Economics at your fingertips  

Tight oil market dynamics: Benchmarks, breakeven points, and inelasticities

R.L. Kleinberg, S. Paltsev, C.K.E. Ebinger, D.A. Hobbs and T. Boersma

Energy Economics, 2018, vol. 70, issue C, 70-83

Abstract: When comparing oil and gas projects - their relative attractiveness, robustness, and contribution to markets - various dollar per barrel benchmarks are quoted in the literature and in public debates. Among these benchmarks are a variety of breakeven points (also called breakeven costs or breakeven prices), widely used to predict producer responses to market conditions. These analyses have not proved reliable because (1) there has been no broadly accepted agreement on the definitions of breakeven points, (2) there are various breakeven points (and other benchmarks) each of which is applicable only at a certain stage of the development of a resource, and (3) each breakeven point is considerably more dynamic than many observers anticipated, changing over time in response to internal and external drivers. In this paper we propose standardized definitions of each breakeven point, showing which elements of field and well development are included in each. We clarify the purpose of each breakeven point and specify at which stage of the development cycle the use of each becomes appropriate. We discuss in general terms the geological, geographical, product quality, and exchange rate factors that affect breakeven points. We describe other factors that contribute to tight oil market dynamics, including factors that accelerate the growth and retard the decline of production; technological and legal influences on the behavior of market participants; and infrastructure, labor, and financial inelasticities. The role of tight oil in short-term and medium-term oil market stability is discussed. Finally, we explore the implications of a broader, more rigorous, and more consistent application of the breakeven point concept, taking into account the inelasticities that accompany it.

Keywords: Tight oil; Shale; Market dynamics; Breakeven (search for similar items in EconPapers)
JEL-codes: Q35 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2018-06-02
Handle: RePEc:eee:eneeco:v:70:y:2018:i:c:p:70-83