The days of explosive growth in US shale oil production are over. US oil production is increasing, but at a much slower pace than before the 2020 crash and at lower rates than expected a few months ago.
The new priorities of the shale patch – capital discipline and a focus on shareholder returns and debt repayment – have combined with supply chain constraints and cost inflation to curb US oil production growth.
The Biden administration’s mixed signals to the US oil and gas industry, with frequent accusations against the industry for high gasoline prices and, more recently, the threat of more taxes, aren’t motivating US producers either. Many are reluctant to commit to spending more on drilling when there is no medium- to long-term vision of how US oil and gas resources could be used to increase America’s energy security and help depend on imports.
Oil production growth forecast lowered
This year, the US Energy Information Administration (EIA) and various analysts lowered their forecasts for crude oil production for 2022 and 2023. Although the EIA still expects production to set a new average annual record next year, it has significantly revised its projections downwards since the beginning of this year.
Oil company executives, for their part, say the US administration’s policies and anti-oil rhetoric, inflation, delays in contractor schedules and regulatory uncertainty are having a negative impact on drilling planning and of the production.
The EIA expects U.S. crude production to average 11.7 million barrels per day (bpd) in 2022 and 12.4 million barrels per day in 2023, which would surpass the record high set in 2019, according to the report. Short-Term Energy Outlook for November.
Despite the expectation of record production next year, the EIA has downgraded the numbers several times in 2022 so far. The latest cut is a massive 21% reduction in the growth estimate, according to Reuters calculations.
In its October forecast, the EIA had already downgraded its 2023 average production estimate to 12.4 million bpd from its September forecast of 12.6 million bpd.
“Lower crude oil production in the forecast reflects lower crude oil prices in Q4 of Q22 than previously forecast,” the administration said in October.
Weeks before the Russian invasion of Ukraine, which rocked global energy markets, Enverus Intelligence Research forecast US oil production growth to accelerate in 2022 to above about 900,000 barrels per day.
However, inflation and supply chain delays from the second quarter onward significantly worsened the outlook for US crude production growth. Enverus Intelligence Research (EIR) cut its forecast for US production growth this month, due to “headwinds created by oil service constraints, recession risk and reduced performance of recently drilled wells in the Permian”.
Therefore, the Lower 48 oil production forecast has been significantly reduced, and the EIR now projects approximately 450,000 bpd output-to-output growth in 2022 and 560,000 bpd growth for 2023.
‘OPEC is back in the driver’s seat’
A top industry executive said last week that the US shale is no longer the swing oil producer and OPEC is back as the most important driver of oil supply fundamentals.
“Shale was considered a swing producer, the Saudis and OPEC waited for him to finish. Now, OPEC really is back in the driving seat where the swing producers are,” Hess Corp CEO John Hess said at a conference in Miami last week.
The executive believes U.S. crude production will average 13 million barrels a day over the next few years, where it will level off as investors pressure U.S. oil companies to focus on returning money to shareholders instead of investing in strategies. of aggressive growth.
The current state and outlook for the U.S. oil industry is in stark contrast to the growth of the decade to 2019.
Between 2009 and 2019, US producers captured all of the incremental global consumption in three out of 10 years and at least two-thirds of the incremental consumption in six of those years, according to estimates by Reuters senior market analyst John Kemp.
“U.S. liquids production increased by 10 million barrels a day from 2011 to 2022, capturing a barely credible 10% of global supply in the process,” Wood Mackenzie said last month. Nearly 6 million barrels per day of that increase came from lower 48 crude and condensate production, with two-thirds from the Permian Basin alone, with the remainder of the increase being LNG from shale gas plays.
This year, as U.S. oil and gas production continues to increase, growth is being limited by cost pressures and supply chain delays, executives said in the Dallas Fed Energy Survey for the third quarter. The shale patch cites labor and equipment shortages, as well as the Biden administration’s inconsistent policies, as the main obstacles to expanding drilling activity.
“The administration’s lack of understanding of the oil and gas investment cycle continues to lead to inconsistent energy policies that contribute to rising energy costs. This continued inconsistency increases uncertainty and decreases investment in energy infrastructure,” an oil-services company executive said in comments to the survey.
“We are in an energy death spiral that will lead to higher and higher highs and lower and lower lows. Volatility will increase and the public will be in for a very difficult race.”
By Tsvetana Paraskova for Oilprice.com
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