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Robert Rapier

Robert Rapier

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EIA’s Shocking U.S. Oil Production Predictions

Between 2010 and 2015, annual oil production in the U.S. grew by four million barrels per day (BPD). Production dipped in 2016, but then U.S. crude oil production again rose by 1.2 million BPD between January and December 2017, to levels that haven’t been seen since the early 1970s.

The surge in production is a result of growth in tight oil (more commonly known as shale oil). Many, including myself, never imagined that oil production could grow enough to threaten the U.S. oil production peak from 1970. But that looks inevitable at this point.

This production increase raises the question: Just how much will U.S. tight oil production increase before it peaks and begins to decline? Another million BPD? Three million BPD?

The Energy Information Administration’s latest Annual Energy Outlook (with projections to 2050) attempts to answer this question, modeling several scenarios for future oil production.

The Reference case projection assumes that known technologies continue to improve along recent trend lines. The economic and demographic trends that were used reflect the current views of leading forecasters.

In the High Oil and Gas Resource and Technology case, lower costs and a higher resource availability than in the Reference case are assumed. In the Low Oil and Gas Resource and Technology case, the assumption is of lower resources and higher costs.

Here are the EIA’s projections:

(Click to enlarge)

U.S. oil production projections.

Every case assumes at least a few more years of tight oil supply growth. The Reference case shows shale/tight oil production growth of two to three million BPD over the next three years, before leveling off and remaining at approximately that level until 2050. Related: Investors Demand A Payday: Do Shale Companies Agree?

The Low Oil Resource case projects tight oil growth of another million barrels per day through about 2022, and then a steady production decline until 2050.

The High Oil Resource case projects sharply higher tight oil growth until about 2025, and then slower growth until 2050. Total production growth, in this case, was almost nine million barrels per day — implying a near doubling of tight oil production between now and 2050.

Supply Risks

But there’s one item that barely gets a mention in the EIA’s Annual Energy Outlook. It is something I witnessed firsthand when I was recently in the Permian Basin. Oil production can expand only as quickly as infrastructure can keep up. And it is struggling to keep up.

It’s not just crude oil pipelines that are an issue. Along with oil comes associated natural gas. In some cases, producers have no outlet for this gas, so they flare it. But there are various legal limits to flaring. This week, I heard about a producer who is having to reduce production because they are bumping up against their permitted limits for flaring.

In addition to potential infrastructure constraints, higher oil prices also lead to greater demand for oilfield services providers. That leads to higher costs for the oil producers and higher profits for drilling and fracking services providers.

At present, one of the bottlenecks in the Permian Basin is with the fracking service providers, and that is leading to a growing backlog of drilled-but-uncompleted wells (DUCs). This is helping to constrain production in the Permian Basin but was not a risk identified in the EIA’s production projections.

Conclusions

The latest Annual Energy Outlook from the EIA models the future potential of tight oil production under several scenarios. Some scenarios project tight oil production growth for another three to four years, but these scenarios apparently don’t consider supply risks posed by insufficient infrastructure, oilfield services or manpower. These factors could slow tight oil growth over the next few years and could potentially shift the timing of peak tight oil.

By Robert Rapier

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  • Mamdouh G Salameh on March 01 2018 said:
    My own calculations of projected US oil production in 2018 is 9.4-9.5 million barrels a day (mbd) and projected to rise to 9.6 mbd in 2019. These figures contrast with the EIA figures of 10.6 mbd in 2018 with the probability of hitting 11 mbd by the end of 2018 or early 2019. The EIA claimed that US production in 2017 averaged 10.3 mbd when in fact it averaged only 9.3 mbd. The difference between my calculated figures and the EIA’s is due to the way the EIA calculates US oil production

    The EIA, like BP’s Statistical Review of World Energy, includes in its calculations of US oil production NGLs which come from natural gas wells as well as such gases as ethane, propane, butane and pentanes which don’t qualify as crude oil and condensates in its crude oil count. The real question is whether natural gas plant liquids can be sold as oil on the world market. The answer is an emphatic “No”. In fact, major oil exchanges accept neither natural gas plant liquids nor lease condensates as satisfactory delivery for crude oil. And if major exchanges don’t accept natural gas liquids as crude oil, then they are not crude. NGLs are estimated to account for 1-2 mbd of US oil production.

    Based on my calculations, recent claims about significant rises in US oil production by the EIA and IEA may not stand scrutiny nor would the claims that the US will overtake Saudi Arabia and Russia this year or next to become the world’s largest oil producer.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • david on March 01 2018 said:
    With EIA comments stating that the US will top Russian production "definitely" next year makes the EIA slightly more reliable than the Magic 8 ball. If demand for oil falls or rises production will swing with it, its that simple.
  • Old Grey Badger on March 03 2018 said:
    Dr Mamdouh G Salameh,

    I'm somewhat skeptical about the magnitude of future US production gains as well, but I have a couple of questions for you:

    1) don't other oil producers such as Russia and Saudi Arabia also count NGLs in their oil production figures?

    2) even accepting your revised current US production number of 9.3mm bopd at the end of 2017, you are only forecasting gains of
  • EnergynEntropy on March 03 2018 said:
    Theoretically, shale oil and gas should hardly peak, due to the fact that they are partly produced by fracking liquids. As long as fracking liquids can be produced and pumping machinery injecting them, plus energy running the machinery are all available, shale oil shouldn't be seen peaking.

    The machinery are subject to Entropy internal to matter, though, as a recent thesis in Thermodynamics inspires;
    https://the-fifth-law.com/pages/press-release
  • Mohomet Ali Salaam on March 05 2018 said:
    You said it yourself, Robert. You failed to predict the tight oil surge to begin with, and you have been predicting tight oil collapse ever since. Whatever you predict about tight oil production will already have been discounted by rational observers.

    You dropped the ball, sir, and cannot seem to pick it up again.
  • Kshithij Sharma on March 08 2018 said:
    USA shale oil is not infinite. The projections by EIA are grossly wrong. USA is bumping up shale oil poduction only temporarily so as to check Arab influence poltically. The reality is that the USA shale oil will peak by 2022-23 and total peak production will be at 10 mbpd excluding NGL. Even Natural gas of USA is depleting. However, it is still abundant relative to oil and NGL is expected to continue at 1-2 mbpd.

    As one member pointed out, NGL may not be sold in international market but that can definitely be used in vehicles and other consumables. So, regardless of whether NGL is sold in international markets, it is perfectly fair to include it as liquid production. Qatar is one of the biggest producers of NGL and it is very useful in meeting energy needs too.

    Coming back to oil production, there is one more surprise waiting for shale oil - Russian shale oil. If Russia ever explots its shale basins and extracts oil, the USA shale oil decline can be easily compensated. Russian shale oil is at least twice as much as USA size and can be much larger as more exploration is done. If Russia agrees to hike its oil production to over 15 mbpd by pumping out shale, world oil prices can come crashing again.

    Russian oil and gas reserves is as of now the largest in the world. It has over two thirds (65%)of oil and gas in entire persian gulf - Iran, Saudi Arabia, Kuwait, Qatar, Oman, Iraq and UAE combined.

    Russia is definitely on the path to define the future of oil and will regrow to be the super power it was once.

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