Total U.S. oil production around 2025 will almost equal the combined production of Russia and Saudi Arabia, Fatih Birol, the Executive Director of the International Energy Agency (IEA), told Turkish state-run Anadolu Agency on Friday.
The huge growth in U.S. shale production will completely change the balance of oil markets, Birol told the news agency.
The IEA’s Oil 2018 report from earlier this year sees the United States dominating the global oil supply growth over the next five years.
OPEC capacity will grow only modestly by 2023, while most of the growth will come from non-OPEC countries, led by the United States, “which is becoming ever more dominant in the global oil market,” the IEA said.
Driven by light tight oil, U.S. production is seen growing by 3.7 million bpd by 2023, more than half of the total global production capacity growth of 6.4 million bpd expected by then. Total liquids production in the United States—including conventional oil, shale, and natural gas liquids—will reach nearly 17 million bpd by 2023, “easily making it the top global producer, and nearly matching the level of its domestic products demand,” the IEA said in March this year.
“The United States is set to put its stamp on global oil markets for the next five years,” Birol said back then.
The U.S. is currently pumping oil at record levels of more than 11 million bpd, while Russia and Saudi Arabia—which also hit record highs in October and November, respectively—will curtail 230,000 bpd and 322,000 bpd of their production in the first six months of 2019, respectively.
In its December Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) expects U.S. crude oil production to have averaged 11.5 million bpd in November, up by 150,000 bpd from October, thanks to platforms resuming normal operations after hurricane-related outages in October. The EIA sees U.S. crude oil production averaging 10.9 million bpd this year, jumping from 9.4 million bpd in 2017. The forecast for next year’s U.S. crude oil production currently stands at 12.1 million bpd.
By Tsvetana Paraskova for Oilprice.com
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The US Energy Information Administration (EIA) has been telling us throughout 2018 that US oil production will average 11.7 million barrels a day (mbd) but now they are saying that it will average 10.9 mbd, some 800,000 barrels a day (b/d) than their original claim.
Moreover, the EIA figure of 11.7 mbd is overstated by at least 3 mbd made up of 2 mbd of NGLs which come from natural gas wells and include such things as ethane, propane, butane and pentanes and 1 mbd of ethanol. These don’t qualify as crude oil. In fact, major exchanges accept neither natural gas plant liquids nor lease condensates or ethanol as satisfactory delivery for crude oil. And if major exchanges don’t accept them as crude oil, then they are not crude oil. Therefore, US oil production couldn’t have been bigger than 8.7 mbd.
Geologically, US shale oil wells which account for more than 70% of US oil production, experience high depletion rates amounting to 70%-90% in the first year of production. This means shale oil drillers must replace 40%-45% of the current production each year just to maintain production. Roughly the US will need to drill more than 9,000 wells annually costing more than $50 bn to counterbalance the production declines.
The oil services giant Schlumberger said recently that the US shale industry is running into some productivity issues that cast doubts on the heady growth forecasts by the EIA and the IEA. Schlumberger also warned that a lot of operators are pushing some of their projects too hard in an effort to squeeze out short-term profits thus accelerating the decline rates in US shale oil production. This raises huge question marks about the future of the US shale industry.
The Institute for Energy Economics and Financial Analysis (IEEFA) and the Sightline Institute said in a newly published report that a review of 33 publicly traded oil and gas fracking companies showed that the companies posted a combined $3.9 billion in negative cash flow in the first half of 2018. According to the IEEFA and the Sightline Institute, America’s fracking boom has been a world-class bust.
And an MIT study published in December 2017 reached the conclusion that the EIA vastly overstates oil production forecasts by at least 1 mbd.
Economically, US shale has indeed a glaring problem and the glaring problem is that it will never be a profitable industry. US shale oil producers are so deeply in debt that they have become like the saying of “robbing Peter to pay Paul”. They are heavily indebted to Wall Street to the extent that they continue to produce oil even at a loss just to pay some of their outstanding debts.
Birol comes up with another bombastic claim that the United States is set to put its stamp on global oil markets for the next five years. However, any influence the United States has on the global oil market and prices derives from its manipulation of global oil prices by falsifying claims about rising US oil production and significant build-up in US crude and products inventories and hiking the value of the US dollar opposite other currencies.
The US consumed on average 20.5 mbd in 2018 according to the EIA and claimed to have produced 11.7 mbd thus needing to import 8.8mbd. If so, where did the crude inventory come from?
With the new reserves in the Russian Arctic, Russia could be adding 1.5 mbd to its oil production which is projected to reach 12.5 mbd by 2025 while Saudi Arabia could be projected to continue producing at 9 mbd by 2025 giving a combined volume of 21.5 mbd compared with around 7.50-8.00 mbd for the US.
A bit of humility and less hype, Dr Birol, could help reduce the rate by which the IEA’s reputation is sinking.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
And as with all prognostications going out several years, it's not worth the paper its printed on.