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U.S. Oil Production Growth’s Path Is
Clear
By Irina
Slav -
Jan 14, 2023
-
There are no signs that U.S. drillers are planning a major increase
in drilling activity in 2023.
- The EIA sees oil
production in the U.S. rise to 12.4 million barrels this year.
- The EIA expects oil
prices to decline over this two-year period
How much will U.S. oil production grow this year—this is the question
on a lot of minds, both in the United States itself, and across the
world.
After proving it could become a game-changer for the global oil market
a decade ago, the U.S. shale patch is once again the focus of
attention but this time because it is not growing the way it used to.
Instead, U.S. shale drillers are being cautious for the first time
since the shale boom began.
Forecasts about U.S. oil production, then, have been largely cautious,
too, when analysts saw that shale producers really have no plans to
return to growth-at-all-costs mode, no matter the price of oil. Except
when they come from the EIA.
In its latest Short-Term Energy Outlook, the Energy Information
Administration forecast that
oil production in the United States will rise from 11.86 million
barrels daily last year to 12.4 million barrels daily this year. It
will also rise further to 12.81 million barrels daily in 2024, the EIA
said.
What's perhaps more interesting than the growth projection itself is
the fact that the EIA expects oil prices to decline over this two-year
period. In other words, it expects U.S. shale drillers to ramp up
production amid declining prices.
This is in the world of forecasts. Meanwhile, in the world of reality,
despite forecasts seeing production growth of some 1 million bpd this
year, U.S. producers added just
620,000 bpd to the total national output figure last year. On top of
that, production growth slowed towards the end of the year. And it is
going to slow down further this year, according to the industry
itself.
"Most companies are drilling tier two and tier three inventories now,"
Pioneer Natural Resources' chief executive Scott Sheffield told
Reuters at the end of 2022. "Less quality production is coming out of
the Permian, out of the Bakken."
The latest Dallas Fed energy survey revealed that
although many oil companies are planning to increase their spending
this year, the increase will be moderate for the majority. The survey
also suggested there was optimism in the industry as cost inflation
subsides somewhat. At the same time, uncertainty about the future
remains rife, which is hardly conducive to strong production growth
ambitions.
Related: Russia Forced To Use More Of Its Own Oil Tankers To Dodge
Sanctions
What's more, there are indications that the oil industry likes its new
cautious approach to handling money. And a lot of shale drillers that
had been in the red for years are now paying down debt—instead of
spending money on production growth.
The Wall Street Journal reported this
week that between mid-2019 and mid-2022, the ten largest U.S. shale
independents paid down 17 percent of their collective debt, reducing
it to $84 billion. The best performers were Occidental Petroleum,
which cut its debt load by half, and Marathon Oil Corp, which reduced
it by about a quarter over the period.
According to the EIA, U.S. oil production this year will grow by
550,000 barrels daily. According to Pioneer's Sheffield, it would add
between 300,000 and 400,000 bpd. Some analysts expect even stronger
growth than the EIA, and some expect it to be smaller than Sheffield's
forecast.
One could say the mystery remains, but that's only true if one follows
official government forecasts, even though they are supposed to be
based on industry input. If one follows what the industry itself says,
the mystery disappears. Because what the industry has been saying for
a while now is that production growth is no priority, even if demand
for oil is set to grow.
Demand for oil, according to the EIA, just as according to OPEC, is
indeed set to grow this year and next. In response, the EIA expects
both non-OPEC and OPEC producers to contribute by boosting their
production—an assumption that is questionable in OPEC's case. The
cartel has made it quite clear that it is in no rush to balance the
oil market if that balancing would be taking place at a price that
OPEC's leaders consider not high enough.
Meanwhile, production in the United States almost reached 12.4 million
bpd at the end of last year—the forecast average for 2023. The EIA
reported at the end of last December that actual oil production for
October that year averaged 12.38 million barrels daily, up from 12.31
million barrels daily a month earlier. In other words, what the STEO
forecast suggests is that U.S. producers could keep production at
around October 2022 levels throughout 2023.
It may indeed turn out that way, too. Over the past two years, U.S.
oil producers have become quite sensitive to their shareholders'
sentiments and have prioritized them over production growth. And their
shareholders have signaled they are happier when they get cash returns
rather than reports about record-breaking production.
The climate change and emission reduction narrative is not encouraging
more investment in new production, either. It is encouraging
emission-reduction pledges and Scope 1, 2, and 3 reduction plans that
are, in essence, incompatible with production growth. What all of this
means is that U.S. oil producers are probably preparing for another
cautious year of moderate production growth.
Green Play Ammonia™, Yielder® NFuel Energy.
Spokane, Washington. 99212
www.exactrix.com
509 995 1879 cell, Pacific.
exactrix@exactrix.com
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