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U.S. Oil Production Fell To 11 Million Bpd In December

U.S. Oil Production Fell To 11 Million Bpd In December

U.S. crude oil production fell…

India: OPEC+ Decision Could Derail Oil Demand Recovery

India: OPEC+ Decision Could Derail Oil Demand Recovery

The world’s third-largest oil importer,…

Suriname Looks To Ramp Up Oil Production In A Big Way

Suriname Looks To Ramp Up Oil Production In A Big Way

Looking to replicate neighboring Guyana’s…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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The Next Oil Boom Is Happening Here

Just as the U.S. shale industry is slowing down, oil production in other non-OPEC countries is on the rise.

Output in U.S. shale grew substantially in 2019, although at a slower rate than in years past. More importantly, as investors lose interest and capital markets become unfriendly, shale E&Ps are going to have an increasingly difficult time financing drilling outside of their own cash flow. As companies are forced to cutback in the pursuit of positive cash flow, supply growth will likely slow even further.

For the last few years, global supply balances often centered on the pace of demand growth versus the pace of U.S. shale growth. Chronic supply surpluses occurred because shale grew much faster than consumers could digest it. OPEC+ felt compelled to cut back several times – and on an ongoing basis – in order to try to balance out the difference.

Going into 2020, however, other countries are joining the supply growth mix, just as U.S. shale taps the brakes. “On the one hand, mature areas have seen small and large scale project additions, leading to multi-year highs in the Norwegian North Sea, Gulf of Mexico, and Brazil,” JBC Energy wrote in a note. Oil companies continue to funnel money into Norway and the Gulf of Mexico because they have cut costs, while in Brazil new pre-salt fields come online.

“Furthermore, we have seen some countries stabilising their output after yearlong series of declines, such as Mexico and China,” JBC said. Related: The Best And Worst Oil Predictions Of 2019

In addition, ExxonMobil just started production at its Liza field in Guyana, adding 120,000 bpd. That is expected to ramp up to 750,000 bpd over the coming years.

Altogether, 2020 could turn out to be the largest supply increase from non-OPEC countries outside of the U.S. in 15 years at 820,000 bpd, according to JBC. “In the meantime, US shale growth has seemingly hit its boundaries in 2019,” the firm added. To be sure, JBC still sees the U.S. adding 850,000 bpd in 2020, but that is sharply lower than what the industry added in the past few years.

The outlook is consistent with that of other analysts. Rystad Energy said that U.S. shale investment could contract by 12 percent in 2020, while spending offshore could increase by 5 percent. In fact, deepwater is the only segment that is expected to see a spending increase in 2020.

Meanwhile, the threat of climate change and energy transition is not going away. Big banks are starting to tighten the screws on fossil fuels, which could increase the cost of capital. So far, this has been a problem for coal, and not so much oil and gas. But that could change. “Climate change and investors are the two big challenges,” said Scott Sheffield, chief executive of Pioneer Natural Resources Co., according to the Wall Street Journal.

Spending on long-lived offshore projects flies in the face of this trend, but the industry continues to bet against climate action. Rystad says that any oil project with a breakeven price over $60 per barrel will unviable through the 2020s. Related: Why This Oil Price Rally Won’t Last

In the meantime, supply is still growing at a faster pace than demand. The IEA says that the oil market could remain in a state of surplus on the order of 0.7 million barrels per day (mb/d) in the first quarter of 2020, and that even takes into account the additional 500,000 bpd cuts that were recently announced by OPEC+. Presumably, if the cuts are not extended beyond the first quarter when they are set to expire, the surplus would balloon.

The industry is ploughing forward, even as some investors have turned away. Renewable energy stocks outperformed oil and gas in the past year, and it wasn’t even close. Next year could turn out to be the year of the electric car with dozens of new models rolling off assembly lines, according to some analysts. As renewables – and EVs in particular – continue to gain market share, the threat to demand only grows with time.

By Nick Cunningham, Oilprice.com

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  • Mamdouh Salameh on December 30 2019 said:
    You may safely ignore projections by the International Energy Agency (IEA) on global oil supply and demand since their research is usually shallow and politically-motivated with the aim of depressing oil prices.

    Even if their claim that the oil market could remain in a state of surplus on the order of 700,000 barrels a day (b/d) in the first quarter of 2020 is true, such a surplus will hardly register on the radar of oil prices. Despite a glut estimated 4.0-5.0 million barrels a day (mbd) and caused by almost two years of trade war, oil prices held its ground at $60-$67 a barrel.

    However, the IEA’s projection of a surplus of 700,000 b/d is unsubstantiated like most of its projections. Norway’s production has been declining at a rate of 2.5% for the last ten years from 2.458 in 2008 to 1.81 mbd in 2019. Brazil’s production, on the other hand, has also been declining at a rate 1.4 since 2018 and could hardly add a single barrel to its production in 2020. Mexico’s production is in a free fall and China’s production is stagnant. So there would be no addition of 820,000 b/d in 2020 as the IEA is claiming.

    As for US shale oil production Baker Hughes oil rig count has been telling a story of a US shale oil industry facing a steep oil rig count decline, confirmed production slowdown, declining well productivity and investments, bankruptcies and eventual demise. 2019 was the year in which the hype around US shale oil production finally burst.

    The US Energy Information Administration’s (EIA’s) figures of US production are to say the least over-stated by at least 2 mbd. This means that US oil production will average this year at 10.8 mbd and around 10 mbd or even less in 2020 and will continue to decline until its demise in 5-10 years from now.

    Therefore, any glut remaining in the market in 2020 is the remains of the huge glut caused by the trade war. If the de-escalation of the trade war continues into 2020, this glut will decline quickly helping oil prices to surge above $70 a barrel in 2020.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Bob Forbes on January 02 2020 said:
    The fact remains, oil is not going anywhere. India and China economies are going to soar this decade. The industry is coming back strong. Oil prices are going to soar this decade. You can write as many articles to the contrary, it won’t actually change anything. Underlying fundamentals are very strong, the only way the oil price is going, is up. Where I work, they can’t find or recruit enough skilled and experienced people to fill the vacancies. Time to face the facts, it’s on the up.

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