LOS ANGELES, July 19 – Total U.S. oil production – boosted by the boom in shale oil – will reach 6.7 million b/d in 2020, before falling back to 5.99 million b/d in 2035, according to the U.S. Energy Information Administration in a discussion of the final version of its 2012 Annual Energy Outlook.
The report, discussed at a recent Bipartisan Policy Center conference in Washington, D.C., says the shale boom is of course driving the revival, with production from unconventional oil plays expected to more than double to 1.23 million barrels per day (b/d) by 2035 from 2011 levels.
In its most likely scenario or “reference case,” the report anticipates 2012 unconventional oil production will reach 720,000 b/d, 12.5% of domestic production.
That said, EIA’s E&P analysis team lead John Staub said unconventional production was already around (~) 900,000 b/d as of March, dominated by the Bakken with 490,000 b/d and the Eagle Ford not far behind.
By 2020, the unconventional percentage of total U.S. production rises to ~18%, then to 20.5% in 2035. EIA calls an unconventional oil production volume peak in 2029 at 1.33 million b/d. The reference case is the second lowest among four production scenarios run by EIA.
The next highest presumes estimated ultimate recoveries (EURs) 50% higher than those factored in the base case, while the most optimistic presumes the higher EUR as well as higher technically recoverable resources (TRR) based on 80-acre spacing and could also represent discovery of additional plays.
Under this last scenario, EIA puts unconventional production at 2.24 million b/d in 2020 and 2.8 million b/d in 2035, 128% higher than the reference scenario.
Staub cautioned that due to higher unconventional decline curves, sustained drilling is key to driving production.
Because of projected sustained drilling in the Eagle Ford, EIA currently sees total production there increasing ~16% by year-end 2013, while drilling diverted from the Niobrara may push production down ~10% in that play during the same period.
Surging domestic oil production is expected to significantly impact imports, which EIA assistant administrator of energy analysis John Conti projected would drop from 49% in 2010 to 26% by 2035 in the reference case.
Under EIA’s “high-priced oil” case (based on assumptions of greater demand and tight supply) this drops even further to 21% imports, but imports could increase again to 51% if oil prices trend much lower than reference case assumptions due to stagnant economies and growing supply.
EIA sees gas relatively flat at $4.00 per million British thermal units (/MMbtu) through 2020, then ramping toward $6.50 by 2035, with lower production and discovery of additional formations expected.
Regarding EIA’s flat baseline 2020 projection, Conti said LNG exports could push prices higher, but between the major capital investments required, the political risk and possible eventual competition with much cheaper global stranded gas, EIA for the most part counterbalanced LNG benefits with risks in its baseline model.
As for 2035, under the High EUR and High TRR cases, EIA priced lower to $5.25 and $4.00/MMbtu, respectively, while pricing closer to $7.50/MMbtu in the Low EUR case.
Production-wise, EIA expects shale gas to nearly triple from 5.0 trillion cubic feet a year (Tcf/year) in 2010 to 14 Tcf/year by 2035 in its reference case, with significantly higher contributions under the High EUR and TRR scenarios (as much as 20 Tcf/year or more).
Conti noted that since 2009, shale gas production has increased ~70%. Staub said 90% of expected total shale gas well production takes place in the first four years, which on the upside allows the market to be more responsive to price signals.
Panelist and Citigroup senior economist and head of commodity portfolio strategy Daniel Ahn agreed on the latter point, anticipating America’s gas supply side will eventually shift to a just-in-time model based on the resulting flexibility.
Ahn’s projections are more bullish than EIA’s. The economist anticipates a near- doubling of North American liquids production to ~27 million b/d (from a current level of slightly more than 15 million b/d) by 2020.
Ahn said 6.6 million b/d of the 11.4 million b/d could come from the U.S. (with Gulf of Mexico production increasing from 1.3 million b/d to as much as 3.75 million b/d and up to 3.8 million b/d growth in shale liquids), 3.2 million b/d from Canada and 1.6 million b/d from Mexico.
At the same time, Ahn predicts a 1.5 million b/d decline in U.S. demand by 2020 due to fuel efficiency improvements and demographic shifts.
Meanwhile, Ahn expects a ~30% (22 billion cubic foot per day or Bcfd) production increase during the same period, with 14 Bcfd stemming from the Lower 48, 4.0 Bcfd from Alaska and 4.0 Bcfd from Canada.
By 2020, Ahn predicts an, “island of North American energy self-sufficiency,” possibly leading to 2-3% in additional real GDP growth ($370-620 billion), 2.7-3.6 million net new jobs, U.S. current accounts deficit dropping by 50-80% from current levels and a real U.S. dollar appreciation of 1.6-5.4%.
Ahn said gas is the primary job creator, saying America is now the world’s most competitive ethylene provider after Qatar. This should lead to a reindustrialization of America, benefiting sectors from petrochemicals to steel.
Ahn said only overregulation and possibly lack of resolution of logistical and labor problems could stand in the way of these outcomes.
He thinks this scenario is turning from a “good case scenario” into the “base case.” Doing his best Clint Eastwood impression, Ahn concluded, “It’s halftime in America. The second half is about to begin.”
This article originally appeared in the July 17 issue of Capital Markets, published by PLS. Reproduced by permission of PLS.
© Glamma Productions Inc. 2012