Feds Predict Oil Boom Will Peak in 2016 (marcellus.com)

WASHINGTON — The U.S. oil boom is set to peak in 2016, giving the nation a brief taste of much-touted abundance before production starts declining, according to a federal forecast released Monday.

The nation’s crude output is expected to crest around 9.5 million barrels per day in 2016 — just shy of the United States’ record-setting yield of 9.6 million barrels daily in 1970 — according to the U.S. Energy Information Administration’s latest annual outlook.

But analysts at the agency, the Energy Department’s statistical arm, expect domestic oil production will then level off, eventually beginning to taper in 2020.

Even then, the U.S. will produce at least 7.5 million barrels of oil per day through 2040, the agency said — a big shift from production that slumped to 5 million barrels daily as recently in as 2008 — and natural gas production will continue to rise.

The mostly rosy forecast says that despite advancements in horizontal drilling and hydraulic fracturing that have helped reverse years of declining U.S. oil production, the trend may not continue indefinitely.

Industry leaders are more bullish, and discounted the Energy Information Administration’s prediction of declines lurking just beyond a three-year horizon. The same kind of technological innovations that have been propelling U.S. oil and gas production could yield new discoveries and new methods for extracting the fossil fuels in the future, they said.

“A combination of price, technology and new areas has pushed away fears of shortage,” said Daniel Yergin, vice chairman of the research group IHS. “It’s not over. Technologies will continue to advance capabilities and widen opportunities.”

10-year cycles

Oil drilling hotbeds include the Bakken and Three Forks shale formations in North Dakota and the Eagle Ford Shale and Permian Basin in Texas, which yield some natural gas along with the crude. In the Marcellus Shale stretching across Pennsylvania, Ohio and New York, natural gas and natural gas liquids are the focus.

Other promising shales in California and New York have yet to be tapped aggressively, said Chris Faulkner, CEO of Irving-based Breitling Energy.

“As these new plays are discovered, they have cycles of 10 years or more. You’re not going to drill all this stuff out by the end of a decade,” Faulkner said. “Things happen quickly, but not that quickly that we’re going to drain all these reserves and be beyond a peak and be coming back down.”

As to natural gas, the energy agency anticipates that production in the U.S. will climb at least through 2040 — helped both by geologic fundamentals and the relatively lower cost of extracting the fuel. Gas production is forecast to reach 37.6 trillion cubic feet annually by 2040, up from 29.5 trillion cubic feet last year.

Policy debates

The government’s predictions are sure to drive two big policy debates in the nation’s capital, where lawmakers and the Obama administration are grappling with thorny questions about how much of the United States’ oil and gas bounty should be sold overseas.

The oil industry has been stepping up its calls for the nation to reverse a three-decade ban on crude exports, in light of the new domestic production. And Energy Secretary Ernest Moniz last week said it might be time to reassess the issue.

The Energy Department already has granted five licenses to export liquefied natural gas to countries that do not have free trade agreements with the United States. But the new Energy Information Administration predictions could color the department’s decisions on nearly two dozen more pending export applications.

Critics in Congress and the manufacturing sector want the Obama administration to slow down on natural gas exports and consider the new data before granting any more, lest the foreign demand hike domestic prices.

Energy Department officials have said they will use new market data to reassess their assumptions about exports, including possibly revisiting a 2012 study’s conclusion that the U.S. will claim big economic gains from the foreign sales.

In a research note to clients, Washington analysis firm ClearView Energy said because the new report revises natural gas price projections upward, the forecast could support a pause in permitting while the Energy Department reviews the issue.

The energy information agency expects U.S. exports of liquefied natural gas will climb to 9.6 billion cubic feet per day before 2030 and then remain at that level through 2040.

The industrial sector and power utilities will drive up natural gas demand. The agency expects electricity generated from natural gas to surpass coal-based power for the first time around 2034.

Article Author: Jennifer A. Dlouhy

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