Tight Oil Test: U.S. Production Growth Remains Resilient Amid Lower Crude Oil Prices
November 20 2014 - 11:36AM
Business Wire
Most potential growth in 2015 U.S. oil production is economical
at prices as low as $70 for WTI, IHS report says
The vast majority of potential U.S. tight oil production growth
remains economical in the current crude oil price environment,
according to a new report by IHS (NYSE: IHS), the leading global
source of critical information and insight. About 80 percent of
potential gross U.S. tight oil capacity additions in 2015 would
remain resilient at West Texas Intermediate (WTI) prices as low as
$70 per barrel, the report says.
The new report examines the outlook for U.S. tight oil growth in
light of the recent drop in crude oil prices, which have fallen by
nearly a third since summer.
IHS estimates 2015 U.S. tight oil production growth at around
700,000 barrels per day (b/d) at an average 2015 price of $77 per
barrel. Though this would represent a slowdown from 2014 tight oil
growth of more than one million barrels per day, the amount of
growth remains significant, the report says.
“Since 2008 the cumulative growth in U.S. tight oil production
has been 3.5 million barrels per day—far exceeding supply gains
from the rest of the world combined—making tight oil the key driver
of global supply growth,” said Jim Burkhard, Vice President, IHS
Energy. “While current lower crude oil prices do present challenges
for new investment, IHS analysis shows that the vast majority of
potential U.S. supply growth in 2015 remain economical at $70 for
WTI.”
The report notes that existing tight oil production is
unaffected by the recent drop in oil prices. Since the highest
level of production costs occurs during the initial development
phase of a well, existing wells can remain economical at crude oil
prices far below the break-even price for new production.
Lower crude oil prices have a greater potential to affect supply
growth because new wells require significant investment before
production begins. In the initial months of production, the oil
price is critical to determining the profitability of a new tight
oil well.
Regardless, there are reasons to believe in the resilience of
tight oil growth, the report says. The IHS analysis shows that most
of the potential U.S. tight oil capacity additions in 2015 (about
80 percent) have a break-even price in the range of $50 to $69 per
barrel. Continued productivity gains, such as improvements in well
completion and downspacing, also support the resilience of U.S.
production growth at lower prices, the report says.
Though these are strong reasons to believe in the resilience of
tight oil growth, the report acknowledges that the risk of supply
growth falling short is much greater now than just a few months
ago.
“Expectations of the future—and the trajectory of oil
prices—means that prices do not need to fall to the breakeven price
before psychology, investment, and thus output, is affected,”
Burkhard said. “Lower oil prices bring into question the ongoing
extent of one of the most profound developments in the world oil
market—the great revival of American production. The ‘tight oil
test’ is under way.”
About IHS
(www.ihs.com)
IHS (NYSE: IHS) is the leading source of information, insight
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landscape. Businesses and governments in more than 165 countries
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Headquartered in Englewood, Colorado, USA, IHS is committed to
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in 31 countries around the world.
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