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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Bank Sees U.S. Shale Growing for Another 4 Years

  • HSBC: US shale could grow for the next 3-4 years.
  • It appears that the U.S. shale boom has moved on to its next stage where a mature industry focuses on lowering costs while preserving production rates and, where possible increasing them.
  • HSBC analysts see shale oil production peak in 2028.
Niobrara crude

U.S. shale oil production has four more years of growth before it peaks in 2028. This is according to a forecast by HSBC—the latest in a string of attempts to predict the fate of the shale patch. It is also the latest to add to the potential for surprise in the shale patch. Just like it happened last year.

In 2023, oil traders kept watching the rig count and kept worrying that oil production was falling because the rig count trended lower for most of the year. And then producers began reporting output figures and the surprises started flooding in. It turned out that well productivity improvements have contributed to a solid increase in output—despite the lower rig count.

“Some expect U.S. shale to peak soon, and OPEC+ hopes this will be the case as it would allow the group to finally unwind its supply cuts,” HSBC analysts wrote, as quoted by Bloomberg. “US shale could grow for the next 3-4 years.”

With regard to OPEC+, this probably means it would have to sit on its spare capacity and maintain the production ceiling for a few more years. It is a prospect that has no doubt been considered by OPEC+ leaders so whatever hopes there may or may not be, plans have been made.

With regard to the U.S. shale industry, supply is, as always, only one-half of the equation. If demand drives prices higher and motivates exploration that makes commercial sense, then these things will happen. For now, most forecasts, which seem to be biased towards a successful energy transition, expect oil demand to be declining. Once again, the forecasters may be in for a surprise.

Related: The U.S. Can A Lot Learn From Australia’s Natural Gas Strategy

In any case, however, untapped resources in the shale patch have dwindled—hence the massive merger and acquisition wave that rose in the industry last year and appears set to extend into this year.

“Oil and gas is undergoing a historic consolidation wave comparable to what occurred in the late 1990s and early 2000s, giving rise to the modern supermajors,” Andrew Dittmar, Enverus senior vice president, said in January.

“After a decade of lowered investment in exploration and with the major U.S. shale plays largely defined, M&A has become the preferred tool to replace declining reserves and secure longevity in these companies’ profitable upstream businesses,” Dittmar added at the time.

Yet mergers and acquisitions cannot last forever. And neither can the rate of well productivity that boosted U.S. oil production to the highest ever. Enverus again sounded the alarm in April, reporting that oil recovery rates per foot of horizontal well drilled had declined by 15% between 2020 and 2023. The reason: too many wells getting drilled too close together, affecting reservoir pressure and resulting in lower recovery rates.

The industry is looking for ways around this and finding them—at a cost. Longer wells can improve recovery rates but cost more to drill. A technique dubbed simul-fracking, which involves the drilling of multiple wells and then fracking them all together has also shown promise but it’s not cheap.

It appears that the U.S. shale boom has moved on to its next stage where a mature industry focuses on lowering costs while preserving production rates and possibly increasing them if and when it makes business sense. In such a context, the matter of when production peaks is not all that relevant, either for OPEC+ or U.S. shale itself. What’s relevant is how long the production plateau will continue before the decline begins. And that might take a bit longer than four years, however eager some forecasters may be to see all oil go.

By Irina Slav for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on June 20 2024 said:
    When there are numerous projections about the longevity of US shale oil production, I start to feel that this means US production is headed downwards despite the non-ceasing hype from the US Energy Information Administration (EIA) and favourable projections from IEA and Rystad Energy. Just two days ago the IEA projected that US production will grow by 2.0 million barrels a day (mbd) by 2030. and like all IEA's previous projections.it will prove wrong.

    While shale oil technology continues to improve, there is a limit to how much it could lift production amid indications of flattening production and information that the best and most lucrative shale plays have been virtually exhausted forcing drillers to move to poorer and costlier plays leading to a rising costs of production and a decline or a flat production.

    So shale is expected to continue production at a decelerating rate for a few more years. Meanwhile, it will never pose any threat to OPEC+ position as the the most influential player in the global oil market.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment

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