US crude oil production will reach a record level of 12.29 million B/D in 2019, increasing faster than expected both this year and in 2020, according to the latest US Energy Information Administration (EIA) forecast. Output will rise to 13.29 million B/D next year.
Similarly, the International Energy Agency predicted last month that US shale oil production will continue to reshape world energy markets, with the US accounting for 85% of the increase in global oil production to 2030. US output will rise to 19 million B/D over the next decade, wresting additional market share from OPEC producers and Russia, according to the agency’s annual World Energy Outlook.
But while shale will continue to affect global markets, some believe this predicted rate of growth may be optimistic. There are already signs that producers are curtailing spending and production in the major shale basins as they are under increasing pressure to focus more on capital discipline and returns rather than production growth. In contrast to the EIA and IEA, consultancy IHS Markit sees much slower growth in US shale next year, just a 440,000 B/D increase, with output flat in 2021.
“Going from nearly 2 million B/D annual growth in 2018, an all-time global record, to essentially no growth by 2021 makes it pretty clear that this is a new era of moderation for shale producers,” said Raoul LeBlanc, IHS Markit vice president for North American unconventionals. “This is a dramatic shift after several years where annual growth of more than 1 million B/D was the norm.”
IHS Markit predicts prices for West Texas Intermediate (WTI) crude to hover in the $50/bbl range and that capital spending will drop by 10% this year, 12% in 2021, and 8% in 2022, from $102 billion in 2019 to $83 billion in 2022. Prices need to be about $65/bbl for producers to be able to both increase production significantly while also satisfying shareholder expectations, it said.
In the meantime, producers are focusing more on completing wells than drilling new ones, which is a more economical way of boosting output. There were 7,740 drilled but uncompleted wells in the seven major US shale regions at the end of September, according to the EIA, compared with 8,800 in January.
After years of producing all out, pushing US oil and natural gas production to record levels, shale producers are pulling back. Although output has skyrocketed, particularly in places such as the Permian Basin, financial results have not. Mergers and bankruptcy filings are common, and investors have become reluctant to lend capital.
Natural gas companies in particular are hurting, and they are promising more capital discipline and lower production going forward. During third-quarter earnings calls, Chesapeake Energy, EQT, Callon Petroleum, Cimarex, and Diamondback Energy all signaled flat to lower spending and production. Chesapeake’s CEO had to reassure investors of the company’s financial health a week after the company said in a third-quarter earnings filing that it had “substantial doubt” of its ability to continue as a going concern. “I don’t think OPEC has to worry that much more about US shale growth long term,” Pioneer Natural Resources Scott Sheffield told investors last month.
