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Page added on October 6, 2015

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US Oil Production On Brink Of ‘Dramatic’ Decline

Oil executives warned on Tuesday of a “dramatic” decline in U.S. production that could pave the way for a future spike in prices if fuel demand increases.

Delegates at the Oil and Money conference in London, an annual gathering of senior industry officials, said world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade.

 

“We are about to see a pretty dramatic decline in U.S. production growth,” the former head of oil firm EOG Resources Mark Papa, told the conference.

Papa, now a partner at U.S. energy investment firm Riverstone Holdings LLC, said U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments.

Official data show that nationwide U.S. output has already begun to decline after reaching a peak of 9.6 million barrels per day (bpd) in April, although production in some big shale patches, including North Dakota, has held steady thus far. The Energy Information Administration forecast on Tuesday that output would reach a low of around 8.6 million bpd next year.

Until this year, U.S. oil output was growing at the fastest rate on record, adding around 1 million bpd of new supply each year thanks to the introduction of new drilling techniques that have released oil and gas from shale formations.

But oil prices have almost halved in the last year on oversupply in a drop that deepened after the Organization of the Petroleum Exporting Countries in 2014 changed strategy to protect market share against higher-cost producers, rather than cut output to prop up prices as it had done in the past.

Benchmark Brent crude was up 5 percent, or $2.50 a barrel, at $51.75 on Tuesday as investors digested news from the London conference. It peaked in recent years above $115 a barrel in June 2014.

Spike

The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle to refinance while prices remained so low, leading to lower output in future.

“Producers are now looking for new cash to survive and they will probably struggle to get it,” Ben van Beurden said.

Longer term, there was a risk that low levels of global production could bring a spike in oil prices, he said.

If prices remained low for a long time and oil production outside OPEC and the United States declined due to capital expenditure cuts, there was not likely to be any significant spare capacity left in the system, he said.

“This could cause prices to spike upwards, starting a new cycle of strong production growth in U.S. shale oil and subsequent volatility,” van Beurden said.

Adam Sieminski, administrator at the U.S. Energy Information Administration, told reporters on the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its productivity.

But this process could not continue forever.

“Now we are seeing the limits at least in the near term and it is beginning to impact production,” Sieminski said. “We see (U.S. oil production declines) continuing into next summer.”

The Secretary-General of OPEC, Abdullah al-Badri, said oil supply growth from non-OPEC producers might be zero or negative in 2016 because of lower upstream investment.

But Papa said if U.S. light crude oil prices went back up to $75 a barrel, U.S. oil production would resume growth at around 500,000 bpd – or around half the record growth rates observed in the past few years.

“I see the United States as a long-term growth producer,” he said. “If low oil prices prevail – then the correction in oil prices will be much more severe.”

RIGZONE



11 Comments on "US Oil Production On Brink Of ‘Dramatic’ Decline"

  1. BC on Tue, 6th Oct 2015 7:24 pm 

    Uneconomic, unprofitable growth of US kerogen extraction is occurring at the fastest 5- and 9-year rates since 1927-30 at 3-, 5-, and 10-year average prices at ~$100.

    IOW, the massive multi-trillion-dollar upstream outlays since 2008-09 to increase uneconomic shale extraction by 65-70% occurred with the anticipation of $100 or higher.

    Over the period that US shale extraction has boomed/bubbled up, US real final sales per capita have averaged 0-1%, with growth of full-time, private employment per capita at the level of the mid- to late 1980s.

    Clearly, the cyclical price of oil at, or above, $40-$100 is too costly to permit “escape velocity” for the US economy back to the long-term 2-2.5% real rate per capita.

  2. makati1 on Tue, 6th Oct 2015 9:14 pm 

    Like buying an expensive car and not having the money to put gas in it.

    WTI in 1970 was ~$20/bbl adjusted for inflation.
    Median 1970 US household income ~$46K adjusted. (US Census)

    WTI today is ~ $43/bbl adjusted for inflation.
    Median US household income ~$53K (2014 US Census)

    http://www.macrotrends.net/1369/crude-oil-price-history-chart

    Apparently it has a long way to go down just to match its 1970 value. Over the last 45 years:

    Oil is up ~214%
    PPP is up ~115%

    The numbers say it all.

