The new shareholder-focused approach of shale companies, supply chain restrictions, and inflation have all combined to change how the sector functions. The US shale boom is officially over.
The era of the United States’ shale oil industry’s rapid expansion is finished. Although American oil production is increasing, it is doing so at a considerably slower rate than it was prior to the 2020 crash and at a lower rate than was anticipated a few months ago.
The newfound priorities of the shale patch, such as capital restraint and a focus on shareholder returns and debt repayments, have combined with supply chain issues and cost inflation to slow the expansion of U.S. oil production.
The Biden Administration’s confusing messages to the American oil and gas business, including repeated accusations that the industry is to blame for high gas prices and, most recently, the prospect of higher taxes, are also failing to inspire American producers. When there is no medium- to long-term plan for how the American oil and gas resources could be used to improve energy security in the country and assist Western allies who rely on imports, many are hesitant to commit to investing more on drilling.
Oil Production Growth Forecasts Lowered
The U.S. Energy Information Administration (EIA) and a number of analysts have been revising downward their predictions for the output of crude oil in 2022 and 2023 this year. The EIA has considerably scaled down its predictions since the beginning of this year, even though it still anticipates output to hit a new annual average record next year.
The policies and rhetoric of the U.S. Administration, inflation, contractor delays, and regulatory uncertainty, according to executives of oil companies, are having a detrimental influence on drilling and production planning.
According to the November Short-Term Energy Outlook, the EIA predicts US crude oil output to average 11.7 million barrels per day (bpd) in 2022 and 12.4 million bpd in 2023, exceeding the record high set in 2019.
Despite the forecast of a record output next year, the EIA has already reduced the numbers for 2022 many times. According to Reuters estimates, the latest cut marks a huge 21% reduction in the growth projection.
The average production estimate for 2023 was previously revised downward by the EIA from 12.6 million bpd in September’s prediction to 12.4 million bpd in October’s (read below).
“Lower crude oil production in the forecast reflects lower crude oil prices in 4Q22 than we previously expected,” the administration said in October.
Enverus Intelligence Research predicted that US oil production would exceed 900,000 bpd in 2022, just weeks before Russia invaded Ukraine, upending global energy markets.
However, since the second quarter, inflation and supply-chain delays have considerably impacted the prognosis for US crude oil output growth. Enverus Intelligence Research (EIR) decreased its projection for US production growth this month, citing “the headwinds created by oilfield services limitations, the risk of recession and reduced performance from wells drilled recently in the Permian Basin.”
As a result, the Lower 48 oil production estimate has been drastically reduced, with EIR now expecting exit-to-exit growth of about 450,000 bpd in 2022 and 560,000 bpd increase in 2023.
“OPEC Back In The Driver’s Seat”
According to a leading industry executive, the US shale patch is no longer the swing oil supplier, and OPEC is once again the most significant driver of oil supply fundamentals.
“Shale was thought of as a swing producer, the Saudis and OPEC have waited this out. Now, really OPEC is back in the driver’s seat where they are the swing producer,” Hess Corp CEO John Hess said at a conference in Miami last week.
According to the executive, US crude oil output will average 13 million bpd over the next several years before plateauing as investors demand US oil firms to concentrate on returning money to shareholders rather than investing in ambitious growth initiatives.
The oil business in the United States is currently in a poor shape and has poor future prospects compared to how it grew from 2010 to 2019.
According to Reuters’ senior market analyst John Kemp, between 2009 and 2019, US producers secured all incremental worldwide demand in three of ten years and at least two-thirds of incremental consumption in six of those years.
“US liquids production increased by 10 million b/d from 2011 to 2022, capturing a scarcely believable 10% of global supply in the process,” Wood Mackenzie said last month. Approximately 6 million bpd of the growth originated from Lower 48 crude and condensate production, with two-thirds coming from the Permian Basin exclusively, with the rest coming from shale gas plays.
Although U.S. oil and gas output has increased this year, cost constraints and supply-chain delays have limited the expansion, executives indicated in the third-quarter Dallas Fed Energy Survey. The Biden Administration’s conflicting policies and manpower and equipment shortages are listed by the shale patch as the main obstacles to increasing drilling operations.
“The administration’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 increases uncertainty and decreases investments in energy infrastructure,” an executive at an oilfield services firm said in 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 difficult ride.”
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