The recent price crash in crude oil, if it lasts for any length of time, will certainly affect oil production. The question is, just how great an effect will it have an how soon? But in this post I want to concentrate on what is, or was, happening to world oil production even before the price crash.
Russia, the largest producer of crude oil in the world, will peak in 2014. There are various estimates of how fast their production will decline but best case, for Russia, puts their decline at about 2% per year. They say they are depending on the Bazhenov Shale and Arctic offshore just to keep production flat in 2015. Well that is not going to happen, not in the next few years anyway. And if prices stay in the current range it is unlikely to ever happen.
OPEC is a wild card but there is little doubt that they are producing flat out right now. Only Iran has any real any real chance of increasing production very much and that only if sanctions are lifted. Libya has already increased production significantly and could increase more but very little. With the violence still going on in Libya, there is a greater chance that their production will decline.
But before we go any further let’s look at what the EIA is predicting for 2015 for both the USA and the rest of non-OPEC? The below charts are from the EIA’s Short-Term Energy Outlook. Current data is through October 2014 and the projected data is through December 2015. All data is in million barrels per day. Also, very important, the data is Total Liquids which includes NGLs, bio fuels and refinery process gain. The EIA, for US production even counts refinery process gain on imported oil.
The EIA is predicting US average production total liquids will be up 1.49 million barrels per day in 2014 and up another 1.1 mbd in 2015. (I always use m for million and k for thousand.)
The EIA is predicting non-OPEC average total liquids will be up will be up 1.88 mbd in 2014 but only about half that, up .95 mbd, in 2015.
By removing the US we get an entirely different picture. The EIA has non-OPEC total liquids, less US, up .39 mbd in 2014 but down .15 mbd in 2015.
We get a slightly better picture by looking at annual production instead of monthly production.
It is a little easier to see the EIA is predicting US production growth will slow slightly in 2015.
That same slow down of growth is apparent in their non-OPEC total liquids prediction.
The EIA is saying that they expect that non-OPEC total liquids outside the USA will decline next year.
This chart is Crude + Condensate and the data is through July 2014. I show it to emphasize the point that only the US is keeping the world from peak oil. And what you see above is many nations that have improved production in the last 5 years or so but have now peaked. Only a couple of non-OPEC nations will increase production next year and those by only a tiny amount. Most nations will see a decline next year.
But what will happen to US production? The price decline will most definitely affect production but how long will it take for that decline to show up? After all at the end of September there were 610 Bakken wells awaiting completion. That is a three months supply. That means any slowdown in drilling will take several months to show a decline in wells completed. However elsewhere it may not take nearly that long.
When the price collapsed in 1985 the decline was rather dramatic. However the price collapse in 2008 led to no noticeable decline in either US or other non-OPEC production. There was a huge decline in OPEC production in 08 and 09 but that was a deliberate cut.
I believe non-OPEC production less US production will be down between .5 and 1 million barrels per day next year. And I believe it unlikely that US production will be able to offset that. OPEC is still the wild card but I think it is more likely their production will decline rather than increase.
Bottom line, it obvious that we are on the cusp of peak oil and only the seemingly ever increasing barrels from US shale oil production is keeping it at bay. But it now looks like that party is about to be over. I think that it is very likely that peak oil has already arrived, if not this year then 2015 for sure.
For clarification: Peak oil for me is when C+C peaks. I do not count bottled gas and bio-fuels as oil. I would like to exclude condensate but no one except OPEC, Mexico and Norway gives up “crude only” stats so we are forced to count Crude + Condensate. I posted the EIA’s “total liquids” charts here because they make no predictions for C+C and the data they do post only goes through July 2014.
In other news: Things are getting tough all over for those financing the shale oil patch. They are starting to dump assets to pay their bills. They are caught in a squeeze between falling oil prices and rising junk bond rates.
KKR & Co which led the acquisition of oil and gas producer Samson Resources Corp for $7.2 billion in 2011 and has already sold almost half its acreage to cope with lower energy prices, plans to sell its North Dakota Bakken oil deposit worth less than $500 million as part of an ongoing downsizing plan, according to people familiar with the matter.
KKR, one of the world’s biggest private equity firms with $96 billion in assets under management, overpaid for Samson, and persistently low natural gas prices have hampered its ability to finance the company and added to its debt burden, the people said. KKR’s plan was to shift Samson’s assets from natural gas production more into oil and liquids.
With U.S. crude oil futures down 25 percent since June, Samson has hired Bank of Nova Scotia to sell the Bakken assets, and the company is contemplating more asset sales to raise cash, the people said, without specifying which other assets…
“Everyone wants to be near the ‘sweet spot’ where the reservoir produces the most liquid and a higher concentration of hydrocarbons per square foot,” said Allen Brooks of boutique investment bank PPHB LP.
And those ‘sweet spots’ are starting to get a little less sweet with every new well.
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