U.S. shale growth will plateau in 2021: Report

Nov. 07-- Nov. 7--U.S. shale oil growth is slowing and will effectively plateau in 2021 after years of accelerated activity, according to a report released Wednesday.

The growth in shale oil production is expected to fall sharply, according to the report by the global research and consulting firm IHS Markit. In 2018, oil and gas companies increased output by a record 2 million barrels a day. That growth is expected to slow to less than 500,000 barrels a day next year and then level out in 2021, the report said.

Some modest growth could continue after 2021, but only at more muted levels unless oil prices rise considerably.

"Going from nearly 2 million barrels per day annual growth in 2018, an all-time global record, to essentially no growth by 2021 makes it pretty clear that this is a new era of moderation for shale producers," said Raoul LeBlanc, IHS Markit vice president for North American shale. "This is a dramatic shift after several years where annual growth of more than 1 million barrels per day was the norm."

As Wall Street and banks have soured on the energy sector, shale firms have lost access to capital, forcing them to scale back and live solely on the money that their operations generate. Years of growth, debt accumulation and limited returns have pushed companies to reduce their spending and activity levels this year and likely next.

The new report came on another tough day for oil prices. The U.S. benchmark for oil fell by 88 cents on Wednesday -- down to $56.35 per barrel -- after the U.S. Energy Department said the nation's stockpiles of commercial crude oil spiked by nearly 8 million barrels last week. The dip in crude prices followed several days of increases driven by news of potential easing of the ongoing trade war with China.

Total U.S. crude oil production is continuing to hold steady at a projected 12.6 million barrels a day, a record.

With the U.S. benchmark for oil expected to stay in the $50 per barrel range well into 2021, IHS Markit forecasts capital spending for shale drilling and completions to fall by 10 percent to $102 billion this year, another 12 percent to $90 billion in 2020 and by 8 percent to about $83 billion in 2021 -- a nearly $20 billion decline in annual spending over just three years.

"It all represents the strongest headwinds for shale producers since the oil price collapse in 2015," LeBlanc said. "This time around, capital markets are skeptical and wary, and the scope for further productivity gains is limited."

If oil prices rise above $60 per barrel and stay in that range, and shale players prove their financial success, then the industry could see a resurgence in the years ahead, according to IHS Markit.

"There is certainly ample inventory of high-quality wells out there," LeBlanc said. "The question becomes, what are the new conditions for growth? The answer is that now the trajectory of production depends almost entirely on the oil price."

jordan.blum@chron.com

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