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US crude production continues to drop EIA says US averaged 9 million bpd in March, down 90,000 bpd from February; Brent average at $38 per barrel up month over month By KRISTEN NELSON Petroleum News
U.S. crude oil production is expected to average 8.6 million barrels per day this year, down from 9.4 million bpd in 2015, the U.S. Energy Information Administration said in its April Short-Term Energy Outlook, released April 12. Production is expected to drop further to 8 million bpd in 2017.
The agency said it estimates total U.S. crude oil production is down 700,000 bpd since April 2015, averaging 9 million bpd in March, a drop of 90,000 bpd from February, with the entire decline from Lower 48 onshore production.
“U.S. crude production is expected to drop an additional 100,000 barrels per day more than previously forecast for both this year and in 2017, as output declines further from 2015’s level, which was the highest since the early 1970s,” EIA Administrator Adam Sieminski said in a statement.
“While U.S. onshore oil production is forecast to decline, oil output in the Gulf of Mexico is on track to increase,” he said.
Price driven West Texas Intermediate crude oil is projected to remain below $40 per barrel through the first half of 2017, EIA said, resulting in a production decline in most U.S. onshore oil production regions.
“The expectation of reduced cash flows in 2016 and 2017 has prompted many companies to scale back investment programs, deferring major new undertakings until a sustained price recovery occurs,” the agency said, with expected higher interest rates and tighter lending conditions likely to limit availability of credit to many smaller producers, “giving rise to distressed asset sales and consolidation of acreage holdings by more financially sound firms.”
With lower onshore investment, the count of oil-directed rigs and well completions is expected to drop both this year and next, EIA said.
The agency said that “despite continued increases in rig and well productivity and falling drilling and completion costs” projected oil prices are expected to limit onshore drilling and well completions. Modest increase late in 2017 EIA said U.S. crude oil production is expected to decline from 9.1 million bpd in the first quarter of 2016 to an average of 7.9 million bpd in the third quarter of 2017, which would be 1.8 million bpd below the April 2015 level which was the highest monthly production since 1971.
“Production is expected to begin increasing modestly in the fourth quarter of 2017, reflecting productivity improvements, lower breakeven costs, and anticipated oil price increases,” the agency said.
Crude oil production through the end of 2017 is expected to rise in the Gulf of Mexico and fall in Alaska. These areas, EIA said, are less sensitive than Lower 48 onshore production to short-term price movements.
In the Gulf of Mexico projects that began production in 2014-15 or will begin this year will increase production from some 1.5 million bpd last year to 1.9 million bpd in the fourth quarter 2017.
In Alaska, production is in decline at legacy fields and is also expected to decrease in response to BP’s recent reduction of rigs on the North Slope, while two projects brought online recently by ConocoPhillips - CD5 in the National Petroleum Reserve-Alaska and a new drill site in the Kuparuk River unit - could, EIA said, “moderate production declines in the region.”
Brent up in March EIA said the Brent crude oil spot prices increased by $6 per barrel in March to a monthly average of $38 per barrel, with declines in the U.S. rig count and some improvements in global economic indicators contributing. At the end of the month, however, market expectations of ongoing growth of global inventories contributed to falling prices and Brent ended the month below $37 per barrel.
EIA is forecasting inventory builds to average 1.4 million bpd this year, and said that would result in oil prices at or near current levels, and forecast to average $35 per barrel this year.
By 2017, however, with lower forecast inventory builds, Brent is forecast to average $41, reaching an average of $46 per barrel by the fourth quarter, EIA said, with the global oil market expected to be “relatively balanced late in 2017,” with the potential for significant inventory draws beyond the 2016-17 period.
West Texas Intermediate is forecast to average the same as Brent, EIA said, based on an assumption of competition between the two crudes in the Gulf Coast refinery market as they have similar transportation differentials. Natural gas The Henry Hub natural gas spot price averaged $1.73 per million Btu in March, down 26 cents from February, EIA said, with monthly average costs forecast to remain below $3 through December. Henry Hub prices are forecast to average $2.18 per million Btu this year and $3.02 in 2017.
Marketed U.S. natural gas averaged 79 billion cubic feet per day in January, up nearly 1 percent from December.
EIA is projecting relatively low production growth most of this year, with low natural gas prices and declining rig activity affecting production.
By the end of the year and into 2017, however, the agency said it expects production to grow in response to an increase in price, industrial demand and liquefied natural gas exports.
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