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US shale production can reach new highs beyond 13 million b/d, but needs $60/b: Rystad

Increase font size  Decrease font size Date:2020-09-24   Views:23
US shale oil production can reach new highs beyond the 13 million b/d mark achieved in late 2019, although it will take oil prices of around $60/b for that to occur, panelists said at an energy conference webinar Sept. 22.

A dearth of well drilling for most of this year and into 2021 should gradually bring up prices to a level around $60/b WTI needed to restart activity, which has languished from the twin bogeys of low oil demand and low prices, upstream specialists said at the Rystad Energy 2020 Americas Virtual Annual Summit.
"If supply is to keep up with demand, we need a lot of shale volumes going forward," Leslie Wei, Rystad's vice president of E&P research, said. "We believe shale needs to deliver 6 million-11 million b/d from wells not yet drilled."

To unlock this activity and restart a new shale activity upcycle, "we believe oil prices need to recover significantly from today's levels," which in the last couple of weeks have dropped back into the mid-to-high $30s/b, Wei said.

Improvement in oil price should give shale players the required cash flows to start investing in the industry again, Wei said.

Upstream investment began to plummet in March 2020 from the pandemic as E&P operators slashed upstream budgets and reduced drilling to a minimum, causing the US oil and gas rig count to plummet more than 65% from its early March volume of around 835.

US investments dropped 50% to only $100 billion this year, Wei said. The spending picture looks brighter, although not for another nearly 18 months.

"Going forward, we expect to see investments start to recover in 2022 before reaching $155 billion US per year by mid-decade," she said. "We see a production decline this year and next year, but in 2022 we will see an uptick again before returning to the 1 million b/d growth rate we saw after the recovery in the previous down cycle" that began in late 2014 and lasted almost three years.

"We believe by 2024 the US has the possibility to reach new all-time highs and hit 13.5 million b/d," said Wei.

Rystad projects WTI to average $44/b in 2021 - $40/b in Q1 and around $50/b in Q4, Thomas Jacob, vice president of oilfield research, said. "After that we'll see oil prices in early-to-mid $60s/b from 2022-2025," Jacob said.

The key driver for shale and unconventional production going forward will not be the domestic but the global oil market, Wei added.

"Is a world without shale even realistic?" she said. In the near-term, global oil production should recover even without shale, but medium-term, "production looks grim."

"In 2025, global production cannot exceed 94 million b/d," Wei said. "You could argue that OPEC could fill the gap, but their spare capacity is only 1 million-2 million b/d. So even OPEC can't save us."

Internationally, oil production has begun to come back in September as OPEC, Russia and the US increase output.

Oil production in September climbed to 74.8 million b/d, compared with 70.7 million in June, mainly from increased output at core OPEC countries as well as Russia and US. The figure is still below the 83.5 million b/d produced globally in March, before the pandemic, said Aditya Ravi, Vice President of upstream research at Rystad.

Investments in global E&P will gradually come back in 2022 after dropping almost 30% in 2020 to roughly $380 billion, as companies resume projects, said Ravi.

Investments in offshore deepwater, offshore shelf, oil sands, shale oil and onshore projects, which have averaged from $500 billion-$550 billion over the last five years, will remain flat in 2021 and start to pick up in 2022, fully recovering in 2024, as companies resume sanctioning greenfield projects, Ravi said.

"We expect around $500 billion of new projects being sanctioned around the world in the next three years," he said.

S&P Global Platts Analytics projects peak oil demand in its base case could come as soon as 2035, and by 2025 in a stress case with more government intervention.

Analytics expects global demand for 2020 to plunge by 8.1 million b/d, wiping out the last six years of growth, and for about 75% of the losses to recover in 2021 - an increase of 6.3 million b/d.

But a weaker global economy and greater income inequality from the pandemic will equate to a loss in oil demand of as much as 400,000 b/d going forward.

"We do not project overall consumption to return to pre-COVID-19 levels until late 2022 and believe long-term demand for oil has been permanently altered," Platts Analytics said in a report.

US crude supplies will not return to 2019 levels until late 2023 or early 2024, according to Platts Analytics.

"Even after this period, weaker demand and price projections have reduced the outlook for U.S. shale by an average of 900,000 b/d over 2025-2040," Platts Analytics said.
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