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OPEC Cuts Are Already Paying Off

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IHS Markit: Stunning Permian Growth To Double Production By 2023

Oil rig

The oil production of the biggest U.S. shale play, the Permian, will more than double to 5.4 million bpd in 2023. If it were an OPEC member, the region in West Texas would be second only to Saudi Arabia, according to IHS Markit’s new outlook published on Wednesday.

The Permian is expected to show a “stunning” level of growth through 2023, accounting for more than 60 percent of net global production growth during that timeframe, said IHS Markit, which has factored in the emerging bottlenecks in its outlook that is based on the assumption that WTI Crude prices will average $60 a barrel or higher.

“In the past 24 months, production from just this one region—the Permian—has grown far more than any other entire country in the world,” said Daniel Yergin, vice chairman, IHS Markit. “Add an additional 3 mbd by 2023—more than the total present-day production of Kuwait—and you have a level of production that exceeds the current production of every OPEC nation except for Saudi Arabia.”

Driving that growth will be almost 41,000 new wells and US$308 billion in upstream spending between 2018 and 2023, according to the outlook. Pipeline capacity is expected to expand by 2.5 million bpd, and natural gas pipeline capacity is seen adding another 8.0 bcf/d capacity.

“The infrastructure challenges in the Permian illustrate a fundamental mismatch between upstream oil producers and midstream players,” Jim Burkhard, vice president and head of crude oil markets at IHS Markit, said. “The former are focused on fast growth while the latter require sustained high utilization of infrastructure over decades for projects to be viable.”

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Due to bottlenecks—and to the fact that the first additional pipeline takeaway capacity will come online in H2 2019—some wells could be deferred to the latter half of 2019, for instance, according to IHS Markit. Yet, the Permian’s robust production growth is expected even with such constraints, the analysts said.

“Far from a ‘best case’ forecast the IHS Markit outlook applies realistic scenarios and anticipates likely bottlenecks,” said Raoul LeBlanc, executive director and head of the IHS Markit Performance Evaluator.

“That the outlook still expects the Permian to exceed existing (and already lofty) expectations speaks to the region’s unique and growing prominence to the world oil market. The level of growth—from 0.92 mbd in 2010 to 5.4 mbd in 2023—is truly stunning.”

By Tsvetana Paraskova for Oilprice.com

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