The repercussions from the Organisation of Petroleum Exporting Countries's (OPEC) decision to not intervene in the falling oil price has seen the commodity smashed overnight.
Both WTI crude oil and Brent oil prices fell last night to US$68.88 and US$72.48 per barrel, with the former dropping 6.5%.
As a result, ASX-listed oil and gas companies have seen their share prices tumble today. That has certainly contributed to the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) and the S&P/All Ordinaries (Index: ^AORD) (ASX: XAO) both falling 1.3% at the close.
Of most concern are the companies operating in the US shale regions, with many analysts suggesting that at current prices, the high price of shale drilling makes many companies unprofitable at today's oil prices, as the chart below shows.
Source: Forbes
Lonestar Resources Ltd (ASX: LNR) Sundance Energy Australia Ltd (ASX: SEA) and Antares Energy Limited (ASX: AZZ), who all have major operations in the US, have lost 19.6%, 15.0% and 5.4% respectively. Maverick Drilling and Exploration Ltd (ASX: MAD), which also has US shale operations, fell 9.6%.
But they weren't alone, with mid and small cap energy stocks Senex Energy Ltd (ASX: SXY), Drillsearch Energy Limited (ASX: DLS), Central Petroleum Limited (ASX: CTP) Cooper Energy Ltd (ASX: COE), all recording double-digit falls in their share prices.
The large cap energy producers and explorers weren't forgotten either. Woodside Petroleum Limited (ASX: WPL) fell 6.8%, Santos Ltd (ASX: STO) was down 11.9%, Karoon Gas Australia Limited (ASX: KAR) dropped 10.8%, and Origin Energy Ltd (ASX: ORG) lost 7.2%
The questions many investors will now be asking is similar to what gold and iron ore miners have already gone through. Are their production costs lower than today's oil prices, and if not, what are the consequences of that?
Will we see oil and gas producers close down higher cost production? By global standards, smaller Australian companies dropping out won't make much difference to the supply/demand equation.
But perhaps the biggest concern is that one of Australia's major exports in future years is expected to be liquefied natural gas (LNG). LNG is typically priced against the benchmark oil prices, which could threaten the development of some large planned LNG projects.
Combined with falling iron ore and coal prices, it means Australia's economy could be in for a shock, unless those commodity prices recover soon.
