DAVID GREENE, HOST:
And we're also reporting this morning on oil prices. They have dropped more than 25 percent since June.
RENEE MONTAGNE, HOST:
And that's pretty good news if you're filling up at the gas pump.
GREENE: Not so good news, though, for businesses who use some pretty controversial methods to produce oil. What they do is becoming less profitable, in some cases even unprofitable. Both crude from Canada's tar sands and oil from fracking here in the United States are relatively expensive processes that require oil prices to stay high. Here's NPR's Jeff Brady.
JEFF BRADY, BYLINE: Most of the world's oil sells for between $80 to $85 a barrel now, but not all oil is created equal. In the Middle East, it's cheaper to produce, less than $30 a barrel on average. In other parts of the world, companies pay a lot more to extract it, sometimes at a loss.
PER MAGNUS NYSVEEN: The Arctic is a high-cost area, also oil sands.
BRADY: At the Norwegian firm Rystad Energy, Per Magnus Nysveen is head of analysis. He says North American shale oil is on the expensive side. That's found in the middle of the country and needs fracking to force it out of the ground. On average, Nysveen says, this oil cost $62 a barrel.
NYSVEEN: What is really interesting is for the U.S. drillers and producers is how long they are going to continue the high activity levels they have now that prices are going down.
BRADY: Already, some companies are thinking about drilling fewer wells.
(SOUNDBITE OF PUMP-JACK)
BRADY: That's a large, tan pump-jack bobbing up and down next to a highway outside Midland, Texas. Fracking combined with horizontal drilling brought new life to the oil business here, but cheaper crude prices are forcing drillers like Steven Pruett of Elevation Resources to re-examine their plans.
STEVEN PRUETT: We will drill fewer wells in a lower-price environment.
BRADY: With less profit, there's less money to invest in future prospects. At current prices, oil will continue to flow, but not as much as if they went back up to $100. Pruett says this is not a crisis, though.
PRUETT: We do not foresee a scenario where prices get so low that we can't cover the cash cost of lifting the barrels. So I don't think in this environment you will see a whole lot of oil and gas production shut in.
BRADY: If prices collapsed to 2008 levels when it was $35 a barrel, drillers might be forced to take more drastic steps, like shutting down production, but few are predicting crude will fall that much. You might think a slowdown would be good news to environmental groups, but Jackie Savitz with Oceana says it's more complicated than that.
JACKIE SAVITZ: You could make the argument either way. If oil is high, people will burn less; that's a good thing. If oil is low, maybe they'll drill less; that's a good thing. Really what we hope we'll do is we'll start making decisions based on the real science and the real impacts of burning fossil fuels.
BRADY: Oceana is among groups calling for policies that speed up a transition to renewable forms of energy. While that could affect oil production, the market rules for now, and the lure of billions of dollars is hard for drillers to ignore. Even if drilling in the Arctic, for example, looks unprofitable for now, companies are committed to exploring there. Production costs tend to go down after new technologies have been around for a while, and Erik Milito with the American Petroleum Institute says global demand for oil continues to rise.
ERIK MILITO: And that's the reason why companies are making these investments because they're long-term investments in projects that are expected to provide very large quantities of oil and natural gas for the U.S. economy and for the global account.
BRADY: Still U.S. companies have to keep a close eye on their competitors abroad that can produce oil much more cheaply. That's why when OPEC meets later this month, a lot of people in the oil business will be watching to see if the cartel will push prices up or down. Jeff Brady, NPR News.
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