Posts tagged “oil production”
Favorable Economics, the Permian, and Choices
In July, I wrote about the ramped up activity in the Permian Basin. The point of that story was to merely observe and document that period of time in the Basin. In the data offered over the course of several articles, the conclusion was clear: the U.S. is in the early period of another boom from U.S. production of oil, and Texas is largely the zone for the majority of the production capacity. While the Bakken Shale and the Eagle Ford receive numerous well-deserved headlines, exploration and production (E&P) firms were busy making new history in the Permian Basin.
The largest producer in the Permian Basin is Occidental Petroleum, also known as Oxy. This also makes the firm the largest producer in Texas. Pioneer Natural Resources, Apache and Kinder Morgan Production follow behind Oxy in Permian Basin production for 2012. According to the Energy Information Agency, in 2012 the U.S. imported approximately 10.6 million barrels of crude oil per day. The ratings agency Moody’s recently made an announcement about the impact of the “Permian revival” on exploration and production (E&P) firms. In their communication, they mention producers speculate that the full development of the Wolfcamp Shale could result in 2 million barrels a day — more than the 1970s peak for the entire basin. That is nearly 20% of U.S. daily imports. When might that happen? Hard to say.
This is the 3rd installment in a series that examines data from the recently released 2013 BP Statistical Review of World Energy. The previous posts - Renewable Energy Status Update 2013 and Hydropower and Geothermal Status Update 2013 – focused mainly on renewables. This post delves into the world’s oil production and consumption patterns.
Global Oil Consumption
Global oil consumption trends received a lot of misleading press coverage shortly after the Statistical Review was released. Many of the news articles reported that global oil consumption is slowing. I addressed this in some detail in Did Global Oil Consumption Slow in 2012?, but the gist is that global oil consumption increased in 2012 to a record 89.8 million barrels per day (bpd). Global oil production also achieved a new record of 86.2 million bpd. (The reason the consumption and production number aren’t in sync is that ethanol and biodiesel are included in the consumption number, but the production number represents only “crude oil, shale oil, oil sands and natural gas liquids.”)
Jaunt Through West Texas Reveals Oil’s Revival
It was a 102 degree-hot, mid-July, typical summer day travelling on the road to West Texas; a nine-hour, high-speed journey made with numerous gasoline pit stops. Passing by Midland-Odessa, the commercial hub of the Permian Basin, was a stretch of energy mecca some 20 miles or more, filled to the brim on either side with oilfield services firms — transmission gear, pump equipment, fracking services, and other oil and gas-related businesses. Pumpjacks, also known as nodding donkeys, scattered across swathes of the expansive oilfields. Signs with “Home for Your Workforce” in Pecos and Odessa cropped up a couple of times. Workers, and their firms, are settling in for a boom which could last for many years to come, like the second boomlet in the 1970s and early ’80s that followed the Middle East oil crisis. Bust followed boom in Texas to the mid-1990s.
The scale of energy production in the Permian Basin looks mammoth. The Permian Basin produced more than 270 million barrels of oil in 2010, over 280 million barrels in 2011, and 312 million in 2012. In percentages, production increased 10% in 2011 and 35% in 2012. Texas’ oil production represents about 25% of the U.S. oil production, with the Permian housing 57% of Texas’ oil production, according to the Texas Railroad Commission.
Where there are higher prices or margins possible to justify accessible resources, production will follow. The ability to recover more oil, thanks to technological advances, which include multi-stage hydraulic fracturing, horizontal drilling and carbon dioxide injection, has reversed the declining U.S. production trend of 20-years prior.
Majority of Global Oil Reserves in Areas of Geopolitical Risk
The last two weeks I have been writing about deepwater oil and gas exploration and the trend to push out into deeper waters further offshore. This week I wanted to drill deeper into the drivers of this important exploration and production trend in the oil and gas industry.
Against a backdrop where 43% of global oil production is in high risk regions — the Mid-East and Africa account for 32.5% and 10.9%, respectively — and add on top of that another 16% from Russia and Venezuela, you have nearly 60% of world oil production in areas of high geopolitical risk. Looked at from another perspective, National Oil Companies control roughly 75% of proven crude oil reserves (probability that 90% of the reserves will come to production), with the remainder held generally by multinationals – IOCs.
