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Page added on July 13, 2015
EIA Confirms: U.S. Oil Production Peaked
U.S. oil production has peaked…at least for now.
That is the conclusion from a new government report that concludes that U.S. oil production is on the decline. After questions surrounding the resilience of U.S. shale and when low oil prices would finally cut into production, the EIA says the month of April was the turning point.
In its Short-Term Energy Outlook released on July 7, the EIA acknowledged that U.S. oil production peaked in April, hitting 9.7 million barrels per day (mb/d), the highest level since 1971. In May, production fell by 50,000 barrels per day, and EIA says that it will continue to decline through the early part of next year. Still, the declines won’t be huge, according to the agency’s forecast – production will average 9.5 mb/d in 2015 and 9.3 mb/d in 2016.
The EIA figures move a little closer to what some critics have been saying for some time. Data from states like North Dakota and Texas had pointed to slowing production for months while EIA posted weekly gains in production figures for the nation as a whole. Along with several consecutive weeks of inventory drawdowns, EIA figures started to look a little suspect. The latest report is sort of an acknowledgement that those figures were a little optimistic.
Nevertheless, as the EIA affirms peak production in the second quarter of 2015, the fall in output over the next few quarters should bring supply and demand back into balance, or at least close to it. Supply exceeded demand by more than 2.5 mb/d in the second quarter of this year, but that gap will narrow to 1.6 mb/d in the third quarter and just 500,000 barrels per day in 2016.
On the natural gas side of things, production dipped a bit in recent months, owing to declines in the Marcellus Shale. Still the EIA is bullish on natural gas, predicting production gains of 4.3 billion cubic feet per day in 2015 (a 5.7 increase over the year before) and 1.6 Bcf/d jump in 2016. Last year, natural gas inventories were drawn down way below the five-year running average as cold weather caused consumers to burn through large volumes. Still, production kept climbing throughout 2014, building back depleted storage.
The refill in storage levels over the past year has been impressive. At 662 Bcf, natural gas storage levels are now 35 percent higher than they were at this point in 2014 and just a tad above the five-year average. The EIA predicts that storage levels will continue to climb, which could put further downward pressure on prices, having already fallen by nearly half from just November 2014. Towards the end of the year, natural gas storage levels could fill to above-average levels, which will reduce any chance of prices rising beyond where they are now (~$2.80/MMBtu).
That could keep electricity prices from rising too much, certainly a welcome development for consumers. But it will also be awful news for coal producers, which are seeing their market shrink. Coal’s share of the electricity market (a pie that is not really growing), is expected to fall by a massive 3 percent this year, plummeting from 38.7 percent to just 35.6 percent. In fact, in April natural gas captured more of the market (31.5 percent) than coal did (30.3 percent). Coal once generated half of the country’s electricity, but natural gas and renewable energy are eating away at that dominant position.
Lower coal generation (due to shuttered coal-fired power plants) means lower coal consumption. That in turn means coal mining companies are going to have a bad year. Across the country, U.S. coal production is expected to fall by 75 million tons this year. That will lead to further mine closures.
Forecasting the future is impossible, and there is no doubt that the EIA projections will somehow get it wrong. For oil, in particular, estimates about prices are almost useless, as geopolitical events (Greece, China, Iran) overwhelm what appear to be simple supply and demand figures. Still, the projections at least offer a baseline against which we can compare different policies and geopolitical scenarios.
18 Comments on "EIA Confirms: U.S. Oil Production Peaked"
BobInget on Mon, 13th Jul 2015 10:29 am
Me, I’m looking at consumption.
If China’s consumption Rate Slows panic ensues. Never mind China still burned up more crude then any previous month or year.
What India, world’s fourth biggest consumer does seems to be of little or no interest.
Everyone knows but fails to acknowledge,
the world’s military remains the single biggest oil consumer.
For security reasons most nation’s military never publish consumption levels.ume more oil.
