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Page added on May 14, 2017

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Texas is back as King of the oil world

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Weekly US oil production is back to 9.3 million barrels per day and is nearing the 9.6 million barrel peak in mid-2015.

OPEC raised its outlook for U.S. production growth by 285,000 barrels a day to 820,000 a day in 2017. The number of drilling rigs operating in the country has more than doubled since May, data from Baker Hughes Inc. shows, as shale explorers emerge from a two-year rout buoyed by the initial price gains after OPEC announced its plan.

OPEC members are still sticking with their pledge to reduce output, the report showed. Production from all 13 members slipped by 18,200 barrels a day to 31.73 million last month, with Saudi Arabia continuing to pump below its official target.

As crude oil production in the Permian Basin of western Texas and eastern New Mexico has increased, pipeline infrastructure has also increased to deliver this crude oil to demand centers on the U.S. Gulf Coast.

One indicator of a potential shortfall in available takeaway capacity in the Permian is a negative spread between the price of West Texas Intermediate (WTI) crude oil at Midland, Texas, and the price of WTI at Cushing, Oklahoma.

Going forward, the Midland versus Cushing discount, which recently widened to more than $1 per barrel (b), is unlikely to be either as large or as persistent as it was following the rapid increase in Permian production from 2010 to 2014. At points in both late 2012 and mid-2014, WTI-Midland was priced at least $15/b lower than WTI-Cushing. Pipeline capacity expansions and other market changes are now underway to deliver more Permian crude oil to demand centers.

Pipeline infrastructure in the Permian is now better equipped to handle new production than it was in 2014. Several pipelines that came online to accommodate rising Permian production in recent years, such as Magellan’s BridgeTex pipeline, Sunoco Logistics’ Permian Express pipeline, and Plains All American’s Cactus pipeline, are undergoing expansions that are set to come online later this year, adding approximately 340,000 b/d of capacity.

In addition to expansions of existing pipelines, Enterprise Product Partners is building a new Midland-to-Houston pipeline with a capacity of 450,000 b/d, expected to come online later this year. Other pipeline expansions are planned for gathering systems and intra-Permian pipeline infrastructure to bring increasing volumes of oil to the larger pipeline origin points like Midland. After 2017, several more new pipelines and expansions are planned, or are in the planning stages, that could carry any additional increases in Permian production.

The Permian Basin of Texas and New Mexico is the new star of the U.S. shale oil revolution. Land prices in the Permian have skyrocketed, drilling activity has tripled since last year and production there is poised to soar despite cheap oil prices.

The First Texas oil boom was from 1900 to 1940. Texas oil production previously peaked at about 3.4 million barrels per day in 1972 and then 3.6 million barrels per day in 2015.

Some are predicting the Permian could eventually surpass the colossal Ghawar field in Saudi Arabia as the world’s biggest oilfield.

The key is that the unique geology of the Permian allows frackers to hit multiple layers of oil as they drill into the ground. That’s what sets the Permian apart from other major oilfields, making it lucrative to drill there even at today’s sub-$50 prices.

Oil explorers have paid as much as $60,000 an acre in the Permian Basin, according to Wood Mackenzie. That’s a stunning 50 times higher than the price four years ago.

Land in the Permian is now fetching 10 times what oil explorers will pay for the Bakken, the North Dakota shale formation that used to be the face of the American shale oil boom.

Pioneer Natural Resources (PXD) CEO Scott Sheffield is even more optimistic, arguing that the Permian could eventually exceed the 5 million barrels per day pumped each day from Saudi Arabia’s Ghawar field, the biggest in the world.

The Wolfcamp shale in the Midland Basin portion of Texas’ Permian Basin province contains an estimated mean of 20 billion barrels of oil, 16 trillion cubic feet of associated natural gas, and 1.6 billion barrels of natural gas liquids, according to an assessment by the U.S. Geological Survey. This estimate is for continuous (unconventional) oil, and consists of undiscovered, technically recoverable resources.

According to Scott Sheffield, Executive Chairman and CEO of Pioneer Natural Resources, the Permian will end up being bigger than the Ghawar field, with more than 75 billion barrels in the Spraberry and Wolfcamp plays alone, 40 billion barrels in the Delaware, and more in new zones being discovered, like the Wolfcamp C. Sheffield thinks the totals will exceed 160 billion barrels.

