US oil output breaks record, but growth is stalling: EIA
Year-on-year growth in US oil output, which was averaging over 2.1 million b/d a year ago, has fallen by more than half as domestic production continues to break records, but at a significantly slower pace than 2018, new government data shows.
US oil output averaged a record 12.47 million b/d in September, up 965,000 b/d from September 2018, according to the latest US Energy Information Administration data. In September 2018, US oil production averaged nearly 11.5 million b/d, which was up about 1.99 million b/d from September 2017, according to EIA.
“Without a substantial oil price increase, we have likely hit peak growth even as peak production remains in the future,” said Jamie Webster, senior director at Boston Consulting Group’s Center for Energy Impact.
Year-on-year US oil production growth seemingly spiked in August 2018, when output averaged just over 11.36 million b/d, a more than 2.11 million b/d jump from August 2017.
US oil output increased nearly 1.64 million b/d from 2017 to 2018, but is on pace to rise an average of just 1.05 million b/d from 2018 to 2019, according to EIA data. Monthly year-on-year US growth has fallen below 1 million b/d in both July and September, EIA said.
Oil production in Texas, the US’ top oil producing state, averaged a record 5.23 million b/d in September, but that average output was up only 593,000 b/d from September 2018, the lowest boost in year-on-year oil output growth since October 2017. Output in North Dakota, meanwhile, averaged 1.4 million b/d in September, up just 58,000 b/d from September 2018, the lowest year-on-year increase since July 2017.
John Auers, executive vice president with Turner, Mason & Company, said he expects year-on-year production growth to slow to about 600,000 b/d from September 2019 to September 2020, with continued slowing through the end of next year before growth stabilizes in 2021.
Frank Verrastro, a senior vice president at the Center for Strategic and International Studies’ energy and national security program, said that some “below-ground” issues are contributing to the slowdown in growth, including frac hits and flowback issues and declining productivity of longer laterals in marginal areas, but “above ground” issues are always adding complexities to US producers. These include demand growth questions, trade issues and regulatory concerns, including potentially stricter flaring rules, Verrastro said.
Webster, with Boston Consulting Group, said there were multiple factors for the slowdown in oil output growth, including relatively weak prices and increases in labor costs. But, he said, the biggest change has been from the financial community.
“The shift from an internet-style company that was rewarded for growth, to a more traditional company that needs to return cash to investors, changes the dynamics considerably and effectively increases their cost of production,” Webster said. “We have already begun to see the shift toward the majors and, in the future, these will be the leading indicators.”
Similarly, Auers said that decreases in free cash flow and increasingly limited availability of outside capital to fund drilling and production activity, contributing to a 24% decline in oil rig counts in the last year, have contributed to the growth slowdown.
“While this is already showing up in the production numbers, it will show up even more over the next few months,” Auers said. “We do think this will lead to higher prices and a bit of a rebound post-2021.”