Share

US oil production on brink, say oil execs

London - US oil production will start to decline soon unless oil prices rise substantially, oil executives said on Tuesday, saying lower production could pave the way for a spike in the market in future if fuel demand increased.

Delegates at the Oil and Money conference in London, an annual gathering of senior industry officials, said world oil prices were now too low to support US shale oil output, the biggest addition to world production over the last decade.

"We are about to see a pretty dramatic decline in US production growth," the former head of oil firm EOG Resources Mark Papa, told the conference.

Papa, now a partner at US energy investment firm Riverstone Holdings LLC, said US oil production would stall this month and begin to decline from early next year.

He said the main reason for the decline would be a lack of bank financing for new shale developments.

U.S. oil production has been growing by around 1 million barrels per day (bpd) year-on-year since mid 2012, thanks to the introduction of new drilling techniques that have released oil and gas from shale formations.

But output in North America has started to slow in recent months as prices have fallen sharply.

Oil prices have almost halved in the last year on oversupply in a drop that deepened after the Organization of the Petroleum Exporting Countries in 2014 changed strategy to protect market share against higher-cost producers, rather than cut output to prop up prices as it had done in the past.

The chief executive of Royal Dutch Shell Plc agreed, saying US oil producers would struggle to refinance while prices remained so low, leading to lower output in future:

"Producers are now looking for new cash to survive and they will probably struggle to get it," van Beurden said.

Longer-term, there was a risk that low levels of global production could bring a spike in oil prices, he said.

If prices remained low for a long time and oil production outside OPEC and the United States declined due to cuts to capital expenditure, there was not likely to be any significant spare capacity left in the system, he said.

"This could cause prices to spike upwards, starting a new cycle of strong production growth in US shale oil and subsequent volatility," van Beurden said.

Adam Sieminski, administrator at the US Energy Information Administration, told reporters on the sidelines of the conference the US oil industry had reacted to lower prices by improving its productivity.

But this process could not continue forever.

"Now we are seeing the limits at least in the near term and it is beginning to impact production," Sieminski said. "We see (US oil production declines) continuing into next summer."

The Secretary-General of OPEC, Abdullah al-Badri, said oil supply growth from non-OPEC producers might be zero or negative in 2016 because of lower upstream investment.

But Papa said if US light crude oil prices went back up to $75 a barrel, US oil production would resume growth at around 500 000 barrels per day - or around half the record growth rates observed in the past few years.

"I see the United States as a long-term growth producer," he said. "If low oil prices prevail - then the correction in oil prices will be much more severe."

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.89
+0.2%
Rand - Pound
23.82
+0.3%
Rand - Euro
20.37
+0.3%
Rand - Aus dollar
12.31
+0.3%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders