US shale production boom

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Natural Gas Emerging as the World's Go-To Fuel


Natural gas is the cleanest, most versatile, and most flexible fossil fuel. Gas emits 50 percent less CO2 than coal and 30 percent less than oil, not to mention having near zero local pollutants that cause smog. In addition, in contrast to coal (65 percent for power) and oil (60 percent for transport), gas has a variety of uses. Gas gets utilized in the power, industry, commercial, residential, and the transportation sectors. And increasingly important as nations seek to decarbonize, gas is the backup generation source for intermittent renewables. It is gas that fills in for those frequent times when the “the wind isn’t blowing” and “the sun isn’t shining.” 

This all explains why gas today provides a rising 30 percent of the energy used in the rich OECD economies. Now, the still developing countries – which constitute 85 percent of the global population – hope to follow the Western model in making a global “dash to gas.” China and India especially have national strategies to lower their overdependence on coal and lift gas’ 8 percent share of energy supply to around 20 percent.    

Since 2000, global gas reserves have expanded over 50 percent to 7,000 Tcf. In turn, total demand since 2010 alone has risen 25 percent to 380 Bcf/d. The rapidly growing LNG trade is encouraging more gas usage, evolving this longtime regional product into a global and fungible commodity like oil. LNG continues to extend its ~15 percent share of the world’s gas consumption by connecting distant suppliers and buyers. LNG investments hit $50 billion in 2019 alone, with hundreds of billions of dollars more on the horizon.

The U.S. shale revolution itself is at the heart of the global “dash to gas.” Over the past decade, U.S. gas production has risen over 60 percent to 93 Bcf/d. Excess supply has helped the U.S. become the third largest LNG supplier in just a few years, now shipping out over 7 Bcf/d. The growth of destination-flexible, hub-priced LNG exports from the U.S. is establishing a more liquid and flexible gas market. Along with advancing systems like FLNG, this is deepening the pool of importing nations, now at 45 versus 25 five years ago.

U.S. LNG is adding the transparency and predictably that the market has been lacking since its inception decades ago. The U.S. is also improving pricing dynamics by increasing gas-on-gas competition and spot market sales, while lowering the riskier buyer reliance on oil-indexation, overly high volume purchases, and long-term contracts. So not just lowering pricing domestically, the U.S. shale boom and its LNG are helping to keep gas prices lower globally, boosting more interest in the commodity itself.

Looking forward, the International Energy Agency (IEA) expects that the U.S. will add 30 percent of the world’s new gas production through 2030, and the country could become the largest LNG exporter within five years. To be sure, however, ongoing liquefaction capacity gains from Qatar, Australia, Russia, Canada, and some African nations are expected to keep global gas prices low and add more opportunities for buyers.

Low prices themselves are being understated in terms of locking-in more gas infrastructure and usage. They are especially required for the still developing nations because citizens simply cannot afford more expensive energy. This justifies previous World Bank President Jim Yong Kim’s view that a Western insistence on “only wind, only solar” for the world’s poor was not just impractical but utterly unfair. To illustrate, rich Germany is spending literally hundreds of billions of dollars forcing wind and solar into the system yet is now looking at building three LNG import terminals.

Indeed, many other nations understandably want to follow the same “dash to gas” that the U.S. has. The IEA has credited the shale gas boom as the key factor in why the U.S. has been reducing CO2 emissions faster than any other nation. In the not too distant future, perhaps in less than a decade, natural gas will surpass oil to become the world’s primary fuel. Farther out, the U.S. Department of Energy’s International Energy Outlook 2019 models that global gas demand will soar 40-45 percent by 2050.

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In just a few months, the U.S. will be fully energy independent and by 2030, the country’s total primary energy production will outpace primary energy demand by 30 percent, according to a forecast by Norwegian energy research firm Rystad Energy.

“This milestone follows a strong period of growth in both hydrocarbon and renewable resources, and we forecast that the U.S. will have primary energy surplus – and not a deficit – by February or March 2020, depending on the intensity of the winter season,” said Sindre Knutsson, vice president on Rystad Energy’s gas markets team.

Rystad Energy expects the Energy Information Agency’s (EIA) next monthly release to show that the U.S. has been self-sufficient in primary energy for a full 12-month period, from October 2018 through September 2019.

Knutsson said this will be the first time this has occurred since May 1982.

Broader Implications

The U.S.’ move to energy independence will affect the industry in several ways.

The U.S. had a petroleum deficit of $62 billion in 2018 – equivalent to 10 percent of the country’s overall trade deficit of $621 billion, including goods and services.

“These changes in the U.S. energy balance could turn [that deficit] to a surplus of $340 billion by 2030,” said Knutsson. “That adds up to a $400 billion shift, in the space of only a dozen years, thanks primarily to the gargantuan rise of output from the US shale sector.”

