The U.S. Shale Boom Is Officially Over

The days of explosive growth in US oil production are over. US oil production is rising, but at a much slower pace than before the 2020 crash, and at lower prices than expected a few months ago.

New priorities in the shale patch – capital discipline and a focus on shareholder returns and debt repayment – combined with supply chain constraints and rising prices to slow US oil production growth.

The mixed signs of the Biden Administration for the American oil and gas industry, with frequent accusations in the sector of high fuel prices and, more recently, the threat of more tariffs, are not encouraging US producers, either. Many are reluctant to commit to spending more on drilling in the absence of a medium- to long-term vision of how US oil and gas can be used to increase America’s energy security and help Western allies that depend on imports.

Estimates of Oil Production Growth have been lowered

This year, the US Energy Information Administration (EIA) and various analysts have lowered their forecasts for crude oil production in 2022 and 2023. Although the EIA still expects production to set a new record for next year, it has been significantly revised down. forecast as of the beginning of this year.

Oil firm executives, for their part, say the US Administration’s policies and anti-oil rhetoric, rising prices, contract delays, and regulatory uncertainty are negatively affecting recruitment and production planning.

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The EIA expects US crude oil production to average 11.7 million barrels per day (bpd) in 2022 and 12.4 million bpd in 2023, which would surpass the record high set in 2019, in November. A short time to check the power.

Despite expectations for a record output next year, the EIA has lowered the numbers for 2022 several times so far. The latest cut is a whopping 21% reduction in growth estimates, according to statistics Reuters.

In October estimateThe EIA had already lowered its 2023 production forecast to 12.4 million bpd from a September estimate of 12.6 million bpd.

“Lower crude oil production in forex reflects lower crude oil prices in 4Q22 than we previously expected,” management said in October.

Weeks before Russia’s invasion of Ukraine, which upended global energy markets, Enverus Intelligence Research expected US oil production growth to accelerate by 2022 to more than 900,000 bpd.

However, lower inflation and supply delays from the second quarter onwards have significantly worsened the outlook for US crude oil production growth. Enverus Intellectual Research (EIR) to cut this month its forecast for US production growth, due to “headwinds created by oil service restrictions, the risk of an economic downturn and the decline in the performance of wells drilled recently in the Permian Basin.”

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Therefore, the oil production forecast for the lower 48 has been reduced significantly and EIR now expects to grow to about 450,000 bpd of output in 2022 and 560,000 bpd of growth in 2023.

“OPEC Back in the Driver’s Seat”

A top industry official said last week that the US shale patch is no longer an oil producer and that OPEC is back as the most important driver of oil supply.

“Shale was thought of as a swing producer, the Saudis and OPEC have been waiting for this. Now, OPEC is really back in the driver’s seat where it is the swing producer,” Hess Corp CEO John Hess said. he said at a conference in Miami last week.

The executive believes that US crude oil production will reach 13 million bpd in the next few years, at which point it will plateau, as investors pressure US oil companies to focus on returning cash to shareholders. instead of investing in aggressive growth strategies.

The current situation and prospects for the US oil industry are very different from the growth of the decade to 2019.

Between 2009 and 2019, US manufacturers accounted for all of the world’s additional consumption in three out of 10 years and at least two-thirds of the additional consumption in six of those years, according to the report. estimate by Reuters’ senior market analyst John Kemp.

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“US liquids production to increase by 10 million b/d from 2011 to 2022, taking a scant 10% of global supply in the process,” Wood Mackenzie. he said last month. Nearly 6 million bpd of the increase came from Lower 48 crude and condensate production, with two-thirds from the Permian Basin alone, while the rest of the increase is natural gas liquids produced from shale gas plays.

This year, while US oil and gas production continues to grow, growth is subject to cost pressures and supply delays, executives said in Dallas Fed Energy Survey in the third quarter. The shale patch cites a lack of labor and resources, as well as the inconsistent policies of the Biden Administration, as key obstacles to expanding drilling activity.

“Management misunderstandings about the oil and gas investment cycle continue to lead to inconsistent energy policies that contribute to rising energy costs. This ongoing mismatch increases uncertainty and reduces investment in energy infrastructure,” said a manager at an oilfield service firm. comments in research.

“We are in a dying phase of energy that will lead to highs and lows. Instability will increase, and society will embark on a very difficult journey. “

By Tsvetana Paraskova of Oilprice.com

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