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What’s Next For Oil? No One Seems To Agree

Although oil production in the Permian Basin shows all signs of slowing down in the new year, the West Texas shale revolution is not over yet. In fact, shale oil production in the United States will keep growing, albeit at a slower rate, to reach a jaw-dropping, record-breaking 14 million barrels per day in just a few years from now. 

In the long run, however, it is likely that production growth in the Permian will continue to decline. As Oilprice reported in September of last year, “the nature of shale wells is that they decline in production much more rapidly than conventional wells, leading to inevitable slowdowns such as what we are currently witnessing in the once almighty Permian.” Bloomberg echoes this sentiment, reporting that “shale wells lose as much as 70 percent of their production in the first year, meaning that explorers have to constantly pour money into more drilling just to maintain production. By contrast, once up and running, conventional wells lose as little as 5 percent each year, providing a much more solid production outlook.”

Although the status quo over the last several years has been an oil glut and subsequently low oil prices, in large part thanks to the gush of shale oil out of the United States, that could all be over soon. In fact, in a statement at Monday’s International Petroleum Technology Conference (IPTC) in Saudi Arabia, the Oil Minister of Bahrain said that “an abundant supply of oil, currently seen amid rampant U.S. shale production, might not be so reliable as we progress through 2020,” as paraphrased by CNBC, who moderated the panel.  Related: Has OPEC Found Its Oil Price Sweet Spot?

Khalifa Al Khalifa was quoted, “Going forward, all eyes are on U.S. production again, if there’s going to be an extra million barrels (of production a day), yes, this will suppress oil prices but the current indicators of rig counts ... are telling you that maybe that is going to be a challenge [...] So, my recommendation is all eyes on U.S. production, if they can hit 14 million (barrels) then yes oil prices will extend a bit further but, eventually, this sentiment that there is ample supply will have to shift, there will be a scarcity impulse in supply and when that happens in the next few years, definitely, it could be as early as the end of this year, we will have to see.”

Al Khalifa backed this up by referencing the relatively few major oil discoveries in recent years and the ebb of major oil investments, saying, “we can see that investments are not as bold as they once were, then perhaps that inflection point isn’t that far away.” 

Al Khalifa is far from alone in the sentiment that oil is not as sure of an investment as it once was. Even Saudi Arabia has made major efforts to diversify their portfolio in recent years by divesting from oil and even providing ill-fated venture capital to companies such as WeWork. Back in 2017, the “Vision 2030” economic reforms even lead the Saudi Finance Minister to boldly proclaim “I wouldn't care if the oil price is zero." In fact, the Saudis even acknowledge that the writing is on the wall for peak oil. In this year’s Saudi Aramco initial public offering (IPO), the company was forced to acknowledge that peak oil consumption is just around the corner, recognizing the International Energy Agency (IEA)’s assessment that demand could plateau as soon as 2030. 

Conversely, Exxon Mobil CEO Darren Woods, who spoke on the same panel as Al Khalifa on Monday, said that “demand will continue to grow in the decades to come because of the important role that energy and oil and gas plays in modern life … from a supply standpoint, this industry goes through lots of cycles … (one of) which is the shale revolution and the supply that came with that, so we’re going to see ups and downs.” He emphasized that producers should continue to focus on efficient production despite market volatility, shale revolution and peak oil be damned.

By Haley Zaremba for Oilprice.com

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  • Mamdouh Salameh on January 15 2020 said:
    The future of oil will be governed by the following realities in the global oil market.

    The first reality is that there will be no post-oil era. Oil will continue to reign supreme throughout the 21st century and far beyond.

    The second reality is that there will be no peak oil demand either. The third reality is that an imminent transition from hydrocarbons to renewables is an illusion.

    The fourth reality is that oil and natural gas will continue to be the core business of the global oil industry well into the future.

    The fifth reality is that the US shale oil industry is in a terminal decline. It will be no more in 4-9 years from now. The claim that the US could produce 14 million barrels a day (mbd) is plain hype and self-delusional. US oil production is overstated by at least 2 mbd and, therefore, US production averaged 10.3 mbd in 2019 and not 12.3 mbd as the US Energy Information Administration (EIA) claimed and is projected to decline to under 10 mbd or in 2020.

    The sixth reality is that economic diversification doesn’t mean that peak oil demand is close. When Saudi Arabia and UAE diversify their economies, it is to reduce their economies’ exposure to the volatility of oil prices and also to reduce their dependence on the oil revenue. This is a wise economic decision. Just yesterday, Saudi Aramco’s Chairman Yasir Al-Rumayyan said that energy transitions take decades, even centuries thus rebuking those who talk about peak oil demand.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Bob Forbes on January 16 2020 said:
    I’m sure the massive boom in both Indian & Chinese economies will tell us what’s next for oil. It doesn’t take a genius to see where the oil price will be going. The fact remains nothing can replace oil not now and not ever. I think most people can see what’s really going on here.

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