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Fifty shades of shale oil



The increase in adjusted oil production in the United States in recent years has disrupted the oil market and challenged OPEC's control over oil prices. This seemingly relentless growth in lean oil production in the United States has created the impression that oil prices will always remain limited as each price increase is resolved by a massive wave of restricted oil supply in the United States. .

Overview

The restricted supply of US oil has increased from just 500K barrels in 2010 to just under 6M barrels by 2018. After the oil crash at the end of 2014, US oil growth experienced a brief pause in 2015-2016 before resuming growth in 2017 and moving up to a new record for 2018. This latest surge to a new record is even more impressive if we take into consideration the fact that WTI averaged $ 65 per barrel in 2018 compared to $ 95 per barrel in the three years (2012-2014) prior to the oil shock

(Click to enlarge)

(Source: OPEP WOO – 2018)

Most observers attribute this solid performance of the shale industry to improved drilling and termination technology and practices. We are told that American oil and gas companies have become more efficient. The widespread use of pad perforation, the introduction of longer laterals, the more and more sand pumping per foot, the closer and better spacing, and the intelligent targeting of fractures are often mentioned as factors that drive performance. of the industry. This narrative of technological prowess and innovation is appealing, but a deeper examination of the data reveals a different image.

Analysis

This fallacious narrative of the narrow US oil industry. UU Overcoming the fall in the price of oil in 2014 through innovation and better efficiency is the product of grouping several closed oil basins into a single umbrella and presenting the resulting production data as a resistance test of the ES shales . UU

To understand correctly the impact of the oil price fall in 2014 on the adjusted oil production in the United States, one should focus on shale basins with sufficient operating history before the oil price fall and examine their performance after the fall. For that purpose, the Bakken and the Eagle Ford are the perfect specimen. The Bakken and Eagle Ford are the two oldest narrow oil basins in the United States, with the first developed in 2007 and the last in 2010. Examining the production performance of these two basins in the 4 years prior to the collapse of oil and gas. contrasting 4 years after it, it offers important information about the recovery capacity of the scarce oil production of the USA. UU in an environment of low oil prices. Related: Oil jumps as Saudi plan Other production cuts

(Click to enlarge)

(Source: OPEC WOO 2018)

Both the Bakken and the Eagle Ford grew at a phenomenal rate between 2010 and 2014. The Eagle Ford grew from virtually nothing in 2010 to 1.3 million barrels in 2014, while the Bakken grew five times, from 190 thousand barrels to 1 , 08 million barrels. After the collapse of oil prices at the end of 2014, the growth of Bakken and Eagle Ford continued for another year, albeit at a slower pace, as the momentum before the collapse led to production at new highs. However, by 2016, both the Bakken and the Eagle Ford went into decline and have barely recovered since then. Bakken took three years to match its 2015 production level, while Eagle Ford production remains 22% below its 2015 peak level. During the years leading up to the fall, these two fields grew by an annual average combined from 600 thousand to 700 thousand barrels between 2012 and 2014. After the collapse of the price of oil, this torrid growth became a considerable decrease for 2016 before stabilizing in 2017. Growth in both fields only resumed in 2018 at a combined annual of 210 thousand barrels, a reduction of 70% compared to the combined growth rate of the fields.

The bleak performance of these two fields in recent years paints a different picture in terms of oil resilience in the US. UU In an environment of low oil price. The considerable decline and moderate growth of production in both Bakken and Eagle Ford since 2014 discredit the leap in technology and the narrative of efficiency that has been exposed as the underlying reason beyond the strong growth in oil production in EE . UU As we expand our gaze to other narrow oil basins, it becomes clear that it was not technology or efficiency that saved the US oil industry, although these factors may have played a supporting role. In simple terms, the key reason in terms of the strength of EE production. UU Since the collapse of the 2014 oil is a better rock, or rather, the commercial exploitation of a higher quality shale resource, namely the Permian oil field.

(Click to enlarge)

(Source: OPEC WOO 2018)

The Permian oilfield, unlike the Bakken and the Eagle Ford, was relatively late in the history of oil in the United States. It was only in 2013, just a year before the oil crash, that the industry began the large-scale development of the shale resources of that giant field. Prior to 2013, the Permian delayed both Bakken and Eagle Ford in the production and total oil growth. As can be seen in the previous graph, the oil collapse had only a minor buffer effect on the growth of Permian oil production. For 2017, Permian's adjusted oil growth resumed at a healthy pace, and by 2018, the growth of the Permian's adjusted oil production broke a new record with output that went up by 860,000 barrels in a single year to 2.76 million barrels. This timely unlocking and exploitation of the Permian oil basin largely masked the devastation suffered by the Bakken and Eagle Ford after 2014. In essence, the history of oil in the United States has two phases masked as one: the period before 2014 marked by the birth and rise of the Bakken and Eagle Ford, and the period after 2014, marked by the rise of the Permian. Talk about the narrow US oil industry UU It is confusing a long distance relay race with the completion of a single runner. Related: Which oil giant generates more cash?

The divergence in performance between Bakken, Eagle Ford and Permian has important implications for the likelihood that oil production in the United States will lower the price of oil in the medium and long term. A detailed examination of the narrow data of oil production in the United States leads to an indisputable conclusion: without the arrival of the Permian, the oil industry of the United States would have lost the OPEC's price war. Therefore, it is a misnomer to treat the restricted oil industry in the US. UU As a monolith, in many ways, the reduced oil fields of Bakken and Eagle Ford are as much a victim of Permian success as the OPEC nations themselves.

Transcendence

This discordant series of shale fields known as the restricted oil industry in the United States has been the key source of global growth in the supply of non-OPEC oil in recent years and is expected to be in the coming years:

(Click to enlarge)

Bearing in mind that most of the adjusted growth of oil production in the United States is generated by a single field, the Permian, the changes in the growth prospects of this basin have important implications in terms of the evolution of prices world oil prices in the short, medium and long term. It is important to bear in mind that the Permia oil field, despite its great reach, is obliged to flatten, reach its peak and decrease at some point. While the forecasters differ in the exact year that Permia's oil production will flatten, most agree that there will be a slowdown in the growth of Permia's oil production in early 2020.

According to OPEC (2018 World Oil Outlook), the oil production curve of the Permian basin will probably flatten by 2020, and growth will decrease from 860,000 barrels in 2018 to only 230,000 barrels by 2020:

(Click to enlarge)

(Source: OPEC WOO 2018)

There are many factors that can accelerate or delay the projected flattening phase, but there is no doubt that, sooner or later, Permian's oil production will flatten. An eventual plateau in the Permian oil supply effectively translates into a flattening of the world supply of non-OPEC oil, the importance of this event can not be overstated. The year in which the flattening of the Permian is the year in which OPEC will regain control of the market, this seminal event will have important implications for long-term oil prices. There is no doubt that Saudi Arabia and Russia are aware of the growth and flattening dynamics of Permia and are jointly managing their oil supply in the short and medium term to allow for an orderly entry of the adjusted US oil supply. UU., Also known as Permiano oil supply. in the market. In fact, he is saying that OPEC is trying to extend its alliance with Russia for another three years, exactly the window of time required for growth in the Permian oil field to be flattened and for the power of prices to return to it. .

The narrow oil history of the United States is much more complex than it seems, and the oil market, like any market, is prone to the appeal of simple narratives and false conclusions. Those who want to delve into the headlines can take advantage of the treasures hidden in the details.

By Nawar Alsaadi for Oilprice.com

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