The term energy dominance has been eschewed by the US Department of Energy as the end game of the shale revolution with the resurgence of production to all time highs (oil, natural gas and NGL’s). Politicians and the media are singularly focused on when, not if US oil production will eclipse Russia (at 11.3 million bpd) and Saudi Arabia at (10.0 million bpd constrained). This viewpoint is understandable as oil is the largest hydrocarbon energy source and is fungible and easily transported. Furthermore, as we all know, production and control of oil has been one of the most important if not the most important geo-political levers throughout history, with strategic alliances and wars fought over it. So, it is understandable why the US is rightfully pleased as punch that its shale oil resources are increasingly being developed creating monthly record production and increasingly rosy forecasts of production.
According to the BP 2017 Statistical Review, the US already has a commanding lead in terms of oil and NGL production at about 13.5 million bpd. This is followed by Saudi Arabia at 12.3 million bpd and Russia at 11.2 million bpd. In terms a f natural gas production, the US leads by a wide margin at 749 billion cubic metres (bcm) followed by Russia at 579 bcm and Iran at 202 bcm. So clearly in terms of hydrocarbon production, the US is the leader by a wide margin.
But this brings me back to my belief, as I have previously written, that EIA production numbers are way off. The EIA is already forecasting in the latest drilling Productivity Report that production will grow by 131,000 bpd in April! This would put April production at around 10.6 million bpd. In my audit of production from the major shale oil states, I have not received final December Texas numbers. So far, though it’s not looking good for the EIA numbers.
So how does the short-term EIA data jive with their annual long-term outlook? In the recently issued 2018 Outlook, they forecast reaching about 12 million bpd by 2021 assuming a reference price of $75 per bbl. In the high oil price, at $100 per barrel in 2020 rising to $250 per bbl, they assume that US production reaches 15 million bpd by 2025.
Here’s what I think is going on both internally in the EIA and external conventional wisdom based on the relentless positive reports of production growth by EIA. The market believes that shale oil growth will follow the high trajectory because of the so-called innovation advances in the last year or two. However, if I am right, actual production growth is much smaller than is being forecast. If so, it points to a much lower shale oil peak, likely following the reference case for total US production.
Depending on which way my audit falls, the result in the supply demand balance will have an enormous impact on storage and prices. My gut tells me that the relative strength of prices above $60 tells me that the market is near balance and that we do truly live in interesting times.
Oh, and PS: Mark Papa, the former CEO of EOG Resources, and who has probably been presented more technical data pertaining to shale oil than anyone, believes that shale oil growth potential may be over-stated as the prime areas of the Eagleford and Bakken are already drilled up. The question is how far does the Permian have left.
Probably a couple of years.
Randy Evanchuk, P. Eng., has 35 years of experience in the patch. From 2007 until he retired in 2015, Mr. Evanchuk was involved in all phases of of unconventional resource development including;evaluation, economics, production and facilities. As as senior consultant with Murphy’s Holdings, he evaluated their Montney holding as well was as a member of evaluation team. Mr. Evanchuk was the Vice President of new ventures at Daylight Energy where his team was successful in acquiring a substantial Duvernay position. At Seven Generations Energy he was Executive Vice President looking after facilities, marketing, production operations and long range facility and marketing planning