Yergin: Permian oil production growth beats the whole world

Consultant group IHS Markit estimates, however, that infrastructure capacity will be the limiting factor in U.S. shale oil potential.
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |  June 13, 2018 at 10:13 AM
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June 13 (UPI) -- Output from the Permian shale oil basin in the southern United States will account for 60 percent of world total production growth by 2023, analysis finds.

In its latest drilling productivity report, the U.S. Energy Information Administration expects Permian oil production will average 3.27 million barrels per day in June, a 2.4 percent increase from last month if estimates prove accurate.

A report emailed to UPI from consultant group IHS Markit forecast a production average of 5.4 million barrels per day in 2023. Daniel Yergin, the vice chairman of the group, said the additional barrels from the Permian are about the equivalent of adding another Kuwait to the market.

"In the past 24 months, production from just this one region -- the Permian -- has grown far more than any other entire country in world," he said in a statement.

Over that time frame, IHS estimates operators will spend more than $300 billion on exploration and production, more then double the average spent over the five-year period ending last year. The report used a market scenario of oil priced about $60 per barrel. West Texas Intermediate, the U.S. benchmark for the price of oil, was trading around $66 per barrel early Wednesday.

The Organization of Petroleum Exporting Countries in their monthly market report, published earlier this week, said non-OPEC supply in the second half of the year is expected to increase by 2 million barrels per day over last year. Of that, the United States is the main contributor to growth, with an estimated 1.4 million barrels per day.

The United States is now an oil exporter, though infrastructure necessary to move the oil to the market can't keep up with production trends. In its report, IHS found it was the lack of infrastructure, not the lack of spending on exploration and production, that presented a growth challenge for U.S. shale.

"The infrastructure challenges in the Permian illustrate a fundamental mismatch between upstream [exploration and production] oil producers and midstream [takeaway] players," Jim Burkhard, the head of crude oil markets at IHS Markit, said. "The former are focused on fast growth while the latter require sustained high utilization of infrastructure over decades for projects to be viable."

Burkhard's sentiment is consistent with the International Energy Agency's, which said infrastructure capacity will constrain the sector in the southern U.S. shale belt. Production will exceed takeaway capacity by as much as 290,000 barrels per day by late 2019.

The Commerce Department, meanwhile, said it was following through with a "well-thought-out process" by moving ahead with tariffs on steel and aluminum. U.S. President Donald Trump signed off on the tariffs, saying they were necessary to protect national security and critical industries.

Parts of the energy sector disagreed. Jack Gerard, the president and CEO of the American Petroleum Institute, said the president's announcement of a 25 percent tariff on steel imports and a 10 percent tariff for aluminum was inconsistent with Trump's goal of U.S. energy dominance.

The U.S. steel sector targets the automotive industry, leaving the energy industry depending on a few niche, and overseas, suppliers.

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