Colver Technologies: Saudi Arabia says, even if crude oil prices drop to $20 a barrel, OPEC will not cut production.
Colver Technologies says it is not surprised that Saudi Arabia remains committed to maintaining OPEC’s production at current levels despite the 50% drop in oil prices since June and the prospect of further falls.
As OPEC’s largest producer, Saudi Arabia says its members will not cut production; even if oil prices should plunge to $20 a barrel. “They’re supremely confident their strategy will put the squeeze on the shale oil producers in the US and drive them out of business. There’s an awful lot of leverage and debt behind many of these producers and if they can’t pay their coupons to bondholders and creditors, they’ll go to the wall very quickly indeed,” said Gus Stuyvesant, Chief Operating Officer at Colver Technologies.
“Oil at $55 a barrel doesn’t make financial sense to the shale producers who are utilizing a lot of pretty expensive and highly sophisticated equipment to make their product. They need prices up near $85-90 a barrel just to break even,” Stuyvesant added.
The small-scale GTL operator believes that the inevitable fall in supply as a result of the mothballing of fracking wells will support a recovery in oil prices to significantly higher levels in the second half of next year.
Colver Technologies says she shale boom would have been impossible without the availability of huge amounts of capital from investors desperately seeking higher yield than they could get from owning US treasuries. Many bought fracking company bonds offering high yields but with oil prices at current levels, many companies can’t break even and are unable to meet their obligations to bondholders.
“All these commentators suggesting that cheap oil is here for good are ignoring the fact that fracking is expensive and once burnt, investors won’t lend money into that business again especially if Saudi Arabia and OPEC can put them out of business so easily,” concluded Stuyvesant.
About Colver Technologies
Colver Technologies’ modular GTL systems revolve around the Fischer-Tropsch reactor, a conversion technology developed in the 1920s by Franz Fischer and Hans Tropsche in Germany in 1925. It facilitates the production of significantly cleaner-burning liquid fuels like diesel and jet fuel from natural gas that contains no sulfur. We are committed to doing our part to drive uptake of GTL fuels as global efforts to reduce emissions increase and have invested heavily to ensure the continuing development of this highly attractive alternative to conventional energy production.