Rystad Energy believes total primary energy production will grow from 95 quadrillion Btu in 2018 to 138 quadrillion Btu in 2030, with crude oil and natural gas production driving that growth at 75 percent and 38 percent, respectively.

Production in the Permian, Bakken and Eagle Ford shale plays will drive crude output growth while supply increases in the Marcellus, Haynesville and Utica basins will drive natural gas production growth.

As for demand, Rystad Energy forecasts cumulative average growth of about 0.4 percent from 2018 to 2030, to about 106 quadrillion Btu in 2030.

“The emerging energy surplus will make the U.S. less vulnerable to foreign energy-related politics and facilitate growing exports,” said Knutsson. “While renewable energy output will be consumed domestically, the future for oil and gas exports is bright.” 



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Texas Wildcatters Scoff at Growth Predictions



(Bloomberg) -- Texas wildcatters, after years eye-rolling at shale skeptics, are now saying global analysts are underestimating just how severe the industry’s slowdown is.

What’s ticking folks off these days is how the International Energy Agency in Paris and the Energy Information Administration in Washington still predict robust U.S. production growth next year, despite the dire reality on the ground. The IEA expects an increase of 900,000 barrels a day, while the EIA forecasts 1 million, which would mean practically replicating this year’s expansion.

Those projections don’t jibe with the vibe in Texas, home to about half of U.S. crude output. Capital-hungry producers are being starved of funding, stocks have plunged and there’s been zero appetite for public offerings, making the downturn potentially more enduring than previous price-related busts.

“All I know is, after 47 years, they’re usually wrong.” Frank Lodzinski, an industry veteran of almost five decades who’s chief executive officer at shale explorer Earthstone Energy Inc., said of the forecasts. “I can’t remember another time when oil was $55 and the industry was in such shambles.”

Guessing next year’s growth from the U.S. is a high-stakes game. Whoever wins this debate is likely to also make a better call on the global oil supply and demand balance, and potentially crude prices. So far, an unclear picture has kept oil futures in New York mostly stuck between $50 and $60 a barrel for almost six months.

Gloomy views from Texas could have something to do with recent developments in the Lone Star state. Just as the industry was recovering from the last downturn, more than 1,000 layoffs have been announced this year as drillers and their hired hands seek to cut costs. Investment banks have also had to trim staff locally thanks to a lack of dealmaking.

Oil analysts and investors are “a depleted and demoralized crowd, shell-shocked by the heavy losses inflicted from being the single epically losing sector on the record-breaking S&P 500 battlefield,” Mizuho analyst Paul Sankey said in a recent note to clients during a visit to Houston.

‘Way Too Optimistic’

IHS Markit predicts that U.S. production growth will flatten as early as 2021 due to a “dramatic shift” in companies’ behavior, according to Raoul LeBlanc, the consultancy’s Houston-based vice president for North American unconventionals.

The IEA is “way too optimistic on U.S. oil shale,” Scott Sheffield, CEO of Pioneer Natural Resources Co., said in an interview on Bloomberg TV.

Mark Papa, who built Enron Corp. castoff EOG Resources Inc. into one of the biggest independent explorers and now runs Centennial Resource Development Inc., has been sounding the alarm on the slowdown since at least February.

Of course, independent explorers aren’t the only drivers of growth. Exxon Mobil Corp. and Chevron Corp. have been beefing up their presence in the Permian. Plus, chatty CEOs with skin in the game have a clear incentive to talk up an impending slowdown that would bolster oil prices.

But the IEA has faced criticism for its World Energy Outlook before, particularly as it relates to its projections for renewable energy. The agency said it’s clear that its work “is not, and has never been, a forecast of where the energy world will end up.”

This year’s 800-page-plus report acknowledges that there are “signs of fatigue” in shale, with pipeline constraints, production declines and investor apathy mitigating growth. The agency said it considered factors such as productivity, capital discipline and the effect of changing prices.

On top of their newfound financial discipline, a number of producers have run into disappointing results from wells that were placed too close together. Diamondback Energy Inc. and Concho Resources Inc. both had missteps this year that shocked investors and caused production to take a hit. The two companies said these were one-time mistakes, but the fallout highlighted how fragile the sector is.

Then there’s the rapid decline of shale-well production. In the top five shale basins, wells that came on in 2018 are declining at their fastest rates yet, according to David Ramsden-Wood, the former chief operating officer of Permian producer Franklin Mountain Energy.

“These factors have to be playing a bigger role than analysts think,” he said. “Productivity isn’t increasing.”


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US to Become Net Oil Exporter in 2020: Shale Drillers to Gain


Advanced techniques like hydraulic fracturing and horizontal drilling have made U.S. shale operations extremely efficient. Explorers are now capable of producing more oil with the deployment of lesser rigs. Thus, despite the recent signs of moderation in American oil production growth, the country is poised to become energy-independent by next year.

