Sunday , June 20 2021

Fifty shades of shale oil



The increase in tight oil production in the United States over the last few years has led to an increase in the oil market and has challenged the holding of OPEC on oil prices. This seemingly inexorable growth in heavy oil production in the US has created the impression that oil prices will remain forever limited, as each leap in prices is met by a massive wave of stable US oil deliveries.

Review

The United States has increased from just 500,000 barrels in 2010 to just under 6 million barrels in 2018. Following the oil crash of late 2014, US heavy oil growth is pausing briefly in 2015-2016 before resuming its growth in 2017. The new growth to a new record is even more striking when we take into account the fact that WTI average $ 65 a barrel in 2018 compared to $ 95 a barrel in the three years (2012-2014) prior to an oil crash.

(Click to enlarge)

(Source: OPEC WOO – 2018)

Most observers attribute this strong performance to the shale technology sector and improved drilling and finishing practices. We have been told that US oil and gas companies have become more efficient. The widespread use of tamping, the introduction of longer distances, the pumping of more foot sand, the closer and better distance between them, as well as the intelligent shunt targeting are often referred to as driving factors behind the productivity of the industry. This narrative of technological power and innovation is attractive, but a deeper study of the data reveals a different picture.

analysis

This flawed narrative about the tight oil industry in the United States, overcoming oil price collapse in 2014 through innovation and better efficiency, is the product of bringing together various dense oil pools under one umbrella and presenting production data as proof of sustainability of the shots in the United States.

To understand the impact of the oil price collapse in 2014 on heavy oil production in the US, we need to focus on shale basins with sufficient operational history before the oil price collapse and check their performance after the crash. For this purpose, Bakken and Eagle Ford are the perfect model. Bakken and Eagle Ford are the two oldest petroleum pools in the United States, the first one being developed in 2007 and the second one in 2010. Survey of the productivity of these two basins in the 4 years preceding the oil crash and contraction This, up to the 4 years after, provides important information on the sustainability of US strict oil production under conditions of low oil prices. Related: Oil leaps as Saudi plan for further production cuts

(Click to enlarge)

(Source: OPEC WOO 2018)

Both Bakken and Eagle Ford are growing at a phenomenal pace between 2010 and 2014. Eagle Ford grew from almost nothing in 2010 to 1.3 million barrels by 2014, while Bakken rose fivefold from 190k barrels to 1.08M barrels . After the collapse in oil prices at the end of 2014, the growth of Bakken and Eagle Ford continued another year, albeit at a slower pace, as the time of the crash led to new peaks. However, by 2016, both Bakken and Eagle Ford have declined and have barely recovered since then. It took Bakken three years to match the production level in 2015, while Eagle Ford remains 22 percent below its peak in 2015. In the years before the crash, these two areas grew by a combined average of 600K to 700K barrels a year from 2012 to 2014. After the collapse in oil prices, this turbulent growth turned into a significant downturn by 2016 before it stabilized in 2017. it was resumed only in 2018 at a combined annual rate of 210,000 barrels, which is a 70% reduction from the combined growth rates before the crash.

The poor performance of these two areas over the past few years has outlined a different picture of the US's oil resilience in the face of low oil prices. Significant declines and sluggish production growth in both Bakken and Eagle Ford in 2014 have discredited the surge in technology and efficiency gains, which are seen as the main cause of strong oil production in the United States. With the expansion of our look into other narrow oil pools, it is clear that neither technology nor efficiency have saved the US oil industry, although these factors may have played a supporting role. In simple terms, the main reason for the US production of the oil fall in 2014 is a better scale, or rather a commercial exploitation of a higher quality shale resource, namely the Permian oil field.

(Click to enlarge)

(Source: OPEC WOO 2018)

The Perma oil field, unlike Baker and Eagle Ford, was relatively later in American oil history. Only in 2013, just one year before the oil crash, the industry has begun to fully develop the resources of shale fields. Before 2013, the perimeter lagged behind both Bakken and Eagle Ford in total oil production and growth. As can be seen from the previous graph, the oil crash had only an insignificant effect of slowing the growth of oil production. By 2017, the growing oil growth in Perm resumed with a healthy clip, and by 2018 the growing oil production in Perm rocked a new record, with production rising by 860,000 Barrels in one year to 2.76 million Barrels. This timely unlocking and exploitation of Perm's oil basin masks to a large extent the devastation caused by Bakken and Eagle Ford 2014. Indeed, American heavy oil history has two phases masked as one: the pre-2014 period marked by the birth and lifting of Baker and Eagle Ford and the post-2014 period, marked by the rise of Perma. To talk about the heavy oil industry of the US, as it is to mistake a relay for long distances to achieve a single runner. Related: Which oil giant generates the most money?

The productivity diversion between Bakken, Eagle Ford and Perma has serious implications for the likelihood of US oil price cuts in the medium and long term. A careful study of the crude data on oil extraction in the United States leads to an undisputed conclusion: without the advent of fines, the narrow oil industry of the United States would lose the price of OPEC. It is therefore wrong to treat the US oil industry as a monolith, in many ways the heavy oil fields of Baker and Orel Ford are so sacrificed for Permian success as the OPEC countries themselves.

Consequences

This inconsistent amount of shale fields, known as the narrow oil industry in the US, is the key source of global oil supply growth outside OPEC over the past few years and is expected to be for years:

(Click to enlarge)

Given that the bulk of the tight growth of US oil production is generated by a Permanent area, the changes in the prospects for growth in this pool have serious implications for the development of world oil prices in the short, medium and long term. long term. It is important to bear in mind that the Permian oil field, despite its large scope, is required to smooth, tilt and fall at some point. While the forecasts differ with respect to the exact year in which Perm oil production will be smooth, the majority agrees that the slowdown in oil growth in Perm will take place in the early 2020s.

According to OPEC (2018 World Oil Outlook), the oil production curve in the Perm basin is likely to be flattened by 2020, with growth slowing from 860,000 barrels in 2018 to just 230,000 barrels by 2020:

(Click to enlarge)

(Source: OPEC WOO 2018)

There are many factors that can accelerate or slow down the planned equalization phase, but there is no doubt that sooner or later Permanent Oil will be reduced. The potential plateau in Perm's oil supplies effectively reduces global oil deliveries outside OPEC, and the significance of this event can not be exaggerated. The year that the fins are equalizing is the year OPEC will regain control of the market, this initial event will have serious consequences for long-term oil prices. There is no doubt that Saudi Arabia and Russia are aware of the dynamics of growth and tightness of the futures and jointly manage their oil supplies in the short and medium term to ensure a smooth US access to petroleum oil in the market. Indeed, it is clear that OPEC is trying to expand its alliance with Russia for another three years, exactly the time it takes to grow in the Perm oil field to return to it.

US crude oil history is far more complicated than it seems at first glance, and the oil market, like any market, is prone to appealing simple stories and false conclusions. Those who want to break through the titles can take advantage of the treasures buried in the details.

By Nawar Alsaadi for Oilprice.com

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