After a decade of exponential growth, the US shale field is no longer the swing producer in global markets. That role is now back in the hands of OPEC and its largest and most influential members in the Middle East, analysts and industry executives say.
From more than 1 million barrels per day (bpd) growth in oil production per year before the pandemic hit demand in 2020, the United States will see growth at half that at best this year. While most of the growth is and will come from the shale field, the pace of output growth has slowed and some analysts have recently said that peak shale production will come as early as 2024.
A number of factors have combined to weigh on US shale production growth in recent months – from capital discipline to labor shortages, from a lack of external capital to cost inflation and high interest rates, from exhausting prime drilling locations to more pronounced declines in well productivity over the course of time.
US shale growth disappointing
US shale will still grow even at lower rates, analysts say. But the Permian will no longer be the global swing producer it was before 2020, when U.S. producers flipped all their money and took on more debt to “drill, baby, drill” every time oil prices rose.
Last year, less than $100 in oil tempted US producers. Supply chain bottlenecks, cost inflation, labor shortages, maturing asset base and lower capital availability were the biggest constraints on US shale production over the past year, E&P company executives said in the past year. Dallas Fed Energy Survey for Q4 last month. Related: Venezuela’s vast oil wealth could become the world’s largest stranded asset
A total of 32% of E&P executives selected “cost inflation and/or supply chain bottlenecks” as the biggest drag on their company’s output, 27% chose “mature assets” and 16% indicated “availability of capital”. Other options each received 9% or less.
“Geopolitical risks, economic uncertainty, material and/or labor shortages and an administration hostile to the industry have made it difficult to predict what the next 12 to 18 months will look like for the upstream sector,” says a manager of a E&P company said in it comments to the survey.
According to the latest EIR Short term energy outlook (STEO), U.S. crude oil production is expected to average 11.7 million barrels per day in 2022 and average 12.4 million barrels per day in 2023, surpassing the record set in 2019.
This may be too optimistic, say some analysts and industry officials.
US oil supply growth will be modest this year, at around 400,000bpd exit-to-exit at the end of 2023, according to Enverus Intelligence Research (EIR).
Enverus expects global demand to grow by 1 million barrels per day this year, half driven by the reopening in China.
“Conversely, the combination of modest supply growth in the US (0.4 MMbbl/d E/E), OPEC intervention and Russian sanctions prevent critical OECD crude, product and SPR inventories from building up, leading to the market will remain undersupplied if an expected global economic upswing occurs in the second half of 2023,” Enverus said in a report earlier this month.
Energy Aspects analysts warned in October 2022 that U.S. crude oil production from shale basins may peak in 2024.
“The era of aggressive U.S. shale growth is over,” said Scott Sheffield, CEO of Pioneer Natural Resources, the largest pure-play shale producer. Financial times.
“The shale model is definitely not a swing producer anymore,” Sheffield noted.
At the Goldman Sachs Global Energy and Clean Technology Conference earlier this month, Sheffield said that Pioneer had lowered its estimates for total Permian oil production from all operators to about 7 million barrels per day by 2030, from about 8 million barrels per day forecast about a year ago. The EIA estimates that the Permian is currently pumping 5.5 million barrels per day.
Many companies are running out of inventory and moving into level two and level three, Sheffield added.
Shale growth is likely to be around 400,000 barrels per day this year, down from 500,000 barrels per day to 600,000 barrels per day that Sheffield had forecast for the past 12 to 18 months.
“And that will continue to fall over the next five years,” said Pioneer’s CEO.
OPEC back in the driver’s seat
OPEC is now in charge and if oil stays around $75, the cartel is likely to act to support pricessaid Sheffield.
“They need oil at $100 a barrel or higher in my opinion. OPEC ministers are frustrated with the recent price drop. It’s understood. I think that’s going to change. If it stays too low I wouldn’t be surprised if they still have a cut. But they have to wait until February 5 to see the product ban on Russia,” he said at the Goldman Sachs conference.
For Jeff Currie, global head of commodities at Goldman Sachs, the US shale field was the place to look for spare capacity before 2020, and it was able to influence oil prices as US oil production surged in the decade to 2020.
“Today, that flexibility is gone, leaving us reverting to the ‘old oil order’ of Opec dominance,” Currie told FT.
By Tsvetana Paraskova for Oilprice.com
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