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Have We Passed ‘Peak Growth’ For Tight Oil?

Production

Has U.S. oil production growth hit the buffers? Supply has boomed over the last decade, disrupting the market, domestically and internationally. But weak commodity markets and corporate strategies are now taking their toll, undermining the expected growth path in the near term. I spoke with our North American market expert, John Coleman, principal analyst, crude supply and infrastructure, to get his perspective.

The big question is: have we passed “peak growth” for U.S. tight oil? Our forecasts suggest we have. And pipeline developers (and their financiers) who’ve done so well out of the boom are increasingly concerned about it.

Permian crude supply growth, the main driver of tight oil growth, has outpaced takeaway capacity frequently in the last few years. When production jumped by an astonishing 1.7 million barrels per day (b/d) in the two years from January 2018 to December 2019, infrastructure was stretched to the limit. Producers had to fight to get their crude to market. Those without access to pipe had to put crude onto rail or trucks or leave it in the ground. And they paid a high price – the U.S.$10 to U.S.$20/bbl discount at the Midland trading hub only a year ago reflected the cost of shipping the marginal barrel to Houston.

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Producers losing out on value while midstream asset owners made hay was a constant narrative in tight oil’s first decade. But things have changed. The playing field has tilted decisively in the other direction at the very start of the 2020s. Overbuild means pipeline owners face intense competition for increasingly scarce barrels.

Permian production growth is decelerating rapidly. Independent producers, constrained by capital discipline, have cut drilling rigs and are shifting focus from growth to generating free cash flow. That will progressively show through in production. We expect Permian tight oil production to increase by just 0.6 million b/d from January 2020 to December 2021 – a fraction of what we saw in the two prior years.

Meanwhile, new pipe is belatedly coming onstream, and at a much faster rate than supply. Capacity already exceeds today’s production of 4.7 million b/d and will reach 7 million b/d by the end of this year. Utilization rates are down from over 100% a year ago to 85% and fall as low as 68% by mid-2021 in our forecasts. Discounts at Midland have unwound to just US$1/bbl. The value has swung back in favour of producers rather than pipe owners.

The tougher financial climate has forced pipeline developers themselves to embrace capital discipline. We’re seeing strategies shift away from new build to focus on project consolidation and cash generation. These companies intend to reduce financial leverage and return any surplus capital to shareholders.

One big question for them is when the 2.3 million b/d of spare Permian pipeline capacity will be filled. It will take some years. At WoodMac we think Permian supply growth starts picking up again in 2022, and that we could be back at high utilisation rates by 2025. There’s plenty of tight oil inventory. How quickly it’s developed depends on price and whether corporate strategies shift back to growth. But there’s a possibility the Permian may never need another new pipeline built.

Our oil market expert, Ann-Louise Hittle, points out that there are also big implications for global oil markets. OPEC+ has its work cut out to balance the market in 2020. Demand is weakening – early in February we revised down first quarter demand by 0.9 million b/d, and calendar 2020 by 0.5 million b/d, mostly due to the effects on the global economy of coronavirus, especially in China. We expect full year demand growth of about 1 million b/d.

Non-OPEC liquids supply is set to grow at more than twice that rate, by around 2.4 million b/d, much the same as it has for the last two years. What’s different in 2020 is that growth is split evenly between the US and other non-OPEC producers including Norway, Canada and Brazil.

OPEC+ has a full ministerial meeting scheduled for 5-6 March. As it weighs up how much more production to cut – if any – it will find that for the first time in several years, US tight oil growth is not the biggest of the problems it’s facing.

Wood Mackenzie



63 Comments on "Have We Passed ‘Peak Growth’ For Tight Oil?"

  1. Duncan Idaho on Sun, 23rd Feb 2020 8:33 pm 

    Trump: ‘He’s a psycho and a buffoon’

    https://www.alternet.org/2020/02/george-conway-rips-republican-voters-for-sticking-by-trump-hes-a-psycho-and-a-buffoon/

    I’m not generally so kind hearted.

  2. Davy on Sun, 23rd Feb 2020 8:33 pm 

    “Davy, it’s not looking good for your refuge in Italy!”

