Even as the price of crude oil plummets, energy firms are waiting to unleash an ocean of oil as soon as prices go up again.
Erin Ailworth writes about energy for the Wall Street Journal. She says this new strategy is a by-product of improving technology in the oil sector.
“They’ve gotten so much better at pulling oil out the ground that even though they are pulling back, they are laying off people, they are cutting capital spending, they’ve gotten much more efficient, and so they will produce more,” Ailworth says.
The problem is where to keep all that oil. Ailworth says oil producers have come up with a new strategy – keeping it underground.
“We’ve got a bunch of oil sloshing around in these storage tanks that we have across the country and they are nearing capacity,” she says. “So one of the things that producers are looking at is drilling wells but then not completing them, not fracking them, and just leaving that oil in the ground.”
Once prices come up, producers will tap into those reserves and flood the market. It’s a strategy that saves them money.
“They’re really being driven by cost first,” Ailworth says. “Sixty percent of a well’s cost is completing that well so they’re saving money on the front end, or at least not spending it right now, which means that when prices do rise then they can go ahead and act quickly and pump more.”
