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EIA: US oil production down 120,000 bpd Agency expects decline to continue through mid-2016; average expected to be 9.2 million bpd this year, drop to 8.9 million in 2016 KRISTEN NELSON Petroleum News
U.S. crude oil production is declining, the U.S. Energy Information Administration said Oct. 6 in its Short-Term Energy Outlook. That decline is expected to continue through most of next year.
“U.S. crude oil production, which EIA estimates was 120,000 barrels per day lower in September than in August, is expected to continue to decline through next August and then begin rising in late 2016,” EIA Administrator Adam Sieminski said in a statement.
U.S. production averaged 8.7 million barrels per day last year and is projected to increase to an average of 9.2 million bpd this year and then decrease to 8.9 million bpd in 2016, continuing “to reflect an oil price outlook that will weigh on oil-directed rig counts and drilling and well completion activities,” EIA said.
Production averaged 9.4 million bpd in the first half of the year, 200,000 bpd higher than the average production during the fourth quarter of 2014, the agency said, despite a 60 percent decline in the oil-directed rig count since October 2014. Crude oil production began to decline in the second quarter, “beginning with Lower 48 onshore production in April.” Production gains in the Gulf of Mexico offset the Lower 48 decline in April, EIA said, but total U.S. production began to decline in May.
Declines through August 2016 The agency said it expects production to continue to decline through August 2016 to an average of 8.7 million bpd, and then begin to rise, averaging 9 million bpd in the fourth quarter of 2016. Increases are expected in the Gulf of Mexico where 12 projects are scheduled to come online this year and next, pushing Gulf production from an average of 1.4 million bpd in the fourth quarter of 2014 to more than 1.6 million in the fourth quarter of 2016.
Declines from May 2015 through mid-2016 “are largely attributable to unattractive economic returns in some areas of both emerging and mature onshore oil production regions, as well as seasonal factors such as anticipated hurricane-related production disruptions in the Gulf of Mexico,” EIA said.
Cash flows and capital expenditures have been reduced this year, prompting “companies to defer or redirect investment away from marginal exploration and research drilling to focus on core areas of major tight oil plays,” EIA said, adding that because of reduced investment the U.S. is seeing the lowest number of oil-directed drilling rigs in some five years and well completions significantly behind 2014 levels.
Prices continue to be low EIA said North Sea Brent crude oil averaged $48 per barrel in September, up $1 from August, but with high volatility. The agency is forecasting Brent to average $54 per barrel this year and $59 in 2016. West Texas Intermediate is forecast at $4 below Brent this year and $5 below Brent in 2016.
“Continuing increases in global liquids inventories have put significant downward pressure on prices,” EIA said, with inventories up an estimated 2 million bpd through the first three quarters of this year, compared to an average build of 500,000 bpd in the same period in 2014. Inventory builds fell to an estimated 1.2 million bpd in September, and the agency said while inventory builds are expected to slow in coming months, “they are expected to remain high compared with previous years.”
WTI averaged $46 per barrel in September, up $3 from August, “driven by falling U.S. crude oil output and five consecutive weeks of oil inventory draws at the Cushing, Oklahoma, storage hub,” EIA said. Cushing inventories were 53 million barrels Sept. 25, the agency said, the lowest since March 6, but 32 million barrels above the level at the same time last year.
Overall, crude oil prices are “subject to significant uncertainties as the oil market moves toward balance,” EIA said, with uncertainties heading into 2016 including pace and volume of Iranian oil reentering the market, strength of consumption growth and responsiveness of non-Organization of the Petroleum Exporting Countries production to prices.
“In the more immediate future, there is potential downward price pressure heading into the fourth quarter of 2015 if refinery runs drop by more than expected during the fall maintenance season,” EIA said.
Natural gas U.S. natural gas consumption is projected to average 76.2 billion cubic feet per day in 2015 and 76.4 bcf per day in 2016, compared with 73.1 bcf in 2014, the agency said.
Domestic marketed gas production is expected to increase by 4.2 bcf per day this year and by 1.5 bcf per day in 2016, with increases in onshore Lower 48 production offsetting Gulf of Mexico declines.
“Increases in drilling efficiency will continue to support growing natural gas production in the forecast despite relatively low natural gas prices,” with most of the growth from the Marcellus shale, EIA said.
The Henry Hub natural gas spot price averaged $2.66 per million Btu in September, down 11 cents from August, and is forecast to remain below $3 per million Btu through January, and below $3.50 through the rest of the forecast.
The Henry Hub spot price is projected to average $2.81 per million Btu this year and $3.05 in 2016.
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