SURVEY: Oil exporters face stiff challenge from rising US production

• DOI: http://doi.org/10.1111/oet.12112
• Date: 01 November 2013
• Published date: 01 November 2013

SURVEY

A survey of the present and future impact of shale oil production in the US on world oil markets, and its effect on the

principal foreign oil suppliers to the US by Oil and Energy Trends Consulting Editor, Dr Paul McDonald

Oil exporters face stiff challenge from rising US production

The rise in US oil production is causing imports to

fall, presenting a serious challenge to the oil-exporting

nations that have been the country’s traditional

suppliers. The increase in production is being driven

largely by the rising output of shale oil. Domestic

demand meanwhile is flat or even declining slightly,

leaving the impact of new production to be felt directly

by imports, which have declined continuously since

2006.

US imports of crude oil look set to go on falling, and

there could eventually be a significant rise in the current

low level of US crude exports. All this has important

implications for countries that traditionally export to

the US, especially those in Africa and the Western

Hemisphere, though the impact will vary from country

to country.

The size of the impact will depend principally on the

magnitude of the increase in US production. This, in

turn, will depend not only on geology but also on the

ability of US oil producers to transport their output to

refineries across the continent, especially to those that

depend, at present, almost exclusively on imports.

A further issue for some exporters is the likely rise in

Canadian production alongside that of the US. Canada’s

oil production is closely integrated with that of the US

via the continental pipeline network, and the bulk of

any increase in Canadian output is likely to be aimed

principally at refineries in the US.

Rising production

The transformation of the US import position is being

brought about principally by the rapid and huge growth

in the domestic production of shale oil. Production of

oil from conventional sources had been in decline for

a number of years as older fields became worked-out

and the oil industry failed to replace reserves from new

discoveries. At the beginning of 2013, proven reserves of

conventional crude oil were sufficient to last for only a

further 6.3 years at existing levels of production.

The situation has been transformed, however, by

the opening-up of huge areas of non-conventional

oil, mostly production from shale oil and other tight

oil deposits. At present, most US shale production is

derived from two areas: the Bakken Shale, which mainly

underlies North Dakota, and the Eagle Ford shales of

Texas. Shale deposits, however, are widespread across

the US and have been identified in various parts of

the Rocky Mountain cordillera, the Appalachians and

Alaska.

Table F

US Shale Oil Production, 2008-20

Year Production

(kbd)

2008 100

2011 600

2012 900

2013 1,000-1,500

2014 1,500-2,000

2015 2,000-3,000

2020 3,000-5,000

Totals approximate

Source: (2008-12) Industry estimates

(2013-20)

OET

forecast

Table G

US Production of Crude and NGL, 2008-20

Year Production

(mn bpd)

2008 7.5

2011 8.1

2012 9.2

2013 10.2

2014 10.9

2020 11.0-12.0

Source: (2008-13) EIA

(2014-20) Industry forecasts

Shale oil production was insignificant before 2008, but

has since risen rapidly and is forecast to continue rising

(see Table F). Such predictions have led the International

Energy Agency (IEA) to forecast a substantial rise in US

output from all sources between now and 2020. In its

2012 World Energy Outlook, the Agency forecast a rise in

US production of crude oil and natural gas liquids (NGL)

from 8.1 mn bpd in 2011 to 11.1 mn bpd in 2020. Since

then, it has revised the forecast upward. Estimates from

the IEA and a number of other bodies now predict 2020

output in a range from 11 to 12 mn bpd (see Table G).

This constitutes a major turnaround in US oil

production. Outlook of crude and NGL was last above

11 mn bpd in early-1973 and the all-time peak was

only 11.3 mn bpd, which occurred as long ago as 1970.

The IEA’s forecast is more striking for the Agency’s

prediction that US output in 2020 will exceed that of

Saudi Arabia and Russia, which are currently the world’s

largest and second-largest producers, respectively.

©2013 John Wiley & Sons Ltd