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Schlumberger sees tightening oil market
CEO says technical issues may dampen growth in U.S. shale oil; says new investment in E&P needed in face of strong oil demand
During Schlumberger’s first quarter 2018 earnings call, Paal Kibsgaard, the company’s chairman and CEO, questioned how rapidly U.S. shale oil production may climb in response to a tight global oil market. Kibsgaard suggested that there are technical issues that may constrain shale oil growth below levels that many have been predicting.
“There are also emerging questions around whether the very bullish production growth outlook for U.S. shale oil can be fully met, as the industry is having to face challenges linked to well-to-well interference as more infill drilling takes place, and lower production per well as drilling increasingly steps out from tier one acreage,” Kibsgaard said when commenting on limitations on world oil production increases.
Moreover, shale oil operators need to overcome growing infrastructure constraints, while refineries are approaching current processing capacity for light oil, he said. Shale oil is typically relatively light.
Market in balance Kibsgaard said that he sees global oil inventory levels as key indicators of the dynamics of the global oil markets.
“The absence of the normal seasonal stock builds in the first quarter clearly demonstrates that supply and demand is now in balance, which, combined with increased geopolitical risk, is what has driven oil prices up by more than 10 percent over the past months,” Kibsgaard said.
Meanwhile strong oil demand appears set to continue, despite current tensions around trade between the United States and China.
Under investment On the supply side of the oil market, after three consecutive years of dramatic underinvestment in exploration and production activities, year-on-year production declines have been noted in several countries. This trend is expected to spread and accelerated as the impact of earlier investments fades. At the same time, with Libya and Nigeria already producing at full capacity, Venezuelan production in free fall, and the possibility of new sanctions against Iran, the only potential sources of production growth are Saudi Arabia, Kuwait, the UAE, Russia and U.S. shale oil, Kibsgaard said.
It is likely that, with these supply constraints, the industry will face supply challenges over the coming year and that a significant increase in investment will be needed, he said.
Kibsgaard also commented that Schlumberger expects drilling activity in North America to grow both in volume and in complexity, with more of his company’s customers moving towards the drilling of longer, horizontal lateral wells.
- ALAN BAILEY
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