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Last Updated: February 23, 2018
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EIA’s recently released Annual Energy Outlook 2018 (AEO2018) Reference case projects that U.S. tight oil production will generally increase through the early 2040s, when it will surpass 8.2 million barrels per day (b/d) and account for nearly 70% of total U.S. production. Tight oil production made up 54% of the U.S total in 2017. Development of tight oil resources is more sensitive than nontight oil to different assumptions of future crude oil prices, drilling technology, and resource availability, but tight oil remains the largest source of U.S. crude oil production in all of the AEO2018 sensitivity cases.

U.S. crude oil production in AEO2018 reference case, as explained in the article text

Source: U.S. Energy Information Administration, Annual Energy Outlook 2018

Recent growth in U.S. crude oil production has been driven by the development of tight oil resources, primarily in the Permian Basin. Three major tight oil plays in the Permian Basin—the Spraberry, Bone Spring, and Wolfcamp—accounted for 36% of U.S. tight oil production in 2017. Production from these three plays is projected to increase and to account for 43% of cumulative tight oil production through 2050 in the Reference case. The Bakken and Eagle Ford formations remain major contributors to U.S. tight oil supply through 2050, accounting for 20% and 17% of cumulative tight oil production in the Reference case, respectively.

In the AEO2018 Reference case, tight oil production increases to 8.2 million b/d in the early 2040s and then remains relatively constant through 2050 as development moves into less productive areas. As a result, total U.S. oil production is expected to increase over the next 20 years, from 9.3 million b/d in 2017 to nearly 12 million b/d in the early 2040s, and then decrease slightly through 2050.

However, future growth potential of domestic tight oil production depends on the quality of resources, technology and operational improvements that increase productivity and reduce costs, and market prices—factors with futures that are both interconnected and uncertain. AEO2018 includes several sensitivity cases that incorporate different assumptions regarding price, technology, and resource recoverability.

U.S. crude oil production in threee AEO2018 cases, as explained in the article text

Source: U.S. Energy Information Administration, Annual Energy Outlook 2018

The High Oil and Gas Resource and Technology case uses more optimistic technology and resource assumptions than in the Reference case under the same base world oil price assumptions. In this case, tight oil production increases throughout the projection period, reaching 14.6 million b/d by 2050, or 77% of total U.S. production, as higher productivity reduces development and production costs.

In the Low Oil and Gas Resource and Technology case, which uses more pessimistic technology and resource assumptions under the same base world oil price assumptions, tight oil production still increases from its current level, reaching 5.6 million b/d in 2021, and then decreases to 4.4 million b/d by 2050. Total U.S. oil production in 2050 in this case reaches 7.2 million b/d, which is well below the Reference case level of 11.3 million b/d.

U.S. crude oil production in threee AEO2018 cases, as explained in the article text

Source: U.S. Energy Information Administration, Annual Energy Outlook 2018

Oil production is also sensitive to prices. The AEO2018 contains two cases that assume higher and lower oil prices under the same resource and technology assumptions as in the Reference case. In the High Oil Price case, where West Texas Intermediate (WTI) spot prices rise rapidly and are sustained at higher levels, domestic crude oil production increases to nearly 15.0 million b/d by 2030, before declining to 12.2 million b/d in 2050. In this case, tight oil production reaches more than 10.0 million b/d in 2025 (double the 2017 rate of 5.0 million b/d) as higher prices increase the pace of drilling. Tight oil production then declines to 8.4 million b/d in 2050 as drilling moves to less productive areas.

In the Low Oil Price case, sustained low oil prices still allow total domestic production to increase from 9.3 million b/d in 2017 to 9.7 million b/d in 2021 before gradually declining through the rest of the projection. Tight oil production is relatively flat through 2050, averaging near 5.0 million b/d, and accounts for 64% of total domestic oil production in 2050.

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July, 01 2020
U.S. commercial crude oil inventories reach all-time high

weekly U.S. commercial crude oil inventories

Source: U.S. Energy Information Administration, Weekly Petroleum Status Report

Recent declines in demand for petroleum products have led commercial crude oil inventories in the United States to reach an all-time high of 541 million barrels as of the week ending June 19, which is 5 million barrels more than the previous record set in late March 2017, according to data in the U.S. Energy Information Administration’s (EIA) Weekly Petroleum Status Report.

weekly total U.S. crude oil inventories

Source: U.S. Energy Information Administration, Weekly Petroleum Status Report

Commercial crude oil inventories do not include crude oil held in the U.S. Strategic Petroleum Reserve, which totaled 654 million barrels as of June 19. Total commercial crude oil inventories include volumes held at refineries and tank farms, as well as some amount of pipeline fill (crude oil held in pipelines) and stocks in transit by water and rail. When estimating storage capacity utilization, EIA removes the pipeline fill and stocks in transit so that utilization reflects the stocks held at refineries and tank farms as a percentage of working storage capacity.

weekly U.S. net crude oil inventories

Source: U.S. Energy Information Administration, Weekly Petroleum Status Report

To help stakeholders better assess crude oil storage and capacity, EIA provides weekly estimates of U.S. and regional crude oil storage capacity utilization in the Weekly Petroleum Status Report (WPSR). EIA’s most recent Working and Net Available Shell Storage Capacity Report was released on May 29, 2020, with data as of March 31, 2020. In this update, net available shell storage capacity in the United States increased by nearly 19 million barrels from the previous estimate as of the end of September 2019. An increase in Gulf Coast storage capacity offset relatively small changes in other regions.

As of June 19, U.S. net commercial crude oil inventories were at 62% of total available storage capacity. The majority of capacity and inventories are located in the Gulf Coast, a region which is also home to the majority of U.S. refining capacity and a key area for exporting crude oil. Total commercial Gulf Coast crude oil inventories have increased by 64 million barrels since March 13, when a national emergency was declared in the United States, and are now at an all-time record of 308 million barrels.