Here’s a list of current military actions;
USA: https://en.wikipedia.org/wiki/United_States_military_deployments
The world:
https://en.wikipedia.org/wiki/List_of_ongoing_armed_conflicts
I was shocked to see Mexico, a net oil importer, ranked second only to Syria
in conflict related deaths. Yet, most war related refugees are coming to the US from Central America,
My guess, today, because major conflicts are centered around African and Mideast oil exporting nations, exports are being impacted by consumption.. duh
If Saudi Arabia is going for broke they may get there sooner then we think.
Plantagenet on Mon, 13th Jul 2015 10:47 am
Good news from the EIA. If US oil production continues to fall, and consumption continues to grow, then the oil glut will end in late 2015 or 2016. On the other hand, if Iran gets the green light to export, then much more oil will be dumped on the market.
CHEERS!
penury on Mon, 13th Jul 2015 11:06 am
Lovely charts, fine hyperbole, and the usual prognostications. My forecast is- they are wrong.
joe on Mon, 13th Jul 2015 11:11 am
Probobly a slowing of mining activity of tough oil would right, after it was high price which stimulated it, low should kill it. Saudi though is squeeling with pain as it pumps like mad, fights a war and is more socialist than the USSR was. Higher prices will come, but the cost will be another credit crunch. Can anyone say ‘bumpy plateau’.
Nony on Mon, 13th Jul 2015 11:22 am
No! My beautiful US LTO. My shale wickedness. It’s meeeeeelting.
antaris on Mon, 13th Jul 2015 12:01 pm
The Wicked Witch of the West is melting?
coffeeguyzz on Mon, 13th Jul 2015 1:07 pm
Should anyone even topically apply basic math to the operational sector, some interesting perspective may emerge.
With over 900 wells in the Bakken already drilled and simply awaiting frac’ing, there is a near million barrel capacity waiting in the wings for higher pricing. This million barrel figure is derived from a 1,000 bbl/day IP rate.
This ongoing stream would be in ADDITION to the over million barrel/day currently produced.
The Eagle Ford inventory of DUCs is subject to some debating, but generally recognized at about half of North Dakota’s.
Combining Ohio’s Marcellus/Utica wells with Pennsylvania’s that are already drilled but not producing, the current figure is about THREE THOUSAND. (7,500, approximately, are producing from both states.
Stories and headlines that broadcast any lessening of hydrocarbon output that omit this backup in production are apt to be grossly misleading.
Boat on Mon, 13th Jul 2015 2:37 pm
coffeeguyzz…. warning you will soon be called a cornie. Truthsayers are treated like whistle blowers because it’s gonna crash this year like the last 15. Lets add the 1.5 bill Iran could throw in. Added production from Iraq. Possible added production from Libya. Nigeria is lowering their price because they can’t find a market. And lets wait and see how low oil can go before it scares off all the fracking. Looks like low oil for some time to me. And let’s see when oil prices climb after demand catches up to supply. How long and at what price point will frackers to jump back in. Can we avoid $85 oil for a decade?
Nony on Mon, 13th Jul 2015 2:58 pm
Too generous a prediction, Coffee. See here, for expected production in first three months.* You are looking at something around 350 bpd.
http://peakoilbarrel.com/the-eias-short-term-guessing-game/comment-page-1/#comment-526235
And then the backlog presumably will have worse quality wells than average. Will be some duds in there; will be some recent ones that did not justify completion work because of being lower producers.
*The first month is about half because of starting in the middle of the month; also bit more cleanup.
Nony on Mon, 13th Jul 2015 3:08 pm
Also, some of the fracklog is unavoidable (just normal time delta). Maybe 400 wells or so.
Nony on Mon, 13th Jul 2015 3:12 pm
600 wells at 300 bpd would give you something more like 180,000.
SugarSeam on Mon, 13th Jul 2015 3:43 pm
Even if they’re waiting on prices to return, isn’t the meter still running on those leases?
