US shale boom officially over

US shale boom officially over
US shale boom officially over

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 crash of 2020, and at lower rates than expected a few months ago.

The shale patch’s new priorities – capital discipline and a focus on shareholder returns and debt repayment – ​​have combined with supply chain constraints and cost inflation to curb production growth American oil.

The mixed signals from the Biden administration to the U.S. oil and gas industry, with frequent rebukes to the sector for high gas prices and, more recently, a threat of more taxes, are not motivating producers either. Americans. Many are reluctant to commit to spending more on drilling when there is no medium to long term vision for how US oil and gas resources could be used to bolster America’s energy security. and help Western allies who depend on imports.

Oil production growth forecasts are revised downwards

This year, the U.S. Energy Information Administration (EIA) and various analysts have revised down their crude oil production forecasts for 2022 and 2023. Although the EIA still expects production to set a new average annual record next year, it has significantly lowered its forecast. projections since the beginning of this year.

Oil company executives, for their part, say the U.S. administration’s anti-oil policies and rhetoric, inflation, contractor delays and regulatory uncertainty are negatively impacting drilling and development planning. the production.

The EIA expects U.S. crude oil production to average 11.7 million barrels per day (bpd) in 2022 and 12.4 million bpd in 2023, which would exceed the record set in 2019, according to the month of November. Short term energy outlook.

Despite expecting record production next year, the EIA has lowered the numbers several times in 2022 so far. The latest reduction is a massive 21% reduction in the growth estimate, according to calculations by Reuters.

In October providethe EIA had already lowered the average production estimate for 2023 to 12.4 million bpd from the September forecast of 12.6 million bpd.

“The decline in crude oil production in the forecast reflects lower crude oil prices in 4Q22 compared to what we had expected,” the administration said in October.

Weeks before the Russian invasion of Ukraine, which shook up global energy markets, Enverus Intelligence Research expected US oil production growth is expected to accelerate in 2022 above around 900,000 bpd.

However, inflation and supply chain delays beginning in the second quarter have significantly deteriorated the outlook for U.S. crude oil production growth. Enverus Intelligence Research (EIR) To cut this month its forecast for U.S. production growth, due to “headwinds created by oil service limitations, recession risk and declining performance from recently drilled wells in the Permian Basin.”

As a result, the Lower 48 oil production forecast has been revised down significantly and EIR now forecasts growth of approximately 450,000 bpd exit-to-exit in 2022 and growth of 560,000 bpd for 2023.

“OPEC back in the driver’s seat”

A top industry executive said last week that the US shale play is no longer the turning point oil producer and that OPEC has once again become the most important driver of oil supply fundamentals. .

“Shale was seen as a swing producer, the Saudis and OPEC waited for that. Now OPEC is really back in the driver’s seat where they are the swing producer,” said John Hess, CEO of Hess Corp. said at a conference in Miami last week.

The executive estimates that U.S. crude oil production will average 13 million bpd over the next few years, where it will level off, as investors pressure U.S. oil companies to focus on the return of l money to shareholders instead of investing in aggressive growth strategies.

The current state and outlook for the U.S. oil industry contrasts sharply with the growth of the decade to 2019.

Between 2009 and 2019, U.S. producers captured all additional global consumption in three out of 10 years and at least two-thirds of additional consumption in six of those years, according to estimates by Reuters Senior Market Analyst John Kemp.

“U.S. liquids production grew by 10 million barrels per day between 2011 and 2022, capturing a barely believable 10% of global supply,” Wood Mackenzie said. said last month. Nearly 6 million barrels per day of this increase came from crude and condensate production from the Lower 48, two-thirds of which came from the Permian Basin alone, while the rest of the increase was from natural gas liquids produced from shale gas deposits.

This year, as U.S. oil and gas production continues to surge, growth is capped by cost pressures and supply chain delays, executives said in the Dallas Fed Energy Survey for the third trimester. The shale patch cites labor and equipment shortages, as well as the Biden administration’s inconsistent policies, as key obstacles to expanding drilling activities.

“The administration’s lack of understanding of the oil and gas investment cycle continues to result in inconsistent energy policies that contribute to rising energy costs. This continued inconsistency increases uncertainty and decreases investment in energy infrastructure,” said an executive at an oil services company in comments to the investigation.

“We are in an energetic death spiral that will lead to higher highs and lower lows. Volatility will increase and the public is in a very tough race.

By Tsvetana Paraskova for Oilprice.com

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