This opinion piece presents the opinions of the author. It does not necessarily reflect the views of Rigzone.
Posted on 06/27/2013 12:23:15 PM PDT by thackney
The United States experienced the largest increase in annual oil production ever for the industry last year. According to the annual review of world energy markets prepared by BP plc, the one-million barrels a day increase in output was the largest in the history of the United States going back to the oil industry’s beginning in 1859. BP also cited the country’s strong growth in natural gas production, too. But maybe more significant was the 2.8% decline in energy demand last year, which has certainly helped the country reduce its balance of payments due to lower oil imports. The problem, however, is that the strong performance of the domestic oil and gas industry has forecasters making aggressive predictions about its future production growth and the resulting impact on global energy markets and the political environment.
On a comparison of oil output growth based on average production for 2011 and 2012, the increase was about 800,000 barrels a day (b/d). On the other hand, if the output change was measured between the final days of the respective years, as reported by the Energy Information Administration (EIA), the increase was 1.139 million b/d. And if we use the four-week averages for December of each year from the EIA, then the increase amounts to 1.069 million b/d. These gains are significant and reflect the collective efforts of the industry to exploit shale deposits across the country and in particular the Bakken and Eagle Ford oil shale formations.
The strong performance of the oil and gas industry has caused forecasters, such as the EIA, the International Energy Agency (IEA), and private forecasters, including Citibank, to project the U.S. becoming a net exporter of oil within the next decade and that the U.S. could even out-produce Saudi Arabia by 2020 reclaiming the world’s number-one oil producer ranking once again.
The EIA suggests in its Annual Energy Outlook for 2013 that between 2011 and 2020, U.S. oil production will grow by 1.8 million b/d in its Reference case and by four million b/d in its High Resource case. With over a million barrels of net new production in 2012, the industry is well on its way to meeting the Reference projection and a quarter of the way to the High Resource target.
But will production continue to grow at the rate it has for the past two years? That will depend on the trajectory of global oil prices, trends in drilling and production, regulatory policy and the performance of existing reservoirs.
The petroleum industry continues to make progress in reducing the number of days needed for drilling the horizontal wells required to exploit shale resources. It is also advancing completion technology, including hydraulic fracturing, to boost initial well production and increase total reservoir recovery rates. All of these improvements will reduce finding and development costs and improve company financial returns. The key question is whether future technological gains will continue boosting initial production and ultimate recovery rates at a pace similar to that experienced in recent years. If the answer is yes, and government regulation and restrictions on access to land are not inhibitors, then the industry has the potential to further boost output and reduce U.S. oil imports. On the other hand, if the answer to the question is no, then due to the rapid production decline rates for shale wells, the industry will be stepping onto a drilling and fracturing treadmill as the industry will need a steady increase in producing wells merely to hold shale output steady, or to limit its rate of decline.
The business scenarios flowing from the answers to our question reflect the two ends of a spectrum, with the likely outcome falling somewhere in between. Just where we land along this spectrum will dictate the level of future petroleum industry activity and thus that of the service companies who perform the work. The more important issue will be how the shale outlook answer impacts the overall U.S. energy balance and global energy and political dynamics. While we remain optimistic for the petroleum industry’s outlook, we are not ready to sign on to energy independence or the return of the U.S. to the number one oil producer in the world. We welcome being proven wrong, however.
This opinion piece presents the opinions of the author. It does not necessarily reflect the views of Rigzone.
“The strong performance of the oil and gas industry has caused forecasters, such as the EIA, the International Energy Agency (IEA), and private forecasters, including Citibank, to project the U.S. becoming a net exporter of oil within the next decade and that the U.S. could even out-produce Saudi Arabia by 2020 reclaiming the world’s number-one oil producer ranking once again. “
NOT IF 0BAMA HAS ANYTHING TO DO WITH IT!
So when is the price at the pump going to start coming down? Like way down?
