Survey: US unconventional oil sector

• DOI: http://doi.org/10.1111/oet.12743
• Date: 01 November 2019
• Published date: 01 November 2019

SURVEY

Survey: US unconventional oil sector

1|GROWTH HAS KEPT

SURPRISING TO THE UPSIDE, BUT

REDUCED FORECASTS SIGNAL

SLOWDOWN

The most significant factor in global oil markets over the

last 10 years has undoubtedly been the rise of the US

onshore shale oil basins. Output has grown exponen-

tially, and was largely responsible in late 2014 for the col-

lapse in oil prices that has transformed the industry,

alongside Saudi policy aimed at flooding the market to

drive the newcomers out of business. That strategy only

succeeded in driving down first prices, and then costs—

not only for the shale operators, but also for non-OPEC

supply around the world.

All the time, shale output has surprised to the upside,

and after a brief dip in 2016, it has now pushed US crude

production above 12 mn bpd (see Figure 1), with shale

output reaching 8.77 mn bpd in September this year (see

below). The rapid growth was helped by the fragmented

and independent nature of the US shale industry, which

until recently invested primarily for growth, rather than

short-term profits—partly in the expectation of higher

prices that never materialized. Shareholders are now

demanding a tighter focus on cash flow, which has led to

a contraction in spending, although so far output has

kept rising. At the same time, major oil companies are

now establishing significant positions, which is also likely

to change the nature of the shale sector over coming

years (see below).

After a brief downturn in 2015 following the price col-

lapse, shale oil (or light tight oil [LTO] as it is also

known) production has risen dramatically and is on

course to make the United States a net importer by the

mid-2020s if growth continues, according to the US

Energy Information Administration (EIA). The EIA cur-

rently forecasts US oil output will surge to almost

15 mn bpd by 2027, up from nearly 11 mn bpd in 2018.

The EIA expects US shale oil output will increase to

8.77 mn bpd in September, up 85 000 bpd from August,

fuelled primarily by a 75 000 bpd jump in Permian Basin

production. This is 1.25 mn bpd up on the same month

in 2018, and up over 2.76 mn bpd since September 2017,

according to the EIA. Overall, the group forecasts US

crude oil production will average a record 12.26 mn bpd

in 2019, up from 10.99 mn bpd in 2018—which was an

increase of 17% on 2017. The forecast for 2020 is

13.17 mn bpd (September EIA numbers—down slightly

from a projection of 13.26 mn bpd in July).

1

The anticipated growth of about 1.3 mn bpd in shale

oil output this year is significant at a global level, in that it

is likely to cover demand growth single-handedly, squeez-

ing the call on OPEC crude. Next year could well be the

same, and the cumulative effect of this is to reduce the

market power of the group and its allies (reducing its abil-

ity to drive up prices).

2

LTO output growth has slowed

slightly over recent months as investors have tightened up

their operations and cut spending, but JP Morgan said Q2

production was slightly higher than expected despite the

lower spending—reflecting an on-going improvement in

efficiency as producers double down on costs.

Petroleum production is composed of several types of

liquid fuels, including crude oil and lease condensate,

natural gas plant liquids (NGPLs), and bitumen. The new

flows from shale provinces are boosting crude output, but

have also created a huge surge in NGPLs. So, altogether,

the United States produced 11 mn bpd of crude and con-

densate in 2018, along with 4.3 mn bpd of NGPLs; mak-

ing a total liquids production of 16.8 mn bpd of

petroleum. Overall, shale drilling has more than doubled

US NGPL production since 2008.

2

FIGURE 1 US crude output. Source: EIA

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