The US shale boom is officially over

The days of booming US shale oil production are over. US oil production is rising, but at a much slower pace than before the 2020 crash, and at a slower pace than expected a few months ago.

The shale region’s new priorities – capital discipline and focus on shareholder returns and debt service – along with supply chain constraints and cost inflation have held back US oil production growth.

The mixed signals from the Biden administration to the US oil and gas industry, regularly blaming the sector for high gasoline prices and, more recently, the threat of more taxes, are not motivating US producers either. Many are reluctant to spend more on drilling if there is no medium to long-term vision of how to use America’s oil and gas resources to increase America’s energy security and help Western allies who rely on imports.

Oil production growth forecasts lowered

This year, the US Energy Information Administration (EIA) and several analysts have revised their crude oil production forecasts for 2022 and 2023 downwards. While the EIA still expects output to establish a new annual average next year, it has revised its projections since the beginning of this year.

Oil company executives, in turn, say the U.S. government’s policies and anti-oil rhetoric, inflation, contractor delays and regulatory uncertainty are negatively impacting drilling and production schedules.

The EIA expects U.S. crude oil production to average 11.7 million barrels per day (bpd) in 2022 and 12.4 million barrels per day in 2023, surpassing the record set in 2019, according to the November Short term energy outlook.

Despite the expectation of record production next year, the EIS has revised the figures downward several times so far in 2022. The latest cut is a massive 21% cut in the growth forecast, according to calculations by Reuters.

In the October predictionThe EIA had already lowered the average production estimate for 2023 to 12.4 million barrels per day from September’s forecast of 12.6 million barrels per day.

“The lower crude oil production in the forecast reflects lower crude oil prices in 4Q22 than we previously expected,” the government said in October.

Weeks before the Russian invasion of Ukraine, which rocked global energy markets, Enverus Intelligence Research expected US oil production growth will accelerate to above about 900,000 barrels per day by 2022.

However, inflation and supply chain delays from the second quarter have significantly worsened the outlook for US crude oil production growth. Enverus Intelligence Investigation (EIR) cut this month its forecast for US production growth, due to “the headwinds caused by restrictions on oilfield services, the risk of a recession and reduced performance of recently drilled wells in the Permian Basin.”

As a result, Lower 48’s oil production forecast has been revised significantly downwards and EIR now expects growth of approximately 450,000 barrels per day exit-to-exit in 2022 and growth of 560,000 barrels per day for 2023.

OPEC back in the driver’s seat

A top industry executive said last week that the US shale field is no longer the swinging oil producer and that OPEC is back as the main driver of oil supply fundamentals.

“Shale was seen as a swing producer, the Saudis and OPEC have been waiting for this. Now OPEC is really back in the driver’s seat where they are the swing producer,” said John Hess, CEO of Hess Corp. said at a conference in Miami last week.

The executive believes U.S. crude production will average 13 million bpd over the next several years, where it will stabilize as investors pressure U.S. oil companies to focus on returning cash to shareholders rather than of investing in aggressive growth strategies.

The current state and outlook of the U.S. oil industry is in stark contrast to the decade’s growth through 2019.

Between 2009 and 2019, U.S. producers accounted for all incremental global consumption in three out of 10 years and at least two-thirds of incremental consumption in six of those years, according to estimates by Reuters senior market analyst John Kemp.

“U.S. liquid liquid production increased by 10 million barrels per day between 2011 and 2022, capturing a barely credible 10% of global supply,” says Wood Mackenzie. said last month. Nearly 6 million bpd of that increase came from crude oil and condensate production in Lower 48, two-thirds of which comes from the Permian Basin alone, with the remainder of the increase coming from natural gas liquids produced from shale gas extractions.

While U.S. oil and gas production continues to increase this year, growth is being capped by cost pressures and supply chain delays, industry executives said. Dallas Fed Energy Survey for the third quarter. The shale patch cites labor and equipment shortages, as well as the Biden administration’s inconsistent policies, as the main hurdles to expanding drilling activity.

“The government’s lack of understanding of the oil and gas investment cycle continues to result in inconsistent energy policies that contribute to rising energy costs. This continued inconsistency is increasing uncertainty and depressing investment in energy infrastructure,” said a manager at an oilfield service provider. comments to the survey.

“We are in an energy death spiral that will lead to higher highs and lower lows. Volatility will increase and the public is in for a very rough ride.

By Tsvetana Paraskova for Oilprice.com

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