One of the big concerns during the depths of the oil price bust of 2014-2016 was the fact that so many big, integrated and state-run oil companies were delaying or taking a full pass on investing in major and highly-costly international projects. During the financial retrenchment of this dark period, exploration for major new resources consistently took a back seat to finding ways to pay the bills and service the company’s debt.
This lack of investment in new exploration and infrastructure projects led to concerns among many energy analysts that we could be facing a shortage of global supply early in the next decade as decline rates caused existing reserves to play out without the needed new production coming on line to replace them. The surge in new supply from U.S. shale plays has served to alleviate those concerns for the near-term, and a new report issued by the Norwegian research firm Rystad Energy documents a similar surge in new international investments that should help avoid supply shortages further down the road.
“We expect global FID volumes in 2019 to triple over last year, and 2019’s megaproject awards could lead to billions of subcontracting dollars in coming years,” said Rystad Energy upstream research analyst Readul Islam, “The only supply segment likely to shrink this year is the oil sands, whereas deepwater, offshore shelf and other conventional onshore developments are all poised to show substantial growth. From a geographical perspective, all regions are headed for robust growth except Europe and North America, still bearing in mind that shale plays are not included in these numbers.”
That last point – that shale plays are not included in this report – is key. As I pointed out last week, the Permian Basin has become a focal point for major development not just for big independents like Pioneer Natural Resources, Noble Energy, Apache Corporation and others, but also for major, integrated companies like ExxonMobil, BP, Shell and Chevron. These U.S. shale plays are likely to sustain significant production growth for years to come, giving the big investments documented by Rystad in its report the running room they need to move from final investment decisions to first production, which can easily consume five-to-seven years.
So, if you’ve been wondering why all those stories about concerns of a looming supply crunch on the horizon have disappeared from your daily news clips, this is the reason.
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Today’s Energy Update
(Because Energy Fuels Our Lives)
The energy media has recently featured headlines that seem at odds with one another and that, when taken together, portend the possibility of a coming train wreck somewhere down the road where crude oil supply and prices are concerned. Let’s look at some of the more recent headlines as examples:
“The U.S. Shale Boom is About to Get a Major Upgrade” – Investors Business Daily, Feb. 19
“Wall Street Calls for Better Returns; Shale Gets Thrifty” – Gulf Times, Feb. 17
“OPEC Cuts Send Crude Exports to Lowest Since 2015” – Financial Times, Feb. 19
“U.S. shale oil output to hit record 8.4 million bpd in March: EIA” – Reuters, Feb. 19
That Investor’s Business Daily story begins by stating “The U.S. shale oil boom is about to get a whole lot bigger. The reason: Giant oil companies like Exxon Mobil (XOM) are leveraging their massive scale to unleash more production from the top-producing shale oil formation.”
The EIA projects that the domestic industry will push U.S. oil production past the 12 million barrels of oil per day (bopd) level for the first time in the nation’s history in March, with 70% of that coming from shale plays.
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Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.
In this episode, David and Ryan why the oil market seems overly jittery now that it appears the market is back in balance after three years of chronic over-supply. They also discuss how super tankers co-loaded with crude from both the U.S. and Mexico have helped open up Asian markets to U.S. producers, why solar really isn’t cheaper than coal despite all the hype in the media, and celebrate the fact that Shell has now restored its full cash dividend thanks to its strengthening bottom line.
Listen to the Podcast Here
Energy Week, Episode 4: Why the majors aren’t worried about “Peak Oil” but the markets are worried about events in Saudi Arabia.
Show Notes: In this episode, David Blackmon and Ryan Ray discussed how the ongoing upheaval in Saudi Arabia is impacting oil markets, and the impacts it all could have on the planned IPO for Saudi Aramco. Next, they talked about the reasons why the various “Peak Oil” theories and narratives are wrong, and why the big oil companies aren’t really worried about them. Finally, David talked about the reasons why he thinks the U.S. industry just might not mess up the current positive oil price situation in 2018.
Listen to the Podcast Here
Links to articles referenced in Episode 4 of Energy Week:
Power grab in Saudi Arabia threatens oil market stability
“End Of Oil” Narratives Are Misleading
Peak oil? Majors aren’t buying into the threat from renewables
Oil Pulls Back After U.S. Rig Count Sees Significant Increase
Why U.S. Oil Producers Might Not Mess Up A Good Thing In 2018