Permian production at 2.3 million barrels per day is 840 million barrels per year. Doubling production to 4.6 million barrels per day or 1.7 billion barrels per year could be maintained for nearly 100 years.

A Permian producing at 5-7 million barrels per day would mean overall Texas production could reach 6 to 9 million barrels per day. Texas by itself would almost have as much oil production as Russia or Saudi Arabia.

Next Big Future



24 Comments on "Texas is back as King of the oil world"

  1. twocats on Sun, 14th May 2017 6:53 am 

    http://www.nextbigfuture.com/

    other articles on the blog:

    moon as unprospected eighth continent that will produce trillionaires

    bladerunner 2049 official trailer

    towards an economically viable roadmap to large scale space colonization.

    nuff said.

  2. Anonymous on Sun, 14th May 2017 6:55 am 

    A year or two ago, 5MM bopd from the Permian was crazy talk. Now it is within the realm of possibility.

    Figure we are 2.5 MM bopd right now. At 0.5MM bopd growth/year, we need 5 years (c.2022) to get to there. That is some honking growth and happens on top of replacing decline. Possible, but requires similar activity/growth to what was seen during 2010-2014 boom.

    I don’t know if the Permian will rise as expected, but just the possibility is interesting.

    Also, just because the Permian rises like that doesn’t mean the Bakken or EF are back to the disco growth also. Could be an eventuality where rest of US shale stays roughly static (replacing decline) while the Permian grows.

    One big concern is infrastructure, especially gas. Going from 1.5 to 2.5 happened fine, mostly with existing infrastructure or with projects approved during the 2010-2014 boom. I even remember hearing about Permian overbuild in 2015-2016. No more. Continued growth will need continued pipeline builds. It is not like the Eagle Ford where you can truck it to the coast. West of the Pecos is far away. Texas is big.

  3. twocats on Sun, 14th May 2017 7:19 am 

    one of the most important things I learned from rockman about the Permian is that it is both a conventional and unconventional field. so if we are talking about ramping up conventional, then my understanding that’s just increasing the rate of depletion. I.e. these are NEW resources, Permian has been producing for decades.

    If we are talking about LTO, then alone Permian will never see 5 MM bopd. Bakken reached 1.2 mbpd with 1,000’s of well needed per year. If that pace isn’t kept up it will slide precipitously. red queen is b&*(h.

    permian LTO will be lucky to get to 4 mbpd, and probably less than 3.5 mbpd around 2022.

  4. twocats on Sun, 14th May 2017 7:21 am 

    whoops, should have said “NOT NEW” resources, at least when it comes to Permian conventional that was producing 750kbpd back in 2008

  5. dissident on Sun, 14th May 2017 7:42 am 

    Another shill piece pimping non-existent resources to the gullible. The Permian basin will never restore the peak Texas oil production. Any article that claims it will is utter rubbish.

    If there were substantial tar sands and kerogen deposits they could argue that non-conventional oil could restore Texas as the king. Clearly, that is not the case.

    Now we need blowhards like Davy to argue this drivel is divine revelation.

  6. rockman on Sun, 14th May 2017 7:42 am 

    Lots of interesting info but the still can’t resist the overhyped bullsh*t:

    “Some are predicting the Permian could eventually surpass the colossal Ghawar field in Saudi Arabia as the world’s biggest oilfield.”

    The “Permian” isn’t a field. In fact it isn’t even a trend of numerous fields. It is a geologic BASIN that contains numerous TRENDS each of which contains numerous FIELDS. Comparing the Permian Basin to Ghawar Field is the same as comparing the population of India to that of NYC. Yes, a lot of folks in the Big Apple and lots of oil in Permian Basin but both comparisons are absurdly childish.

    The correct comparison would be between the Permian Basin and the Arabian Basin. Saudi Arabia is just one of the countries in the Arabian Basin along with Kuwait, Iran, Iraq, etc. And Saudi Arabia alone has 77 oil and gas fields of which eight fields contain half of its oil reserves. These fields include the super giant Ghawar, the world’s largest onshore oil field, and the Safaniya, the world’s largest offshore oilfield, with estimated reserves of 19 billion barrels.

    Lots of oil produced and left to produce in the Permian Basin. But Ghawar Field alone has produced more the 3X the oil. And the comparable Arabian Basin: more then 8X.

    Texas is big…but it ain’t that big. LOL.

