If oil prices remain at or above $100 per barrel, it could unleash up to 2.2 million barrels per day (bpd) of US tight oil, driven by rising demand and continued supply tightness, according to a Rystad Energy analysis.
Tight oil output in the core producing regions of the US, including the Permian, Eagle Ford, Niobrara, Bakken and Anadarko, reached around 7.7 million bpd in the fourth quarter of last year, the agency said, noting this level is still short of the pre-pandemic levels.
According to the analysis released on Monday, production in these regions is expected to surpass the 2019 high of 8.1 million bpd by the second quarter of this year and expand further if a supercycle materializes.
“If oil prices reach and remain around $100 per barrel, total production from these core regions would hit 9.9 million bpd by the fourth quarter of 2023, marking a 2.2 million bpd surge from the same quarter in 2021,” it said.
High oil prices are encouraging operators to increase production as supply from sources outside the US remains tight.
Concerns over the impact of COVID-19 globally are fading, and countries are removing or relaxing restrictions, resulting in a surge in demand for oil that the current supply would struggle to meet. Geopolitical uncertainties in major exporting countries are also worsening, threatening to disrupt trade flows in an already constrained environment.
Total unconventional output – including oil, gas and natural gas liquids (NGL) – from these core US oil regions has already returned to pre-COVID-19 levels, totaling around 15.6 million barrels of oil equivalent per day (boepd) in the fourth quarter of 2021, Rystad said. They also predicted that total output will keep climbing and reach an all-time high of more than 16 million boepd by the end of March this year.
“Although high prices would, in theory, trigger a burst in tight oil production, acute supply chain bottlenecks, a lag between price signals and its impact on production, and winter weather-related disruptions will slow growth,” Artem Abramov, Rystad Energy’s head of shale research, was quoted as saying in the analysis.
Abramov said that added to this are expectations that spot sand prices will rise to a $50-$70 per ton range, which he said is a level unheard of in the industry’s modern history and will hit operators’ wallets in the process of shale oil extraction.
Rystad Energy further predicted that a price range between $70 and $100 per barrel would lead to a significant upsurge in output in the fourth quarter of 2022, while a prolonged run of $90-$100 per barrel would result in a further increase to the already recovering rig activity from the second quarter of 2022.
In a $40 scenario, the agency said production would return to 2021 levels by 2024.
Looking beyond 2023, the agency said that $100 West Texas Intermediate (WTI) would allow the industry to grow at a rate of about 960,000 bpd per year from the fourth quarter of 2021 to the fourth quarter of 2025. Rystad predicts that a world at $70 would still allow for a sustainable growth cycle, but the average annual rate would be limited to around 560,000 bpd
According to the agency, there is a marked change happening now in the Permian and some other basins, with industry sentiment becoming buoyant again. “Various supply chain bottlenecks might delay the uptick in activity, but they will not act as a complete showstopper as the industry has repeatedly demonstrated that all such bottlenecks get resolved in time.”
In a $70 scenario, supply from the lower 48 states is expected to trend towards 12 million bpd by late-2025, the agency said, adding that a sustained $100 environment would allow US onshore oil volumes to grow to 13.5 million bpd over the next four years.