Update May 10 2020

The main purpose of the study is to assess the 10 year outlook for US shale oil, starting with 2019. The study is based on a significant amount of underlying data.

After ending the study in early Feb 2020, the corona virus pandemic surfaced and Russia and Saudi Arabia entered into a temporarily supply war, then agreeing to an unprecedented OPEC+ supply reduction starting in May 2020. The real amount of demand destruction and supply reduction until the end of 2020 and 2021 remains an open question right now. We may have to wait until a corona vaccine is ready to fully return to the long term global oil demand trend.

After the breakdown of the Saudi Arabia – Russia supply talks in early March 2020, the oil price collapsed to the mid $ 20/b level. By mid-March, shale producers had announced investment cuts for 2020 amounting to 40% of previous plans. I made some simulations in mid March about the impact of these investment reductions on US shale oil production in 2020 and 2021. The short answer is: not much in 2020 (see here). Since then, additional investment cuts and, more meaningfully, production shut-ins have been announced. It’s currently estimated that the North American shut-ins may amount to 2 to 3 Mio b/d.

if all the globally announced production cuts are realized, global oil inventories could be back to normal by the end of 2020, associated with a strong recovery in oil prices. If OPEC+ really maintains its announced cuts through 2021, we may even experience supply shortages in 2021.

A minority view is that the US shale oil production shut-ins will cause a significant permanent reduction of production trough damages caused to the wells, but there is little evidence for that. With oil prices returning to “normal”,  starting in 2022, the long term scenarios presented in the current study remain plausible.

Original introduction:

Jan/Feb 2020

Between 2011 and 2019, US shale oil production growth has contributed the major part of global oil supply growth needed to satisfy global oil demand growth in that period.

The main purpose of the present web site is to quantify to which extend US shale oil production can continue to play that role in the 2019 to 2028 period – a period that is expected to see global oil demand growth of 10 to 13 MM bopd.

Three basins produce 85% of US shale oil production: Permian, Bakken and Eagle Ford. Eagle Ford production has visibly peaked in 2015 and the combined production growth of Eagle Ford an the minor basins was less than 4% per year in the last two years with a declining trend. Even under favorable conditions, total production growth of these basins will be marginal in coming years. Consequently, the focus here is on the Permian and Bakken basins with Permian being the key basin.

To make plausible, well founded projections, in depth analysis of IP30 trends, well decline curves and quality distribution of well inventories have been made and are presented on the present web site.  The analysis is based on databases containing detailed production data for all horizontal wells in the two basins. Operator specific performance data, that can’t be found elsewhere, are also shown.

The oil production scenarios until 2028 presented  here  (Bakken) and here (Permian) show that US shale oil production is losing its ability to fill a significant part of global oil demand growth in the future. Even in best case scenarios, with relatively high oil prices, shale production growth can satisfy –  temporarily – only 20% to 25% of  cumulative global demand growth expected until 2028.  The main reasons are well inventory exhaustion and the ever increasing number of new wells required to maintain production at the higher levels. Keeping oil prices low in order to fight US shale growth is like fighting yesterday’s war.

Even if Iran’s, Libya’s and Venezuela’s oil production returns to historic levels, with Saudi Arabia’s sustainable non reservoir damaging maximum capacity probably less than pretended (according to experts)  and with combined non OPEC and non US oil production essentially flat, by 2024-2025 the talk may not be about a global oil glut but about global oil shortage.

In that context, from OPEC’s perspective, the economically best strategy in 2014 would have been to cut back production by a few MM barrels per day for 6 to 7 years, to keep the oil price in the $ 80 to $ 85 range, and simply wait until US shale oil production growth slows down for the mentioned structural reasons and can no longer satisfy global demand growth. Such a cut would have required that Saudi Arabia accepts to bear a more than proportional share, but the country  would nevertheless have been the largest beneficiary. Selling 8.5 M bopd at $ 85/b, compared to selling 10 M bopd at $60/b provides $ 40 billion per year in additional profits.

For OPEC, involving Russia has not been very helpful as it complicates and slows decision making and in the past, Russia has not been inclined  to contribute meaningfully to supply management anyway.  It remains to be seen if that changes in the future. 

K. Francis