  7. rockman on Sun, 14th May 2017 7:52 am 

    d – True, Texas is not the King (at least globally). But we certainly rate as a Prince. So kiss our royal ass. LOL.

    Twocats – Correct: lots of the PB increase came from new wells drilled in procuring fields discovered decades ago. And while that will increase URR it will also deplete those URR faster. So it actually does diminish our long term stability a tad.

  8. Davy on Sun, 14th May 2017 7:56 am 

    “Now we need blowhards like Davy to argue this drivel is divine revelation.”
    What’s da matter dissident did I ruffle your dumbass. You know you are getting through to extremist when out of the blue they spit at you. In dissidents case he missed and it came back in his face. Double lol.

  9. Davy on Sun, 14th May 2017 8:01 am 

    Rock, dissident doesn’t care about the truth of the matter. He only cares that it is American and positive and that causes his anti-American Canadian Russophile hackles to rise. Dissident is pure agenda along with fake self-importance of a dumbass Canadian.

  10. deadlykillerbeaz on Sun, 14th May 2017 8:14 am 

    160,000,000,000 × 50 USD per barrel = 8,000,000,000,000 dollars

    Besides, you’ll need the oil for all of those wind turbines in every yard you see.

    Nonetheless, oil drain intervals have rested between 8 and 12 months, with one major manufacturer just extending its interval to 16 months following a six-year field evaluation of lubricants. The expectations for new generation oils for offshore applications could be a drain interval of up to three years.

    http://machinerylubrication.com/Read/395/wind-turbine-lubrication

    A thousand gallons of lubricant in the gear box of a wind turbine, changed once a year, a 25 year wind turbine life cycle, 25,000 gallons of gear oil needed for each wind turbine for the full lifetime of the wind turbine operation, plus the initial carbon footprint, wind turbines will remain dependent on oil for the entire period that they operate.

    250,000 wind turbines times 25,000 gallons of gear oil for the changes required, the gear box oil breaks down over time, it has to be changed to avoid complete failure of the turbine.

    250,000×25,000=6,250,000,000/42=148,809,523 barrels of oil, all gear lube, synthetic oil, required to maintain the gear boxes in 250,000 wind turbines worldwide now for the next 25 years.

    2 days production. Regardless of how much, the oil has to be in those gear boxes or they all come to a screeching halt. They need oil in the worst way possible, can’t operate, function without it. No matter where you go, what it is, the squeaky wheel always gets the grease. It’ll fall off the wagon if it doesn’t get any.

    Thems wind turbines need to be well-oiled machines.

    Oil ain’t going away any time soon, might as well learn to live with it.

    Shelter in place. That would be your car as you drive down the road each day.

  11. bobinget on Sun, 14th May 2017 11:04 am 

    Lube oil is almost always recycled.

    Recycled motor oil can be distilled into diesel fuel or marine fuel in a process similar to oil re-refining, but without the final hydrotreating process. The lubrication properties of motor oil persist, even in used oil, and it can be recycled indefinitely.
    Automotive oil recycling – Wikipedia
    https://en.wikipedia.org/wiki/Automotive_oil_recycling
    Feedback

  12. Anonymous on Sun, 14th May 2017 12:53 pm 

    “The Permian basin will never restore the peak Texas oil production. Any article that claims it will is utter rubbish.”

    Two years ago, Texas total production came within a hair of matching the 1970s peak (1972 just over 3.6 MMBpd on an annual basis, various sources; MAR2015 3.599 MMbpd on a monthly basis, EIA source below.) Had world prices stayed up in the 100 range, no doubt we would have blown through the record and done so in 2015.

    Obviously low 40s or worse put Texas in the hurt locker. But they appear able to stay flat in the upper 40s, lower 50s. Perhaps even to grow slowly. And if prices go 60+, no doubt we will resume strong growth (even state total, not just Permian). Current level is 3.3 MM bopd, so really not that much needed (~10% growth total) to break back above the record 3.6 level from the 1970s.

  13. coffeeguyzz on Sun, 14th May 2017 1:13 pm 

    The third and fourth paragraphs from the end of the above post – coupled with a 30 second study of the accompanied graphic immediately below said paragraphs – might jolt people into realizing what seems to be almost universally overlooked in recent stories about the Permian.