Shale Drillers to Back US’ Energy Independence

Conservative capital spending by U.S. oil explorers have slowed down drilling activities across the country’s major shale plays. With a drop in rig count, shale resources have been witnessing a decline in crude production growth. In fact, the growth in production will continue to decelerate since most of the analysts are predicting a curtailment in future drilling programs.

Despite the slowdown, the overall production volumes of crude in America will be growing in the coming years. According to the U.S. Energy Information Administration (EIA), from a record annual average volume of 11 million barrel per day (Bbl/D) in 2018, the United States will increase average crude production to 12.3 million Bbl/D in 2019. Also, the annual average U.S. production volumes of the commodity in 2020 will rise to 13.2 million Bbl/D, as estimated by EIA.

Precisely, the prolific shale plays in the United States, especially the Permian Basin, will continue to contribute to the country’s crude production and hence has paved the way for America’s energy independence. EIA added that from an average net import volume of 520,000 Bbl/D of crude oil and petroleum in 2019, the United States will report net export volumes of the commodities at an annual average of 750,000 Bbl/D in 2020.

Oil Industry’s Future Lies With America

Analysts not only expect America to become a net exporter of oil in the years to come but also anticipate the United States to be among the few exporting countries to primarily contribute additional crude volumes to the global energy market. Meanwhile, OPEC projects production decline in its volumes for oil and other liquidsover the next five years. OPEC estimates production of liquids at 32.8 million Bbl/D in 2024, suggesting a decline from the current level of 35 million Bbl/D.

Thus, in the production race for crude oil, the United States will be surpassing OPEC despite the slowdown in America’s shale drilling activities. Precisely, when OPEC is planning to curb its annual average crude production to stabilize oil prices amid the global supply glut, the United States has decided to increase its production share in the global energy market.

Shale Drillers in Focus  

America’s intention to continue to contribute additional oil worldwide despite low crude prices reflects the shale drillers’ operational efficiencies. Thus, it is worthwhile to track prospective oil explorers with footprint in prolific shale plays in the United States that include Permian basin, Eagle Ford and Bakken.

We have shortlisted five U.S. shale drillers, each carrying Zacks Rank #3 (Hold), that investors should keep an eye on. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

With the divestment of its Eagle Ford resources, Pioneer Natural Resources Company PXD has become a pure-play Permian stock. The company has estimated more than 20,000 drilling sites in the nation’s most prolific basin which is likely to provide the company with decades of oil production.

Diamondback Energy, Inc. FANG is a pure-play Permian player with presence across more than 394,000 net acres in the Permian. With more than 7,000 drilling locations in the basin, the company is expected to continue to ramp up its oil equivalent production.

Callon Petroleum Co. CPE — is solely focused on the Permian Basin. The company boasts an impressive footprint (86,000 net acres) throughout the region. The company entered the basin in 2009 with around 8,800 net acres and has been strengthening its hold in the region since then.  

In the Delaware Basin — part of the larger Permian basin — and Eagle Ford, EOG Resources, Inc. EOG has identified a total of 8,400 undrilled premium locations that are likely to contribute the company with incremental oil production volumes.

ConocoPhillips Company COP derives significant volumes of oil from the Eagle Ford, Bakken, and Permian areas.


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1-U.S. crude output rises 66,000 bpd to record 12.5 mln bpd in Sept- EIA



NEW YORK, Nov 29 (Reuters) - U.S. crude oil production in September rose to a new record of 12.46 million barrels per day (bpd) from 12.397 million bpd in August, the U.S. government said in a monthly report on Friday.

The United States has become the world's largest oil producer as technological advances have increased production from shale formations.

Oil output in Texas rose 72,000 bpd in September, while production in North Dakota and the Gulf of Mexico fell during the month. Production also climbed in Oklahoma and Alaska.

U.S. gasoline demand fell 652,000 bpd in the month to 9.2 million bpd. U.S. demand for distillate fuels, including diesel, fell 87,000 bpd to 3.9 million bpd, according to the report.

Meanwhile, monthly gross natural gas production in the lower 48 U.S. states rose to an all-time high of 104.8 billion cubic feet per day (bcfd) in September from the prior record of 104.2 bcfd in August, according to the EIA's 914 report.

In Texas, the biggest gas producing state, output increased 1% to a fresh record high of 29 bcfd in September.

In Pennsylvania, the second-biggest gas-producing state, output rose 0.1% to a record 19.24 bcfd in September from the prior all-time high of 19.22 bcfd in August

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U.S. Posts First Month in 70 Years as a Net Petroleum Exporter



(Bloomberg) -- The U.S. solidified its status as an energy producer by posting the first full month as a net exporter of crude and petroleum products since government records began in 1949.