    Poor makato1, thinks he is punishing me. makato1 all you do is show the depth of your insanity. If I rub your nose in your Asia poop it is because you live a lie of Asiaup Westdown. The proper way is to get out of the binary mentality of being up and wanting others down. You are a sick fuck, makato1. Italy is just the start. This virus will surface across the globe. makato1, you are in the worst place and in the worst age growth to die. Good luck with that.

  3. Davy on Sun, 23rd Feb 2020 8:44 pm 

    “Trump: ‘He’s a psycho and a buffoon’”

    You deranged fuckers make the man into more than he is. In your deranged mind he is 10 stories tall. He is a fantasy of all your demons. This country is really hurting now that there are so many libs out of their minds.

  4. supremacist muzzies jerk amputated on Sun, 23rd Feb 2020 8:44 pm 

    supertard makako
    please apologize to supertard

    supertards, please respect sueprtard

  5. makati1 on Sun, 23rd Feb 2020 8:45 pm 

    There is no “Poor Makato1”. There is a real world observer that follows current events that may affect him. I don’t give a fuck what happens to the Ozark goatherd or his lies and hypocrisy. Obviously, the Italian thingy is just another of his delusional lies. He will get what he deserves.

    The Us is on the way down and the slide is speeding up. Its getting more and more interesting watching it implode. The clown show called the election is showing the world just how ridiculous the “empire” really is behind the curtain. Pass the popcorn. The second act is starting.

    A sunny, 80F Monday morning here in the land of eternal summer. ^_^

  6. Davy on Sun, 23rd Feb 2020 8:52 pm 

    Like I said maktato1, you say so little. You just reflect your agenda of hate and resentment in the same speech over and over. Man, you must have had a shitty life in the states to be so pissed off about life. Yo used to have a little following of similar people. Not many visitors anymore because of you and your fool friend juanPee. Now it is just a few of us. I plan on seeing you gone one of these days.

  7. Davy on Sun, 23rd Feb 2020 8:54 pm 

    “supertard makako please apologize to supertard”

    You apologize to the board for being a nutter, Paultard. Get help fool

  8. Davy on Sun, 23rd Feb 2020 9:24 pm 

    I got to admit though. Rice Farmer is not a far right extremist sight like Zero hedge is.

  9. Davy on Sun, 23rd Feb 2020 10:16 pm 

    “I plan on seeing you gone one of these days.”

    BTW y’all. I’m on the record for being against freedom of speech. And never speak out against tyranny and oppression. Only patriots like makato do that shit

    I’m a fucking communist. Someone please put a chunk of lead In my tiny widdle pea brain. REAL Soon like.

    stupid dumbass cuntface fuckwacks

  10. makati1 on Mon, 24th Feb 2020 2:56 am 

    Davy, I just keep pointing out the obvious facts to anyone not brainwashed or brain dead. The method works for your propaganda USMSM, so it should work for me. Repeat it over and over…the US is going down.

    BTW: I expect to outlive you by many years, Davy. Odds are, you smoke, drink and use drugs. That gives me a huge advantage. Not to mention where you live and what you eat and drink is poisoning you every minute of the day along with the barrage of propaganda warping your mind even more. Monday evening here and a sunny 82F.

  11. Davy on Mon, 24th Feb 2020 4:58 am 

    It’s all yer fault I went all crazy makato. I got nobody to blame but you.

    dumbass

  12. JuanP on Mon, 24th Feb 2020 5:10 am 

    It’s all my fault I went all crazy makato. I got nobody to blame but me.

    dumbass

  13. Davy on Mon, 24th Feb 2020 5:13 am 

    “Davy, I just keep pointing out the obvious facts to anyone not brainwashed or brain dead. The method works for your propaganda USMSM, so it should work for me. Repeat it over and over…the US is going down.”

    Translation: nothing to translate because nothing said.

    “BTW: I expect to outlive you by many years, Davy. Odds are, you smoke, drink and use drugs. That gives me a huge advantage.”

    LOL, find evidence I drink or do drugs? You have admitted here you like to drink. I think you are lying.

    “Not to mention where you live and what you eat and drink is poisoning you every minute of the day along with the barrage of propaganda warping your mind even more.”

    Translations: more makato1 stupid.

    “Monday evening here and a sunny 82F.”

    How boring it must be there!

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