U.S. shale oil production will continue growing even if international prices fall, says Rystad Energy.
The Norwegian energy consultancy said in a new report that despite a decline in the number of drilling rigs in the U.S. shale patch since the start of the year, the number of spudded wells has not fallen significantly.
What's more, production growth has continued in the face of spending reductions prompted by prices. According to Rystad, investments in shale oil have fallen by 6 percent this year, to some $129 billion and will fall further, by another 11 percent in 2020.
The reason for the spending cuts is a renewed focus on cash discipline and free cash flow generation, Rystad said, adding this will be the first case of two consecutive annual spending cuts since 2014.
Even with the cuts, Rystad expects U.S. shale oil production to grow to 11.6 million bpd by 2022, which would constitute a compound annual growth rate of 10 for the period from 2019 levels. This will be true for a scenario in which West Texas Intermediate trades at an average $55 per barrel. If, however, WTI falls to an average of $45 per barrel in the three-year period, shale oil output will peak at 10.1 million bpd.
Thanks in no small part to these developments, non-OPEC oil supply is set for a fast increase, Rystad said in a separate report. According to the company's data, non-OPEC oil supply will expand by 2.26 million bpd next year, making life harder for OPEC.
"The record high production growth from non-OPEC tight oil and offshore puts significant pressure on OPEC's ability to balance the oil market in 2020. Rystad Energy believes that OPEC will need to extend and deepen production cuts if they have any hope of supporting the oil price in the near-term," said Rystad's head of upstream research, Espen Erlingsen.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
Two claims demonstrate the shallowness of its research. The first is that US shale oil production will continue growing even if international prices fall. The second claim is that US shale oil production will go on growing despite a significant fall in oil rig count.
The first claim is undermined by the fact that the breakeven price for shale oil ranges from $60-$70 a barrel. The rising number of bankruptcies speaks volumes about the impact of oil prices on US shale oil production.
The second claim is refuted by the continued decline in oil rig count particularly in the Permian. Oil rigs don’t lie. They tell the story on the ground and the story they are telling is that the US shale oil industry is in a terminal condition.
And yet, the US Energy Information Administration (EIA) in cahoots with the International Energy Agency (IEA) and Rystad Energy continue hyping about the rising production of US shale oil with Rystad Energy raising its hyping to new heights by claiming that US oil production will hit 18 million barrels a day (mbd) by 2030.
The claim by the EIA that US oil production will average 12.29 mbd this year rising to 13.29 mbd in 2020 is not only self-delusional but a plain lie. US production could probably average less than 11 mbd this year and around 10 mbd in 2020.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London