IPAA: U.S. OIL FLOW HEADED FOR FURTHER DECLINE

U.S. crude oil production is in the midst of a long slide that will dip to less than 6 million b/d by the end of the century. The Independent Petroleum Association of America's supply/demand committee forecasts U.S. production of 5.7 million b/d in 2000, off about 1.6 million b/d from 1990 and 3.3 million b/d from the 1980s peak achieved in 1985. U.S. crude oil flow hit its all time high in 1970 at 9.637 million b/d. Production has fluctuated a bit since then, but the trend has been down

May 13, 1991

7 min read

U.S. crude oil production is in the midst of a long slide that will dip to less than 6 million b/d by the end of the century.

The Independent Petroleum Association of America's supply/demand committee forecasts U.S. production of 5.7 million b/d in 2000, off about 1.6 million b/d from 1990 and 3.3 million b/d from the 1980s peak achieved in 1985.

U.S. crude oil flow hit its all time high in 1970 at 9.637 million b/d. Production has fluctuated a bit since then, but the trend has been down at an average rate of 1.4%/year, or 115,000 b/d/year.

Meantime, the IPAA committee said in its first long range outlook, U.S. total petroleum imports will rise to 11.1 million b/d in 2000, up about 3 million b/d from 1991. By 2000, total imports will meet 60% of domestic petroleum demand compared with 47% in 1991, the committee told IPAA's midyear meeting early this month in San Diego.

Short term, the committee projects another slump in U.S. crude oil production this year but at a slower rate than in recent years.

Production this year will average 7.262 million b/d, down less than 1% from 1990. The drop of only 39,000 b/d is far less than declines of 312,000 b/d in 1990 and 527,000 b/d in 1989.

The main reason for the slower decline this year is an expected increase in production from Alaska. Oil flow from Alaska's North Slope was constrained by maintenance work in Prudhoe Bay field and on the trans-Alaska crude oil line last year. In addition, hydraulic fracturing is buoying North Slope production this year.

Natural gas production will slip a little less than 1% to 17.345 tcf this year. That's because of decreased consumption and increased imports, mostly from Canada, which will advance by 50 bcf, although LNG imports also will move up 8 bcf to 100 bcf.

MORE OUTLOOK TO 2000

On other long range matters, IPAA's supply/demand committee said U.S. oil demand will rise at an average rate of less than 1%/year during the 1990s. Competition among fuels and continued efficiency gains will keep a lid on the growth rate.

U.S. oil demand showed little growth during the 1980s, largely because of conservation in response to oil price increases and compliance with the federal government's Corporate Average Fuel Economy standards for vehicles.

Utilization rate for U.S. refineries will be slightly higher than in 1990, the committee predicted.

Department of Energy figures peg the 1990 average monthly utilization rate at 87.27%, flat with 1989's 86.28%. High point for 1990 occurred in July, when utilization climbed to 92.6%. Average monthly utilization did not top 90% in 1989, DOE data show.

The IPAA committee forecast continued growth in U.S. natural gas use during the 1990s, rising to 22 tcf/year by 2000.

Most of the growth will occur in the electrical power and industrial markets. Construction in the utility sector will favor gas because of things like requirements of the Clean Air Act (CAA). And natural gas will be the fuel of choice for projects in which short lead times are critical.

The U.S. will see an average rise of 1.1%/year in its natural gas flow, which will reach 19.1 tcf/year by 2000. Coalbed methane and other sources based on improved technology will contribute an increasing share of production.

Imports will climb to 3 tcf/year by the end of the century.

Real economic activity, as measured by inflation adjusted gross national product, will increase by an average 2.4%/year to 2000, plus or minus 0.25%, the supply/demand committee said.

And inflation, as measured by the GNP implicit price deflator, will average 3.9%/year in the 1990s, plus or minus 0.5%. The pace of inflation will quicken during the decade.

The rate of growth in U.S. total energy demand will slow in the 1990s, the committee said. The energy/GNP ratio will continue to reflect gains in efficiency and reduced energy intensity. Energy demand will grow at only half the rate of economic growth during the decade.

In recent years, oil and natural gas have lost market share to coal and nuclear power. But this trend will turn around during the 1990S. That's because construction programs for large nuclear and coal fired power plants are winding down, and use of existing coal fired plants and construction of new ones will be reined by the CAA.

In addition, hydroelectric potential is limited by lack of development opportunities.

THE 1991 SCENE

Preliminary figures showed U.S. crude oil production of 7.507 million b/d in first quarter 1991 was up from year ago levels for the first time in 5 years (OGJ, Apr. 29, p. 76).

However, the supply/demand committee does not regard that as a trendsetter for the rest of 1991. By the fourth quarter, production will slip to an average 7.102 million b/d, down from 7.348 million b/d in fourth quarter 1990.

Crude oil production in the Lower 48 will continue to decline but at a slower rate because of improved recovery methods and horizontal drilling.

Domestic demand for petroleum products will slip less than 1% in 1991, the second straight year of decline. Demand hit a recent high of 17.325 million b/d in 1989. Record high demand occurred in 1978--18.847 million b/d. In reaction to higher prices, demand fell as low as 15.231 million b/d in 1983.

Motor gasoline demand will be down for the third straight year because of a moderation in fuel efficiency gains, a sluggish economy, declining sales of new cars and trucks, and fewer miles traveled.

Aviation fuels consumption will slip, too, as a result of less business and vacation travel.

Residual fuel demand will fall 3.7% this year after a 10.6% drop in 1990. Price competition with natural gas and coal in power generation will depress demand.

By contrast, demand for distillate fuel oil will move up, mostly in the transportation sector. Distillate demand last year fell 4.3% due to warmer than normal weather and the recession.

The gap between petroleum supply and demand will change little from 1990. imports of crude oil and petroleum products will rise a scant 0.2% or 15,000 b/d. They will meet 47.2% of demand in 1991, compared with 46.9% last year.

Natural gas consumption will fall slightly because a sharp, recession induced drop in industrial use will more than offset an increase in residential, commercial, and electric utility sectors.

Gas imports will climb to a record volume of more than 1.5 tcf this year. The increase in imports from Canada will include additional gas moving into New England late in the year. Canadian imports will advance 3.5% to 1.463 tcf.

The committee expects the U.S. economic downturn to continue through second quarter 1991. Real gross national product will bottom out at that time, then begin to turn up in the third quarter with continued growth in the fourth quarter.

On an annual basis, economic activity, as measured by real GNP, will be down 0.3%. As a result, total energy consumption will remain at the same level as 1990, or about 81.44 quadrillion BTU.

Energy from petroleum will fall to 33.45 quads, down 0.6%, and energy from natural gas will dip 0.5% to 19.32 quads. However, they will still represent 64.8% of total U.S. energy consumed in 1991,

The committee does not expect to see a lot more fuel switching in 1991. Most of the industrial and utility customers able to switch from oil to gas have done so and probably will not be induced to switch back soon.

1990 WELL COSTS

IPAA's petroleum cost and finance committee said its index of the cost of drilling and equipping U.S. wells showed declines of 6.9% in cost per foot and 4.5% in cost per well for 1990. It was the second consecutive year of drilling cost index decline.

The index for payments to drilling contractors showed a 14.7% drop in 1990, following a 4.7% decline in 1989. The index for purchased items posted a 4.8% increase in 1990, the same as in 1989.

Major increases in purchased items were in wellsite logging and monitoring, up 18.2%, and fuel, up 17.2%. The only decrease was for wellhead equipment, down 0.5%.