Crude oil storage capacity utilization in Cushing, Oklahoma, had increased to 83% of capacity as of the week ending May 1, but it declined to 58% on June 19. Storage considerations were among the reasons that West Texas Intermediate (WTI) crude oil prices—which are based on physical delivery of WTI crude oil at Cushing, Oklahoma—briefly dropped below zero on April 20 and April 21.

June, 30 2020
Changing Investment Winds In The Middle East

The sale of a mere 5% stake in the oil world’s crown jewel, Saudi Aramco had captured the attention of the entire investment community last year. Pushing through after years of debate and delays, the sale on the Tadawul stock exchange valued Aramco at a whopping initial US$1.6 trillion. Investors were mainly connected Saudi individuals and wealthy families, with international buy-in limited as a planned parallel listing on the London or New York Stock Exchange fell through. Still, the deal was enough to unleash several thousand pages of speculation and opinion over potential liberalisation of the oil and gas complex in the Middle East, especially the upcoming post-oil and carbon-neutral environment.

Aramco may have captured all the main headlines, especially with its huge acquisition of fellow Saudi jewel SABIC but the true entity pushing the boundaries of privatisation and deregulation in the Middle East is elsewhere. Specifically, just east of Saudi Arabia, in Abu Dhabi – the largest and most influential of the seven emirates that make up the UAE.

The latest headline involving ADNOC, Abu Dhabi’s state oil firm, hasn’t really made the rounds beyond the industry’s eyes but it is crucial to understanding how the Middle East oil sector could adapt to the changing industry over the next few decades. Partnering with a consortium of six investors, ADNOC has sold a 49% stake in its ADNOC Gas Pipeline Assets subsidiary, retaining a 51% majority stake and control. The sale had been bandied around for over a year, seen as a sign of a gradual opening of a tightly controlled oil and gas region, and follows three other significant sales involving ADNOC. The first was in 2017, when ADNOC raised nearly a billion US dollars through an IPO of its fuels distribution unit on the Abu Dhabi Securities Exchange, offering up 10% of its shares. Then late 2019, ADNOC partnered with Italy’s Eni and Austria’s OMV to nearly double oil refining capacity in Abu Dhabi to 1.5 mmb/d – the largest foreign participation in the Middle East downstream industry since the Shell Pearl GTL project in Qatar and Total’s Jubail refining and petrochemicals push over a decade ago. Around the same time, ADNOC also pocketed US$4 billion from US investment giants BlackRock and KKR through the sale of a 40% stake in its ADNOC Oil Pipelines subsidiary. And now it is the turn of ADNOC’s gas pipelines.

The chronology and regional aspect of ADNOC’s moves is interesting. While Aramco looks local, Abu Dhabi went abroad. The refining expansion involved established oil market players, Eni and OMV – and parallels a gradual unbundling of Abu Dhabi’s upstream concessions, where stakes have been offered to Total, PetroChina, Eni, Cepsa and India’s ONGC over the past five years. But the choice of new investors are now not from the industry. After the deep-pocketed BlackRock and KKR, ADNOC has once against turned to institutional investors for its latest, and largest, sale, with the US$20.7 billion gas pipeline and infrastructure deal going to a consortium consisting of Global Infrastructure Partners (GIP), Brookfield Asset Management, Ontario Teacher’s Pension Plan Board, Singapore’s GIC sovereign wealth fund, NH Investment and Securities and Italy’s infrastructure operator SNAM. ADNOC called the deal a ‘landmark investment (that) signals continued strong interest in ADNOC’s low-risk, income-generating assets’. But it also illustrates two other points: institutional interest in strategic Middle East assets and the challenging environment within the industry because of Covid-19 that has led investment interest expanding to new capital that is currently reluctant to make risky bets in an unstable economic environment. So the choice of ADNOC’s safe assets and a captive domestic market is rather attractive.

ADNOC’s strategy differs from Aramco’s fundamentally. Where Aramco sold a stake of itself, ADNOC has parcelled out different parts of itself while keeping control of the main body intact. This is what Malaysia’s Petronas has done to a great degree of success, listing subsidiaries through IPOs and partnering with foreign investors on upstream/downstream projects, using the proceeds to finance a global expansion that now stretches across all continents. Replicating this strategy, as ADNOC looks to be doing, could pay dividends, particularly since ADNOC has a wider domestic base, as well as stronger export markets, than Petronas. Between Saudi Aramco and ADNOC, the OPEC duo seems to have kickstarted a liberalisation drive within the Middle East energy complex. Kuwait Petroleum and Bahrain’s BAPCO are already reported to be considering similar moves. Which model could this second wave follow: Aramco’s or ADNOC’s? Aramco’s is a shock-and-awe move, a potential wow factor at the size of any possible deal. But ADNOC’s more piecemeal approach could actually be far more stable and sustainable over time.

Market Outlook:

  • Crude price trading range: Brent – US$39-42/b, WTI – US$37-40/b
  • Signs that the oil demand recovery has been better-than-expected as economies re-open have been tempered by fears that a resurgence of Covid-19 infections is on the horizon
  • The US recorded its highest single-day case number this week, while Europe recorded its first increase in a month and cases in Latin America and India are accelerating, prompting fears that a second round of lockdowns was necessary
  • Economies will have more time to prepare for a second round of lockdowns, but the disruption will still snuff out any current nascent improvement in demand
  • This will weigh heavily on OPEC, as it now has to consider another extension beyond the end of July, although compliance has improved among the OPEC+ club as Iraq, Kazakhstan, Nigeria, Angola, Gabon and Brunei all submitted new output schedules

End of Article

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June, 26 2020