    Specifically … the 20 billion barrels technically recoverable, as per the USGS, is for the Wolfcamp trend ONLY.
    Furthermore, this is the Wolfcamp trend in the Midland basin ONLY.
    The other trends, Spraberry, Bone Spring, et al, were NOT included, nor was the much larger Wolfcamp located in the DELAWARE Basin.

    Recent well results have 10,000 barrels a day coming from New Mexico unconventionals using the latest completion technologies.

  14. coffeeguyzz on Sun, 14th May 2017 1:41 pm 

    Additional …
    The above linked article “The Wolfcamp shale in the Midland Basin portion …” is the very brief announcement right from the USGS a few months back.

    Rockman, the eigth paragraph touches upon the ‘continuous resource’ phrase that you and rocdoc discussed awhile back.

    This referenced announcement regarding the Wolfcamp from the USGS should have set off explosions in the hydrocarbon world as it will portend to future assessments such as the Utica, Marcellus and, eventually, the Mid Continent regions of the US.

  15. rockman on Sun, 14th May 2017 4:22 pm 

    coffee – I fear it’s a hopeless battle. All that many can remember (and thus all the can focus on) is the universe of petroleum development when oil was $90+/bl. They just refuse to contemplate that today the price of oil is still well above the historic average. An historic average at which billions of bble of oil reserves have been developed.

    As I’ve explained many times before: oil is easier to find then ever before. The problem is the lack of new fields to find. That has not changed and certainly has gotten easier with the lower oil prices.

    OTOH no new resources have been discovered in the PB. Notice I specifically said “resources” and not reserves. What has happened is that thanks to that high oil price period we were able to significantly tweak EXISTING technology such as hz drilling and frac’ng. It’s that improved tech and the current ABOVE AVERAGE oil price that is driving new RESERVE development.

  16. dissident on Sun, 14th May 2017 7:56 pm 

    Came within a hair is idiotic irrelevance. The area under the production curve is the proper metric and not transient spikes in production. If transient spikes were all that mattered then all we would need to get more oil is to wish for it. That is clearly what most of the stock pumpers in this thread are doing.

  17. Sissyfuss on Sun, 14th May 2017 8:20 pm 

    Oh the sun shines bright,
    When the oil is light tight,
    Deep in the heart of Rockman.

  18. Plantagenet on Sun, 14th May 2017 11:06 pm 

    I wish M. King Hubbert was still around —I think he really would’ve gotten a kick out this.

    Cheers!

  19. GregT on Mon, 15th May 2017 12:03 am 

    “I think he really would’ve gotten a kick out this.”

    Not nearly as much of a “kick” that he would’ve gotten out of women like you planter.

  20. Davy on Mon, 15th May 2017 2:58 am 

    Give it a rest greg. Plant has more balls than you do at least he doesn’t claim to be a climate change hawk while he is having his Hawaiian trip then flipping his $MIL$ Vancouver house and talking social justice issues. Hypocrisy runs deep out in the BC woods.

  21. rockman on Mon, 15th May 2017 12:44 pm 

    Sissy – “When the oil is light tight”. Actually if you haven’t seen all of my posts: the Rockman never got into the light and tite rocks, like the shales during the boom. Working for a private company and not a pubco (pushing its stock) the Eagle Ford et al didn’t deliver a sufficient profit to interest my owner. Thus the only investor I could take advantage of was him. Which would tough to do to a self made BILLIONAIRE, son of a poor Mississippi shrimper. LOL.

  22. Anonymous on Tue, 16th May 2017 6:19 am 

    Private companies aren’t the end-all, be-all. I have seen some of them that are worse than public companies. Less discipline and cost focus. Too chummy in terms of managers(families companies are the worst).

  23. Anonymous on Tue, 16th May 2017 6:23 am 

    Very recent USGS estimate of undiscovered TRR in Spraberry.

    https://pubs.usgs.gov/fs/2017/3029/fs2017173029%20.pdf

    Note how the north is evaluated as a trend of conventional fields. The south is a continuous accumulation formation.

  24. Anonymous on Tue, 16th May 2017 6:36 am 

    Rock:

    Just because you were drilling or not a given area does not make it good or bad. You are just one person and can’t drill all the good prospects. And you have had your share of bad also.

    As for shale, maybe if you had been a first mover in the Marcellus (instead of drilling too expensive gas wells in the shallow Gulf that got killed by shale!) your owner would have multiplied his billions.

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