Over the past three weeks, there have been numerous headlines insinuating that a freefall in oil prices is underway. Last week I read that the various causes were a slowdown in China’s economy, OPEC’s decision not to cut production, and America’s growing oil production. Based on the headlines, one might suspect that we were right in the middle of a major bear market for oil.
Just how far had the price of West Texas Intermediate (WTI) fallen? All the way to $92 a barrel. Keep in mind that WTI opened 2013 at $93.14 a barrel. Since then it has traded between $98/bbl and $87/bbl. (In my Five Energy Predictions for 2013, I predicted that the price of WTI would average less this year than last year, and that the Brent-WTI differential would narrow. To date both predictions have proven to be accurate). CONTINUE»
While U.S. benchmark (WTI) crude-oil futures were up 4.6% since the start of 2013, the futures prices of the global benchmark Brent was down. Analysts suggest that the investment demand for exposure to oil prices was supporting these numbers, not physical demand growth. So what information content is behind oil prices, and how do we parse reality from the hype?
The U.S. is experiencing a boom in the production of oil. Only since the beginning of 2011, oil production in the U.S. has gone up by 30%, from 5.5 million barrels per day (mbd) to 7.2 mbd. Just this week, the U.S. Geological Survey announced that the amount of technically recoverable oil in North Dakota was tripled from a previous estimate – so this boom is unlikely to fall away in the short term.
At the same time, U.S. and European demand for petroleum products are declining. The economic troubles in the Euro zone have dampened economic activity (and petroleum demand), while in America, economic growth has returned, but the consumption of petroleum products are down as consumers change habits and lifestyles to drive less. At the same time, the low price of natural gas, particularly in the United States due to the boom in shale gas production, has some analysts predicting that gas will increasingly act as a substitute for oil whenever possible.
Given all this – an increase in production of oil coupled with a decline in demand – an elementary Economics 101 class would say that prices should be in a steep decline. Over the past several months, there have been a slew of articles predicting that oil prices are bound to drop.
In last week’s note: 2013 Crude Oil Outlook: Supply & Demand, we looked at the more immediate trend in global supply and demand. But this week, I want to examine the long-term oil production challenge facing the industry.
Current global oil consumption is running just under 90 MM b/d, with wellhead production at about a little over 85 Mm b/d, or a deficit or about 4.7 Mm b/d. As we pointed out last week, overall global oil consumption since 2000 to 2012 has been running at a per annum rate of 1.2%; should global consumption continue to grow at this rate, we will hit roughly 100 MM b/d by 2022, or in ten years. If global oil consumption should slow to a per annum rate of 1.0%, we will hit 100 MM b/d only two years later by 2024.
In last week’s column, we examined some oil production trivia involving US states. This week, we look at some international oil trivia covering the 5-year period 2007-2011, as well as some individual trivia from 2012.
In this case, the data sources are the 2012 BP Statistical Review of World Energy and the Energy Information Administration. A table showing the Top 15 countries with the highest percentage increases in oil production over the past five years follows the quiz. Answers are at the end.
1. Which country had the largest percentage increase in oil production from 2007 to 2011?
b. United States
Oil Demand Shift
From 2000 the increasing industrialization of the developing world has been the primary catalyst driving the demand for global crude oil. Among non-OECD nations, China and India have led the charge, with Chinese oil demand growing at a torrid 6.7% per annum rate and India’s oil demand growing at 4.0% per annum. Overall non-OECD demand for oil has increased at a comparable rate of 3.6% per annum, with the Asia/Pacific region growing oil demand at roughly 2.7%. Developed nations, however, have seen diminishing oil demand with a negative -.04% per annum growth rate.
As I shall point out, the decline in OECD oil demand is not enough to offset the rising demand for oil from the developing world, so the net result going forward will be an increasing supply/demand imbalance. My analysis points to an increasing deficit — gap in global wellhead oil supply — to meet demand. CONTINUE»