United States sends message to competing oil producing countries: Catch Me If You Can

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Drillinginfo continues to expect long term price equilibrium to be $60/b for crude, $2.65/MMBtu for natural gas (US currency)

American energy abundance has brought a new game in the world oil markets, the U.S. is now the leading producer of natural gas and oil/petroleum products. In the latest installment of Drillinginfo’s FundamentalEdge series, Catch Me If You Can, takes a look at how the U.S. continues to produce higher volumes of energy despite weak prices.

U.S. production has surpassed Saudi Arabia to become the second largest producer of crude oil in the world. The rapid growth in production over the last several years comes on the back of great shale production economics.

If the U.S. continues to grow production as expected, it will likely surpass Russia to become the #1 producer of crude oil in the world by the end of 2018.

“As U.S. production grows, every incremental barrel will be exported, pushing out a previously foreign-supplied barrel,” said Bernadette Johnson, VP of market intelligence at Drillinginfo.

“U.S. market share will continue to grow and the combination of current price levels and low breakeven economics of US shale production will ensure that, by the end of the year, the US will be looking back at Saudi Arabia, Russia, and all other crude oil producing countries saying ‘Catch Me If You Can.'”

Even should cost increases occur, efficiency gains are likely to more than offset the impact on production, added Johnson.

In addition to record-setting oil and natural gas production, Drillinginfo’s latest analysis also covers historic weather averages and impacts to energy consumption, storage inventories, ethane rejection and recoveries, as well as industry returns/valuations.

Key takeaways from Catch Me If You Can:

  • The U.S. out produces domestic demand for oil and natural gas at about $55-$60 crude oil and $2.65-$2.75 natural gas. Therefore, exports of both commodities will be crucial to balance the markets.
  • Exploration and production costs will rise over the next few years, but technological and management innovation will help to offset the increases. The U.S. will not abandon its position as the low cost marginal supplier.
  • For NGLs, expected production growth continues to come from the Permian due to the superior economics along with proximity to market. The recent weakness in prices has been due to the lack of infrastructure, but moving forward slight gains are expected as crackers come online to support additional ethane recovery.
  • The industry keeps finding new apparently prolific gas fields – Mancos, Alpine High and the Austin Chalk, for example. As they develop, they hold the prospect of disrupting gas flows across the country and placing significant stress on existing infrastructure.

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