The U.S. Shale Boom Is Officially Over

The days of booming US shale oil production are over. U.S. oil production is rising, but at a much slower pace than before the 2020 crash and at a slower rate than expected a few months ago.

The shale patch’s new priorities — capital discipline and a focus on shareholder returns and debt repayment — combine with supply chain constraints and cost inflation to dampen U.S. oil production growth.

The mixed signals from the Biden administration regarding the US oil and gas industry, often blaming the sector for high gasoline prices and the recent threat of higher taxes, are also discouraging for US producers. Many are reluctant to spend more on drilling in the absence of a medium- to long-term vision for US oil and gas resources to boost America’s energy security and help import-dependent Western allies.

Oil production growth forecasts have been lowered

This year, the US Energy Information Administration (EIA) and various analysts have lowered crude oil production forecasts for 2022 and 2023. Although the EIA expected next year’s production volume to set a new annual average record, it significantly lowered its figures. forecast since the beginning of this year.

Oil executives, for their part, say US administration policies and anti-oil rhetoric, inflation, contractor delays and regulatory uncertainty are weighing on drilling and production planning.

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The EIA expects U.S. crude oil production to average 11.7 million barrels per day (bpd) in 2022 and 12.4 million bpd in 2023, surpassing November 2019’s record high. Short-term energy forecast.

Despite expectations for a record output next year, the EIA has repeatedly lowered numbers so far in 2022. The latest cut is a massive 21% reduction in estimates for growth Reuters.

In October predictThe EIA has already cut its average production estimate for 2023 to 12.4 million bpd from a September forecast of 12.6 million bpd.

“The decline in forecast crude oil production reflects lower oil prices in 4Q22 than we previously expected,” the administration said in October.

Enverus Intelligence Research just weeks before Russia’s invasion of Ukraine lifted global energy markets expected US oil production growth to top 900,000 barrels per day in 2022.

However, inflation and supply chain delays from the second quarter have significantly dampened the outlook for US crude oil production growth. Enverus Intelligence Research (EIR) cutting This month, its outlook for U.S. production growth is due to “headwinds from oilfield services constraints, recession risks and lower output from recently drilled wells in the Permian Basin.”

Therefore, the Lower 48 oil production forecast has been significantly lowered, and the EIR now expects an increase of approximately 450,000 barrels of output in 2022 and an increase of 560,000 barrels in 2023.

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“OPEC in the driver’s seat”

Last week, a top industry executive said the US shale patch was no longer an oil-producing nation and would return to OPEC as the most important driver of oil supply fundamentals.

“Shale was seen as a swing producer, the Saudis and OPEC expected it. Now, in fact, OPEC is back in the driver’s seat where they are the swing manufacturer,” said John Hess, CEO of Hess Corp. said at a conference in Miami last week.

The executive estimates that U.S. crude oil production will average 13 million barrels per day over the next few years, a rate of growth that will slow as investors force U.S. oil companies to focus on returning cash to shareholders instead of investing in aggressive growth strategies.

The current state and prospects of the US oil industry are in stark contrast to the growth of the decade to 2019.

Between 2009 and 2019, U.S. producers accounted for all additional global consumption in three of the 10 years and at least two-thirds of additional consumption in six of those years. assessments John Kemp, senior market analyst at Reuters.

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“U.S. liquids production increased by 10 million barrels per day from 2011 to 2022, covering only 10% of global supply in the process,” said Wood Mackenzie. said last month. About 6 million barrels of that increase came from Lower 48 crude oil and condensate production, two-thirds from the Permian Basin alone, and the rest of the increase was natural gas liquids from shale gas.

While U.S. oil and gas production continues to rise this year, growth will be limited by cost pressures and supply chain delays, executives said. Dallas Fed Energy Review for the third quarter. The shale patch cites labor and equipment shortages, as well as inconsistent policies from the Biden administration, as major obstacles to expanding shale drilling.

“Due to the administration’s lack of understanding of the oil and gas investment cycle, unsustainable energy policies continue to drive up energy costs. This continued discrepancy will increase uncertainty and reduce investment in energy infrastructure,” said the head of an oilfield services firm. comments to the survey.

“We are in an energetic death spiral that leads to highs and lows. Volatility will increase, and the public is in for a very difficult ride.”

Tsvetana Paraskova to Oilprice.com

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