Yes, fracking can be economical, particularly when compared to certain alternative methods of extracting oil and gas. Its economic viability largely depends on the market price of the commodity being extracted relative to the cost of the fracking operation.
Understanding the Economics of Fracking
While the process of hydraulic fracturing (fracking) is often described as expensive, it is considered less costly than the methods used to obtain oil from the wells mentioned above. This suggests a comparative advantage in certain geological contexts.
The key metric for assessing the economic viability of any extraction method, including fracking, is the break-even point. This is the price at which the cost of extracting a barrel of oil or unit of gas equals the revenue generated.
According to the reference:
- Estimates for the break-even point for fracking are often placed at around $50 per barrel.
- However, other estimates suggest it could be as low as $30 per barrel.
This means that if the market price for oil is above the break-even cost, the operation is profitable and therefore economical. When prices fall below this threshold, fracking operations may become uneconomical, potentially leading to reduced activity.
Factors Influencing Fracking Economics
Several factors influence the specific break-even point for a fracking operation, making it variable:
- Geology of the play: The depth, thickness, and permeability of the rock formation significantly impact drilling and completion costs.
- Technology used: Advancements in drilling and fracking techniques can lower costs over time.
- Infrastructure: Proximity to pipelines and processing facilities reduces transportation costs.
- Regulatory environment: Permitting costs and environmental regulations can add to expenses.
- Operating efficiency: The experience and efficiency of the drilling company play a large role.
Comparative Cost
The reference highlights that "Fracking is expensive, but still less costly than the methods used to obtain oil from the wells mentioned above." This suggests that despite its high upfront investment and operational costs, fracking can be a more cost-effective method compared to conventional vertical drilling in certain tight rock formations, or compared to extracting oil from deeper, more complex, or less productive conventional reservoirs.
In conclusion, fracking's economics are tied to its break-even point and the prevailing market prices for oil and gas. While costly, it is often competitive and sometimes less expensive than alternative extraction methods for certain resource types, making it an economical option under favourable market conditions.
