Rystad Energy predicts US oil output will peak at 9.7 million bpd in September

By Amy McLellan

Oil prices may be low and rig counts falling but Rystad Energy, the Norwegian upstream consultancy, sees no near-term slump in US oil production – but does see growth topping out in Q3. Analysts at the Oslo-based consultancy estimate US annual oil production will peak at 9.7 million barrels per day by September 2015, assuming WTI stays at US$55per barrel on average for the year. The average production for 2015, estimated at 9.65 million bpd, could be an all-time high after its peak in 1970 with 9.64 million bpd.

Per Magnus Nysveen, senior partner and head of analysis, said the September peak estimate is based on an assumption that the horizontal oil rig count for Bakken, Eagle Ford and Permian will stabilize at 400 rigs, which is 43 per cent below peak. “Production could be even higher depending on assumptions like (1) lower drilling costs, thus more barrels per dollar spent, (2) narrowing price differentials in North Dakota, and (3) reduced backlog of completed wells,” noted Nysveen.

By accounting for 400,000 bpd of plant condensates produced from natural gas processing plants, Rystad Energy estimates that US oil production reaches an absolute all-time high already during April 2015, and further growth could be expected throughout the year. For overall liquids production, including biofuels, NGL and processing gains, the all-time-high was already passed during 2013. In 2012 US total liquids production surpassed both Saudi Arabia and Russia.

Last week US domestic oil production reached 9.42 million bpd. Indeed, production in March was 0.124 million bpd higher than in February, and a staggering 1.2 million bpd higher than March 2014.

It is not just the liquids-rich shale plays that are fuelling this growth. There have also been year-on-year additions of 0.17 million bpd from new deep water fields in the Gulf of Mexico, including Tubular Bells, Jack, St Malo, Mars, Cardamom Deep and Cascade.

The all-time-high to date for US oil production was achieved almost 50 years ago, when production reached 10.044 million bpd in November 1970. The lowest point was reached at 3.839 million bpd in late September 2008, the lowest since the Second World War.

That 2008 low came just a few weeks after oil prices reached an all-time-high of US$145 per barrel, with most energy scenarios focusing on domestic energy security, reliance on imports from overseas producers and fears about the trade balance.

It is a signal of the dramatic impact of the shale oil revolution that just less than seven years later, and with WTI back under US$50 a barrel, that the big issue now is a glut of cheap domestic oil. Interesting times ahead.