The nation exported 89,000 barrels a day more than it imported in September, according to data from the Energy Information Administration Friday. While the U.S. has previously reported net exports on a weekly basis, today’s figures mark a key milestone that few would have predicted just a decade ago, before the onset of the shale boom.

President Donald Trump has touted American energy independence, saying that the nation is moving away from relying on foreign oil. While the net exports show decreasing reliance on imports, the U.S. still continues to buy heavy crude oil from other nations to meet the needs of its refineries. It also buys refined products when they are available for a lower cost from foreign suppliers.

“The U.S. return to being a net exporter serves to remind how the oil industry can deliver surprises -- in this case, the shale oil revolution - that upend global oil prices, production, and trade flows,” said Bob McNally, a former energy adviser to President George W. Bush and president of the consulting firm Rapidan Energy Group.

Soaring output from shale deposits led by the Permian Basin of West Texas and New Mexico has been in main driver of the transition -- but America’s status as a net exporter may be fragile. Many Texas wildcatters are predicting a rapid decline in production growth next year, while some Democratic contenders for the White House have called for a ban on fracking -- the controversial drilling technique that unleashed the boom.

“In the days of Jimmy Carter and even Ronald Reagan, we would have longed for this day,” said Jim Lucier, managing director of Washington, D.C.-based Capital Alpha Partners LLC. “Now we scarcely notice it at all.”

In its Short-Term Energy Outlook earlier this month, the EIA flagged the turnaround and forecast total net exports of crude and products of 750,000 barrels a day in 2020, compared with average net imports of 520,000 barrels a day this year.

Analysts at Rystad Energy said this week the U.S. is only months away from achieving energy independence, citing surging oil and gas output as well as the growth of renewables.

“Going forward, the United States will be energy independent on a monthly basis, and by 2030 total primary energy production will outpace primary energy demand by about 30%,” said Sindre Knutsson, vice president of Rystad Energy’s gas markets team.

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Study Forecasts More Increases in US Oil Production


Even though there appears to be signs of weakening in the crude oil and natural gas production boom in the U.S., a new report from the Energy Information Administration (EIA) predicts continued production increases through 2020.

EIA revised its Short-Term Energy Outlook this week forecasting a 119,000 barrels per day (b/d) increase in oil production in 2020 over 2019. EIA says oil production will increase to 12.3 million b/d this year, which is up from 11 million b/d in 2018.

EIA increased its U.S. benchmark West Texas Intermediate (WTI) crude oil price forecast by $2 per barrel in November to $56 and by $1 in both December and January to $55 and $54, respectively. The slight increase in crude oil prices also contributed to EIA’s increased production forecast for the first half of 2020 because of EIA’s assumption of a six-month lag between a crude oil price change and a production response.

The Permian Basin of West Texas and East New Mexico continue to lead the way. EIA forecasts Permian production will grow by 915,000 b/d in 2019 and by 809,000 b/d in 2020. EIA based production increases in the Permian Basin on the expansion of pipelines in the area allowing for more crude oil and natural gas to be shipped to consumers and relieving the price reduction because of oversupply.

“These expansions, which helped alleviate transportation bottlenecks and led to increased prices for WTI in Midland, Texas, (the price that producers may expect to receive in the Permian region) relative to prices for WTI-Cushing. The higher relative prices in the Permian region should continue to encourage crude oil production growth in the region,” EIA stated in the report.


EIA forecasts that the Bakken region in North Dakota will have the next largest crude oil production growth in 2019. EIA expects Bakken crude oil production will grow by 152,000 b/d in 2019 and 96,000 b/d in 2020. EIA forecasts that production in the Federal Offshore Gulf of Mexico will increase by 138,000 b/d in 2019 and 116,000 b/d in 2020.

Although EIA forecasts that overall U.S. crude oil production will continue to increase, EIA expects the growth rate will slow largely because of a decline in oil-directed rigs. According to Baker Hughes, active rig counts fell from 877 oil-directed rigs in the beginning of January 2019 to 674 rigs in mid-November, a 23 percent decline. Rig counts in the Permian region fell 15 percent during this period, from 487 to 408 rigs.

Because EIA expects WTI-Cushing crude oil prices to stay lower than $55 until August 2020, EIA anticipates that drilling rigs will continue to decline as producers cut back on their capital spending, resulting in notable slowing in the growth of domestic crude oil production over the next 14 months.

EIA noted that although U.S. rig counts are declining, improvements in rig efficiency, which allows fewer rigs to drill the same number of wells, partially offsets declining rig counts. In addition, higher initial production from wells (although not necessarily the total estimated ultimate recovery) is offsetting some of the slowdown in rig counts.

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