Dredd on Mon, 13th Jul 2015 3:59 pm
The more important peak is peak sanity (The Peak of Sanity – 10).
It was reached long ago near the beginning of the criminally insane epoch (The Criminally Insane Epoch Arises – 4).
coffeeguyzz on Mon, 13th Jul 2015 4:05 pm
Nony
Valid points, for the most part.
Strictly speaking, should 900 wells put out 1k barrels first 24 hrs, one obviously has 900k.
Ongoing production would not hold, but Enno’s excellent graphs do not account for the choking back on many post Nov. 2014 wells due to pricing. The monthly decline (coupled with fewer producing days) can only be seen by observing production results on a well-by-well basis. This info is available with the monthly subscription from the ND DMR. The choking back is not declared, but its obviousness (50/70% abrupt declines) can be seen. While I have not gotten around to getting that subscription, nor – frankly having the time to pore over the data – others, such as Bruce Oksol do, and their reporting on these actions can be most informative.
BTW, the somewhat unexpected increase in this last month’s reporting may very well be from higher output from these wells ‘opening up’ a bit.
And, yes, using 600 wells versus my stated, accurately, that 900 (actually 925) DUCs is more reaistic. The number, however, is still valid.
coffeeguyzz on Mon, 13th Jul 2015 4:27 pm
Boat
I am very proud to be considered an Uber cornucopian … and that extends to the ongoing technological advances in the renewable energy fields. (Graphene may yet prove to be the most wondrous of materials, and its applications in batteries, power storage/trsnsmission, desalination amongst its potential uses is barely starting to be implemented.)
Sugarseam
In North Dakota, virtually all (95%+?) the acreage that was leased by the E&P guys now has at least one producing well on it and is considered Held By Production (HPB).
Essentially, as long as there is SOME hydrocarbon flow (and royalty money paid to mineral rights owner), the wells can sit there indefinitely.
In the Marcellus, things are a bit different as most of the leases were for 60 months with qualifying extensions – such as a well is drilled but lack of takeaway prevents production.
Even at that, there are about 15/25% of lands in PA and Ohio that owners were paid bonuses (1k/3k per acre five years ago and operators have simply been unable/unwilling to drill wells due to economics and the vast acreage involved.
A very fluid situation, to be sure.
ERRATA on Tue, 14th Jul 2015 11:48 am
http://www.zerohedge.com/news/2015-07-14/multi-trillion-dollar-oil-market-swindle
“Add the worldwide equity market caps of oil and oil related equities and debt you have a scandal that is in the trillions; a number that cannot be ignored.”
“… it’s clear that if the numbers are correct below, the perceived oversupply wouldn’t exist at all. “
joe on Tue, 14th Jul 2015 3:48 pm
This fraklog will only go to pay debt. Its not really that profitable, if it was very profitable then Shell or Exxon or some other company would be in there. This ‘frontier’ oil company stuff is delievering oil in large amounts but its function in the market is not conventional. Therefore banks will fund this as long as they can deliever profit above the interest rates.
The FED is causing the fraklog, and when it raises its rates, then the fraklog will stay in the groud and the ‘frontier’ drillers will file chapter 11. As long as there is a fraklog these companies have a business, if they get that oil then they have no assets, and good luck to em getting a loan in 2 years, I hope they do, but if oil is 50-70, they wont be able to affort the profit margin demanded by the banks.
coffeeguyzz on Wed, 15th Jul 2015 7:39 am
Joe
Exxon, through its wholly owned subsidiary – XTO – is not only operating in virttually all the shale plays, it us about the biggest producer of natgas in the USA.
Shell has drilled several successful wells in the Utica formation, recently leased several tens of thousands of acres in northeast Pennsylvania, and us on the verge if announcing the building of a $5 billion ethane cracker in Butler county, Pa.
ConocoPhillips, Chevron, Hess, Statoil, BHP are all major players in virtually every major shale play in Canada/USA.