The US shale boom is officially over


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

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

The Biden administration’s mixed signals to the U.S. oil and gas industry, with frequent blame on the sector for high gasoline prices and, more recently, threats of more taxes, are also not motivating U.S. producers. Many are reluctant to commit to more drilling spending when there is no medium- to long-term vision for how U.S. oil and gas resources can be used to enhance America’s energy security and help import-dependent Western allies .

Forecasts for oil production growth have been cut

This year, the U.S. Energy Information Administration (EIA) and various analysts lowered their forecasts for crude oil production for 2022 and 2023. Although the EIA still expects production to set a new annual average record next year, it has significantly cut its forecasts since the beginning of this year.

Oil executives, for their part, say U.S. administration policy and anti-oil rhetoric, inflation, contractor delays and regulatory uncertainty are negatively impacting drilling and production planning.

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, which would exceed the record set in 2019, versus November Short-term energy outlook.

Despite expectations for record output next year, the EIA has lowered the numbers several times in 2022 so far. The latest cut is a whopping 21% reduction in the growth forecast, according to calculations by the Reuters.

In October forecastThe EIA had already lowered its forecast for average production in 2023 to 12.4 million barrels per day from a September forecast of 12.6 million barrels per day.

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

Weeks before Russia’s invasion of Ukraine turned global energy markets upside down, Enverus Intelligence Research expected US oil production growth will accelerate in 2022 above about 900,000 barrels per day.

However, inflation and supply chain slowdowns from the second quarter onwards have significantly dampened the outlook for US crude oil production growth. Enverus Intelligence Research (EIR) incision this month cut its forecast for US production growth due to “headwinds created by oilfield constraints, the risk of a recession and reduced productivity from wells recently drilled in the Permian Basin.”

As a result, the Lower 48 oil production forecast was significantly lowered, and the EIR now expects growth of about 450,000 bpd from exit to exit in 2022 and growth of 560,000 bpd for 2023.

“OPEC is back in the driver’s seat”

A top industry executive said last week that US shale is no longer the leading oil producer and OPEC is back as the most important driver of oil supply fundamentals.

“The shale producer was seen as a variable producer, the Saudis and OPEC waited for this. Now really OPEC is back in the driver’s seat where they are the leading producer,” John Hess, CEO of Hess Corp. said at a conference in Miami last week.

The CEO believes U.S. crude production will average 13 million barrels per day over the next few years, where it will remain flat as investors pressure U.S. oil companies to focus on returning cash to shareholders rather than invest in aggressive growth strategies.

The current state and outlook for the US oil industry is in stark contrast to growth in the decade to 2019.

Between 2009 and 2019, U.S. producers captured all of rising global consumption in three of 10 years, and at least two-thirds of rising consumption in six of those years, according to grades by Reuters senior market analyst John Kemp.

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

This year, while U.S. oil and gas production continues to rise, growth has been limited by cost pressures and supply chain delays, executives at Dallas Federal Reserve Energy Survey for the third quarter. The shale patch cited labor and equipment shortages, as well as inconsistent policies from the Biden administration, as key obstacles to expanding drilling activity.

“The administration’s lack of understanding of the oil and gas investment cycle continues to lead to inconsistent energy policies that contribute to higher energy costs. This continued mismatch increases uncertainty and reduces investment in energy infrastructure,” said an executive at an oil services firm in comments to the survey.

“We are in an energy death spiral that will lead to higher highs and lower lows. Volatility will increase and the public is in for a very rough ride.”

By Tsvetana Paraskova for Oilprice.com

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