Crude oil extraction and production cost is an effective factor in oil pricing. Such costs vary from one spot to another, depending on the size and availability of oil reserves. Although most oil companies are unwilling to release precise data about oil production costs. However, estimates about costs of extracting oil from active fields in various countries are available.
Comparing these costs would be key to analyzing the future of world oil markets. This data would show which countries can keep producing oil, even though in periods when prices keep falling. This issue takes up added significance in light of significant reduction in oil prices over recent years.
In the Persian Gulf region where most OPEC nations are located, oil is produced at very low costs because the oil fields in this region can have primary production. Oil production costs have varied between $7 and $12 a barrel in the Persian Gulf over the past decade, far lower than $30-40 a barrel in some other areas.
Estimates show that oil extraction and production in key OPEC member states would continue to be much less expensive than that of non-OPEC producers like the US, Russia, Canada, Brazil and Britain.
The main reason for difference in oil production costs in various nations results from the difference in nature of oil fields and methods of production.
Production from an oil field would impose costs on at least two sectors. The first one covers capital expenditures (CAPEX) including primary measures for identification of a field like exploration and seismic testing, drilling, development and operation. The second one covers operational expenditures (OPEX) which would integrate all costs affecting production. Some of them are staff salary and maintenance costs.
Crude oil transportation to destination imposes extra costs. Given the distance from the starting point to destination and the safety of route, oil production cost per barrel would go up. Production costs would be much higher for deeper and offshore fields.
Britain is currently enduring the highest costs in oil production in the world, reaching $44.33 a barrel. Due to tough access to the North Sea, oil extraction costs are high there. It is followed by Brazil ($34.99) and Canada ($26.64). In the US, shale oil production costs $23.35 per barrel, while that of conventional oil is $20.99. Russia spends $19.21 for each barrel of oil to be produced, while the figure for Norway is $21.31.
Among OPEC nations, Nigeria in terms of cost per barrel comes first by spending $28.99 per barrel, followed by Venezuela ($27.62) and Indonesia ($19.71). Middle East nations pay much less: Saudi Arabia ($8.98), Iran ($9.08) and Iraq ($10.57).
The reason for low costs in Saudi Arabia is that its crude oil reserves are not located in high depth. The size of its fields also make oil extraction economical. Iraq generally pays small sums for each barrel, but there are some mature fields in this country to require higher costs for oil recovery.
Taking into account the low costs of oil production in Iraq, Iran and Saudi Arabia – all top OPEC MCs – it can be argued that the Organization of the Petroleum Exporting Countries is influential on oil markets. At the end of 2019, OPEC member countries held about 79.1 % of the world proven oil reserves.