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Bullish US tight oil production rise will slash imports

US tight oil production could soar to nearly 13 million barrels per day (b/d) over the next two decades, slashing its oil imports to almost zero from 2037

According to figures from the US Energy Information Administration (EIA) the country's tight oil production has risen from less than 1m b/d in 2010 to more than 3m b/d in the second half of 2013. The EIA expects this growth to continue over the next 20 years, which will, in turn, cause net US oil imports to decline until 2036, remaining at or near zero until 2040.

The figures are from the EIA's High Oil and Gas Resource case - a tight oil production and import forecast. The EIA's high scenario makes several assumptions. These include assuming there will be significant technology improvements over the next 20 years which will drive down costs and enable wells to be placed closer together.

In the high case scenario, the EIA expects total tight oil output to total 75bn barrels between 2012 and 2040. This is compared to total output of 44bn barrels, over the same period, in its reference case. Tight oil production will peak later in the high projection, at 8.5m b/d in 2035, compared with a peak production rate of 4.8m b/d in 2021 in the reference case.

The high forecast also assumes oil shale (kerogen) production in the lower 48 states will reach 135,000 b/d by 2025. The forecast does not include exploration or production activity in the Arctic National Wildlife Refuge.

The EIA also has a low production scenario which reflects key uncertainties surrounding the rate of technology advances and rates of well decline. In the low case, US tight oil production could reach just 9.1m b/d in 2017, before falling to 6.6m b/d in 2040. Total tight oil production between 2012 and 2040 would be 34bn barrels in the low case, a quarter lower than in the reference case. "As new information is gained through drilling, production, and technology experimentation, projections for tight oil production will continue to evolve," the EIA said.

US oil imports have fallen steadily since 2005 when domestic oil production began ramping up. Because of the large variations in the EIA's tight oil production scenarios, there is also a wide range between the high and low oil- import forecasts. In the EIA's reference case scenario, it expects the share of US oil consumption which will be met by imports to fall to 25% in 2016. This is down from around 40% in 2012.

It will then gradually increase from 2020, reaching 32% of US oil consumption in 2040. In the low case, import dependency will fall to 27% in 2016 and then rise to 40% in 2040. However, in the high case US net import dependence continues to decline until 2036, and it is at or near zero from then until 2040.

Meanwhile, the prospects for developing unconventional oil and gas outside the US are even more uncertain. Andrew Latham, vice president of exploration research at Wood Mackenzie, told a recent conference in Perth that 2014 will be the busiest year yet for unconventional oil and gas drilling. However, rising costs and taxes have eaten into industry cash flow and exploration in frontier unconventional plays is likely to fall in the next few years. Instead, operators are expected to focus on proven liquids-rich unconventional plays for lower-risk cash returns.

Latham said that while frontier exploration may attract less interest in the near term, Australia's established unconventional gas industry looks attractive when compared with other unconventional plays outside North America. "This year marks a change in exploration tactics, with the industry moving towards more valuable plays with higher returns," Latham said. "Although Australian basins are weighted towards themes of higher risk or longer timeframes, there are plenty of plays with quality exploration potential that remain appealing under the country's attractive and stable business environment."

Wood Mackenzie said there is now new interest in short-term opportunities, oil-rich plays and conventional exploration in emerging and mature basins, which provide an earlier return on high-risk capital.

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