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Analyst: US unconventional liquids production could mean zero net oil imports

Analyst: US unconventional liquids production could mean zero net oil imports

2012-05-25


Production from unconventional liquids plays could result in the US becoming independent from oil imports before 2020, an analyst told attendees at an International Association of Drilling Contractors conference on onshore drilling.

Marshall Adkins, managing director of energy research for Raymond James & Associates, told conference participants, “You guys have gotten too good at getting oil out of the ground, and we are going to see some issues.”

US crude oil production is rising in the face of declining oil demand, Adkins said. He credited horizontal drilling and multistage hydraulic fracturing in North Dakota’s Bakken formation and the South Texas Eagle Ford shale with reversing a nearly 40-year-long decline in domestic oil supply.

During 2011, US oil production reached 8.1 million b/d, he said. Raymond James expects to see US drilling activity slowing in 2013 and it forecasts a 3% reduction in the overall rig count during that year.

Adkins said oil prices now appear to be rangebound at $60-100/bbl. Raymond James forecasts an average 2013 price of $83/bbl on the futures market for West Texas Intermediate and $95/bbl for Brent crude.

“Rangebound means shorter cycles,” Atkins noted, adding, “We are going to see 3-5 year cycles of peak to trough now because of how we changed the industry in the US. The global oil market looks very bearish.”

The existence of rangebound oil prices indicates prices will fall enough to slow drilling in 18 months, he said.

Given current prices, Adkins believes the US will no longer be a net importer of oil within 6-7 years.

“The oil game will change over the next 5 years,” Adkins said. Raymond James’ model assumes there is no Iranian war, he noted.

Another possible variable would be possible restrictions from the US Environmental Protection Agency on drilling and production activity related to fracing, he said.

“The EPA is the single most dangerous agency in the US. Everything they do is allowed to bypass Congress,” Adkins said.

Regarding New York Mercantile Exchange natural gas prices, Adkins said prices could bounce from $2/MMbtu to $8/MMbtu, although he expects the NYMEX price will average about $4.50/MMbtu.

“US gas prices will be lower for longer, but we have probably seen the lows,” he said. “The exploration and production guys now are saying $4.50 is a good number.”

Producers in the Marcellus and Utica shales can make a good profit at that price, he noted.





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