  3. Ted Wilson on Tue, 6th Oct 2015 9:35 pm 

    Finally the mainstream media starts accepting the fact about the US production decline.

    And the Brent has crossed $50 / barrel.

    http://finance.yahoo.com/news/u-oil-output-brink-dramatic-174445476.html

    But with the price increase the US oil production may also increase as long as the price increase can hold.

  4. BobInget on Tue, 6th Oct 2015 10:44 pm 

    IMO, gasoline is currently hot.

  5. dooma on Wed, 7th Oct 2015 12:21 am 

    Any peak-oiler worth their weight in light sweet crude would already be armed with the knowledge that the “top” or plateau of the bell curve is and always was going to going to be a roller-coaster ride in regards to the pricing of oil.

    And here we are-living the dystopian dream.

  6. rockman on Wed, 7th Oct 2015 6:30 am 

    “…told reporters on the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its productivity.” So easy to make such statements when one doesn’t have to present the facts to back it up. First, what does “increased productivity” mean? Certainly not more wells being drilled since we aren’t. Certainly not more oil being produced since we aren’t. Maybe they mean more oil being produced per new well then we’ve seen the last few years? Perhaps but no one has posted such data yet. But even if it has happened so what: it doesn’t change the absolute amount of wells being drilled or oil being produced. It doesn’t even mean the companies are more profitable than they had been and thus has no positive impact on US production levels. It might mean a better ROR for some operators but that doesn’t mean such companies are in good shape given the huge lost in revenue they’ve suffered from lower priced oil. Given how many pubcos that were selling for $10 to $40 per share and are now selling for less than $1/share that should be painfully obvious.

    Just more empty statements IMHO that are intended to put a positive spin on the bleak future of US oil production.

  7. zaphod42 on Wed, 7th Oct 2015 8:50 am 

    Overlooked, perhaps because it is “verboten,” is that, when the economy recovers, interest rates will rise, especially on speculative ventures. Without cheap money for their ‘junk’ rated bonds, oil companies cannot continue to drill frac’d wells with price of oil at less than, perhaps, $90 or so. And the economy cannot afford oil in excess of $75.00. So, the process may continue for a while. And when it stops, it stops! End of story.

    At least that is how I see this progressing.

  8. Davy on Wed, 7th Oct 2015 9:34 am 

    Yea, zap, it is a process that will run its course. Anyone who tries to predict a process will always be surprised. I think it will come down to will overall demand tank more than oil demand. We know oil demand can be significant even in a declining economy but only to a point.

    I am filling up a 500 gal diesel tank today. Prices are good now. If it were a $100 oil I would have waited to the end of the month.

  9. Kenz300 on Wed, 7th Oct 2015 9:47 am 

    Banks stopped lending to high cost producers……

    Depletion is a fact ………..

  10. BC on Wed, 7th Oct 2015 11:45 am 

    Forgive the cross-posting from other threads, but I wanted to catch some of the newcomers who might not take the time to read all of the threads.

    https://app.box.com/s/8f0rm31psk7thwtd5j3gwgrtx8acmo8t

    https://app.box.com/s/ys8ijadj4b57nb95ka0b3ilph38ga7fm

    https://app.box.com/s/x61sqtg4c3vp1ubo67k8715ulapw35me

    https://app.box.com/s/894h3w9iool3d07cnadqa21tmg89xu8n

    Oil is “cheaper”, but it still ain’t “cheap” WRT to the economy’s capacity to grow at current oil prices and supply.

    https://app.box.com/s/s0wyvm4xh7kvd4fxcwyxx3mfevtf8yub

    And US oil is still being depleted per capita at a steady, log-linear rate (falling 50% per capita by no later than the early 2020s).

    https://app.box.com/s/dt2c8mz6vgrq11q8p8i5tbkn3oqlckcb

    https://app.box.com/s/6aju2cctaq9wxck2y6xwxdfbqidq95op

    https://app.box.com/s/u3icgvx6wbcddnijynhx257dshzm1dyr

    Rigs are contracting with the oil cycle, and production will eventually follow.

  11. Revi on Wed, 7th Oct 2015 12:03 pm 

    Fugeddaboudit. It’s over for the time being. Fortunately we have a lot sloshing around still, so we can make it look like the system is still functioning. Little do we know that the upstream oil is not happening. I give it a year or two and it will be a very different world…

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