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EIA: US crude production on rise again Agency says decline began in 2015, increase attributed to higher prices, drilling efficiency improvements; Brent $53 in December KRISTEN NELSON Petroleum News
U.S. crude oil production averaged an estimated 8.9 million barrels per day in 2016 and is forecast to average 9 million bpd this year and 9.3 million bpd in 2018, the U.S. Energy Information Administration said in its Short-Term Energy Outlook, released Jan. 10.
EIA Administrator Adam Sieminski, commenting on the outlook, said that when final data are in the agency expects to see that domestic crude production increased in the last three months of 2016, which would be the first quarterly increase since early 2015.
“The general decline in U.S. crude oil production that began almost two years ago is likely over, as higher average prices and improvements in drilling efficiency are giving a boost to outcome,” Sieminski said.
Brent up North Sea Brent crude oil spot prices averaged $53 per barrel in December, up $9 per barrel from November. The agency said market reactions to the Nov. 30 Organization of the Petroleum Exporting Countries agreement to cut production by 1.2 million bpd starting in January were a major contributor to December’s rising oil prices.
December was the first month since July 2015 when Brent averaged more than $50 per barrel.
The agency is forecasting Brent to average $53 per barrel in 2017 and $56 per barrel in 2018, with West Texas Intermediate forecast to average $1 per barrel less than Brent. EIA said the slight discount of WTI to Brent is based on an assumption of competition between the crudes in the U.S. Gulf Coast refinery market.
Brent prices are expected to remain fairly flat for the next few months, averaging $53 per barrel in the first half of the year and $54 per barrel in the second half.
EIA said upward price pressures are expected to emerge in 2018, with global oil markets more balanced by mid-2018.
US Production increase EIA said that while U.S. crude production averaged 8.9 million bpd last year, down 500,000 bpd from 2015, based on the latest available monthly data from October and estimates from November and December, it estimates that production began increasing in the fourth quarter, averaging 8.9 million bpd for the quarter, up from an average of 8.7 million bpd in the third quarter. The agency said that if that data is confirmed in final data, “this would be the first quarterly production increase since the first quarter of 2015.”
Most of the fourth-quarter increase came from the Gulf of Mexico, but EIA said it estimates that Lower 48 onshore production also increased by almost 60,000 bpd.
The current estimate for 2017, 9 million bpd, is up 200,000 bpd from the previous estimate, EIA said, largely reflecting “assumptions of higher drilling activity, drilling efficiency and well-level productivity than assumed in previous forecasts.” The agency said previous forecasts reflected an expectation that Lower 48 onshore production would generally decline through the end of 2017. “The change in the current forecast reflects crude oil prices that have been higher than forecast in recent months, allowing producers to increase active rigs at a faster pace than expected.” The forecast change also “reflects the incorporation into EIA’s models of continuous productivity improvements and lower breakeven costs.”
The agency warned that the forecast is very sensitive to wellhead prices and rapidly changing drilling economics.
WTI, used as a proxy for wellhead prices, is expected to average $52 per barrel this year and $55 in 2018.
EIA said there is a lag of roughly six months between oil price changes and realized production.
Natural gas Dry natural gas production is estimated to have averaged 72.4 billion cubic feet per day in 2016, down 2.4 percent, 1.8 bcf per day, from 2015, the first time annual average natural gas production has fallen since 2005, EIA said.
Natural gas pipeline exports increased by 1 bcf per day to 5.9 bcf per day, largely because of rising exports to Mexico, and EIA said it expects pipeline exports of natural gas to continue rising because of growing demand and flat natural gas production in Mexico.
Liquefied natural gas exports increased from almost zero in 2015 to 0.5 bcf per day in 2016 with the startup of the Sabine Pass LNG liquefaction plant in Louisiana. LNG exports are expected to average 1.4 bcf per day in 2017 and 2.6 bcf per day in 2018.
Net imports of natural gas are expected to decline from 1.7 bcf per day in 2016 to 0.7 bcf in 2017 and the United States is expected to become a net exporter of natural gas in 2018, with net exports averaging 0.6 bcf per day.
The Henry Hub natural gas spot price averaged $2.51 per million Btu in 2016 and is expected to average $3.55 per million Btu in 2017 and $3.73 in 2018.
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