Unlike most producers outside the Organization of Petroleum Exporting Countries, the US "put up remarkably strong oil production growth of 7.1% in 2009" after "a nearly nonstop decline" for the past 3 decades, said analysts in the Houston office of Raymond James & Associates Inc.
A production increase of some 320,000 b/d—"60% of the net growth or 41% of the gross, predecline growth"—came from "one-time items" such as post-hurricane recovery in the Gulf of Mexico and the first full year of production from Thunder Horse, the world's largest deepwater development. "The rest of the growth (which should be more sustainable) came from more structural and organic drivers, including strong growth in deep water, the Bakken [shale], and rising onshore natural gas liquids volumes. Since only the second category represents growth that can be sustained for more than a few years, we see low single-digit annualized growth in oil production as the most that the US can realistically achieve over the next 3 years," Raymond James analysts said.
US oil production may continue to grow on "a steady-state" basis for a few years. "But even under a very optimistic scenario it won't be anything close to the 7.1% growth rate of 2009. Low single-digit annualized growth is the most we can envision for the next 3-5 years. Our 'best guess' scenario is that production will grow around 200,000 b/d for the next 2 years and then flatten after that," said Raymond James analysts.
Raymond James currently projects 3.4% growth in 2010-12, followed by 1%/year declines thereafter. "While the US most likely won't go back to its steep historical declines anytime soon, it's unrealistic to expect future growth to be anything close to 2009 levels. As a result, the US shouldn't be a major factor (either positive or negative) for future changes in non-OPEC production, which means non-OPEC is still set to decline over time," the analysts said.
Earthquake impact
The massive 8.8-magnitude earthquake that rocked Chile Feb. 27, killing hundreds and triggering a tsunami, also forced the shutdown of the two largest of Chile's three refineries, accounting for more than 220,000 b/d of capacity.
That had little effect on energy markets when they opened Mar. 1. But the two refineries are the largest producers of diesel in Chile, which is the fourth-largest oil consumer in Latin America. Olivier Jakob at Petromatrix, Zug, Switzerland, said, "In the first half of 2008, Chile was instrumental in the support to the distillate cracks as it was sucking cargoes of gas oil to answer the power generation deficit generated by drought. If the refineries have suffered some damages in the earthquake, this could result in some incremental demand and could help the US Gulf [Coast] refineries to place unwanted cargoes of distillates. Developments and damage assessment in Chile will need to be monitored for their potential support to the distillate market."
The refineries apparently sustained greater damage than Chile's copper mines, which were further from the epicenter. Nonetheless, one fifth of its copper production was suspended. Chile is the world's largest producer of copper. Prices for that commodity rallied 5% to the highest levels in 5 weeks in futures markets Mar. 1.
Gas production declines
The Energy Information Administration reported a sequential decline in US natural gas production from the Lower 48 in December, down 500 MMcfd to 62.82 bcfd despite weather-related well freeze-offs that affected production. Wyoming and New Mexico declined by 200 MMcfd each while Texas reported a 100 MMcfd production decline. Louisiana reported only 0.9% month-on-month production growth, lowest since the beginning of last year.
"Since peaking in February 2009, the US Lower 48 production was down only by approximately 760 MMcfd or nearly 1.2% by yearend 2009," said Pritchard Capital Partners LLC, New Orleans. "As we anticipated, the EIA data further indicated that natural gas supplies are holding firm. We believe that the EIA-reported supplies figures would continue to show resilience as more E&P firms probably brought drilled but uncompleted well inventory online to time the pricing support over winter," the analyst said.
Raymond James analysts, meanwhile, said, "The December supply datapoint is the cleanest we have had in the past couple of months." They see gas prices as "likely headed lower this year."
(Online Mar. 1, 2010; author's e-mail: [email protected])
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