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