What’s the word on rigs? My coffee group (hardly a reliable source, lol) says there aren’t enough rigs to go around that are capable of horizontal drilling.
So long as the Obama Crime Family remains at the helm, expect more pain at the pump. When Speaker Newt Gingrich and Conservatives were in change back in the 1990s, I was paying only 78 cents a gallon here in North Texas. Now that Obama's regulations and offshore drilling ban are in effect, that gallon at the same gas station is nearing $4.00.
A pro-business, pro-energy administration led by Sarah Palin will straighten out this mess caused by the evil, anti-American thugs now in power.
US production is growing due to the high price. It makes a lot of folks want to invest in the relatively expensive wells needed for tight formations like Bakken & Eagle Ford.
If the price goes way down, we won’t be drill much of any in our shale fields.
Total active rig count in the US is down from over 2000 at the first of the year to 1,759 last week. There are rigs available.
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTkwMzc5fENoaWxkSUQ9LTF8VHlwZT0z&t=1
I would say there are rigs available. But the number of rigs going after natural gas continues to fall. About 350, down from ~430 at the first of the year. It was over 800 a year before that. Over 1,500 late 2008. No way nat gas is going to stay low price.
Missed this piece. Many thanks, Hack!
How say you? Love to know (aside, of course, arguments about ever seeing a reasonable administration again...)
How say you? Love to know (aside, of course, arguments about ever seeing a reasonable administration again...)
Kwap! I fat-fingered the bloody post. Sorry for the dupe (mutter, grumble...)
I don’t see it. Granted this is politics not industry stuff. But I would guess our exports won’t be more than 10~20% of our production. Hard to figure any math that would keep our exports competitive and make any real difference. If we wait much longer, Australia, Canada, Qatar and others will capture enough of the global market, we won’t have customers to send it to.
Yeah oil production may not get a big bump this year. I’m reading that the amount of oil being wheeled around on railroads is flattening.
However, current oil pipeline preparations are setting up to ship more than a million new barrels of oil from the permian basin in west texas.
as well you hear reports that oil formations there are 1000 feet deep...which number just dwarf dwarfs oil formations in the eagle ford or baaken fields.
And the $1.50 cost rates to drop considerably once the Cheniere and other facilities are on line, does it not?
This would seem to make exporting a much more attractive, hence a considerably larger, portion of the natty industry in future.
Not making an argument pro or con here -- just trying to get a handle on what MARKET forces, as opposed to goobermint fiat forces, may portend.
Best to you as always, mate.
If you go to that spreadsheet, then the tab “US Oil & Gas Split” you will see that oil rigs actively drilling is essentially unchanged from a year a go and up by nearly 100 compared to 6 months ago. I think oil is doing well.
The Natural gas rigs are down 185 (~1/3) from a year ago. That drop off rate has been happening fairly steady for quite a while.
It takes years to build a liquefaction export terminal. We don’t have much capacity today at all. I think the market conditions will change to quickly (domestic price rising) to get much LNG export capacity built. And remember, most of these players got burned building LNG import facilities they didn’t get to use much at all. They will be slow to invest in that combined with the fickle and quickly changing politics that could leave their investment idle. my 2¢.
Long term effect will be a small decrease. Realize all this is doing is replacing foreign supplies. Still with more hydrocarbon out on the world market, we should see prices pretty typical in $70-90 bbl once the smoke clears.
Energy rigs in U.S. slide to lowest level in two months
http://fuelfix.com/blog/2013/07/01/energy-rigs-in-u-s-slide-to-lowest-level-in-two-months/
Oil and gas rigs in the U.S. tumbled to the lowest level in two months as energy producers used drilling efficiencies to cut the time it takes to bore wells, weakening demand for more equipment.
The total count fell by 11 to 1,748, the lowest since April 5, Baker Hughes Inc. (BHI)’s website shows. Oil rigs dropped by 15 to 1,390, a nine-week low, the Houston-based field services company said on its website. Gas rigs rose for the first time in six weeks, gaining four to 353.
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