Shale executives have gone to great lengths to convince investors that they will not drill aggressively now that oil prices have rallied into the $60s. But in a new report released on Tuesday, the EIA essentially said that those assurances are just a lot of hot air.
The EIA’s Short-Term Energy Outlook predicted that U.S. oil production would top 11 million barrels per day (mb/d) this year. Last month, the agency said that the U.S. wouldn’t hit that threshold until November 2019.
The revision from just a few weeks ago is dramatic. In January the EIA estimated that the U.S. would surpass 10 mb/d at some point in February. But recently published data shows that the U.S. actually hit that milestone last November, and now, the agency says the U.S. actually averaged 10.2 mb/d in January.
On an annual basis, the U.S. produced 9.3 mb/d last year, a figure that is set to jump to 10.6 mb/d for 2018. Things slow down a bit in 2019, with an average of 11.2 mb/d.
What do we make of all of this? Well, the shale industry is clearly drilling at a frenzied pace, with an increasing concentration in the Permian basin. The rig count continues to rise in the Permian, while remaining mostly flat elsewhere. So far, the Permian has shown no signs of slowing down, despite some evidence of bottlenecking and cost inflation. Production continues to rise at a scorching rate.
The big question at this point is how rapidly expanding shale production will interact with the pace of inventory builds/declines and the OPEC production limits. Some analysts, including Goldman Sachs and S&P Global Platts, recently raised the prospect of OPEC tightening the oil market too much, allowing inventories to drain well below the five-year average.
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It is that time of year again where we try to forecast what the oil price will do over the coming 12 months. Last year I forecast $60 / bbl for Brent year ending 2017 and with Brent trading on $66.50 as I write I can conclude that I got lucky this year. My friend wagered on $78 and our bet this year was too close to call. My forecasting effort is based on trying to understand the supply, demand, storage, price dynamic and since this seemed to work pretty well this year I will repeat the exercise with some slight modifications.
TOKYO – In 2008, when the United States’ National Intelligence Council (NIC) published its volume Global Trends 2025, a key prediction was tighter energy competition. Chinese demand was growing, and non-OPEC sources like the North Sea were being depleted. After two decades of low and relatively stable prices, oil prices had soared to more than $100 per barrel in 2006. Many experts spoke of “peak oil” – the idea that reserves had “topped off” – and anticipated that production would become concentrated in the low-cost but unstable Middle East, where even Saudi Arabia was thought to be fully explored, with no more giant fields likely to be found.
The NIC analysts did not neglect the possibility of a technological surprise, but they focused on the wrong technology. Emphasizing the potential of renewables such as solar, wind, and hydro, they missed the main act.
The real technological breakthrough was the shale-energy revolution. While horizontal drilling and hydraulic fracturing are not new, their pioneering application to shale rock was. By 2015, more than half of all the natural gas produced in the US came from shale.
The shale boom has propelled the US from being an energy importer to an energy exporter. The US Energy Department estimates that the country has 25 trillion cubic meters of technically recoverable shale gas, which, when combined with other oil and gas resources, could last for two centuries.
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