U.S. shale likely to dominate through 2025

Shale, deepwater and oil sands will drive the majority of production growth in the next 35 years, according to an EIA study. Problem is that will require tremendous amounts of capital.

Tight oil, oil sands and deepwater offshore benefited from steadily rising investment before the downturn, and accounted for about 30% of all upstream investment in 2014. This investment paid off, as production from such plays grew by 4 MMBOPD from 2010 to 2014.

However, the oil price crash caused such investments to fall sharply. Global investment in these projects dropped from $280 billion to $126 billion in just two years, and while spending has risen somewhat in 2017 and 2018 expenditures are far below pre-downturn levels.

The EIA did not estimate how much money will be spent on these three sectors in coming years, but according to the CEO of Aramco the oil and gas industry will need to invest $20 trillion over the next 25 years to meet demand growth.

Future Production Growth – Here’s Where It’s Coming From

Combined production will grow by about 9 MMBOPD through 2040

Even with lower oil prices, however, tight oil, oil sands and deepwater drilling are expected to account for most oil production growth in the next few decades.

Their combined production is expected to rise from the current 12.2 MMBOPD to about 21 MMBOPD, and will account for about 25% of total global oil output.

Future Production Growth – Here’s Where It’s Coming From

U.S. shale likely to dominate through 2025

Based on the activity since the downturn, shale is likely to show the largest growth from now to 2040. The EIA estimates total tight oil will production will rise by 3.3 MMBOPD in the next three decades. This estimate may well prove to be conservative, in the short term at least. Total U.S. tight oil production rose by 1 MMBOPD in 2017 alone. However, even though companies are generally predicting slower growth in 2018, but output is still expected to rise significantly.

The U.S. will receive the vast majority of tight oil investments in the near future, through at least 2025. Developing a shale play requires significant amounts of infrastructure and knowhow that is abundant in the U.S. So far, it has proved difficult for other countries to replicate the American shale renaissance.

However, if oil prices gradually rise investment in tight oil will become more global. The EIA predicts spending in international tight oil will produce significant production by 2030.

Deepwater: largest growth will come from Brazil

Offshore and oil sands, on the other hand, will likely see limited investment for at least the next ten years. These resources are generally more expensive to develop, take longer to reach full production, and require additional infrastructure, which hinders investment in projects other than those already in development.

The United States and Brazil are expected to remain the most attractive countries for deepwater investment, because they already host the most experienced major international oil companies in deepwater development and hold the largest deepwater oil reserves.

Future Production Growth – Here’s Where It’s Coming From

Oil sands: investing in new development requires strong confidence in future oil prices

While oil sands projects can provide very stable production volumes, with decline rates far lower than conventional and unconventional wells, the massive upfront costs and long lead times mean oil sand investment requires confidence in future oil prices. This has been severely lacking since the downturn, and oil sands investment has suffered. However, there are large amounts of reserves available for development if prices rise and show stability. Canada has been the oil sands leader, but smaller deposits are found in Russia, the Middle East and in the U.S.

The EIA estimates that if Brent prices reach about $85/bbl, significant investment in oil sands will resume.

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