U.S. shale production growth has outperformed even the most bullish forecasts, forcing OPEC and the International Energy Agency (IEA) to revise up American supply growth projections month after month.

The U.S. Energy Information Administration (EIA) also expects shale/tight oil to continue to grow in all possible modeled scenarios for the next four years, according to its Annual Energy Outlook 2018 published this month.

While the EIA is not predicting what will happen, it is modeling possible production scenarios under certain assumptions. Under one of those modeled projections—the Low Oil and Gas Resource and Technology case—the assumptions applied are lower resources and higher costs. In this model, U.S. tight oil production—including the plays Bakken/Three Forks/Sanish, Eagle Ford, Woodford, Austin Chalk, Spraberry, Niobrara, Avalon/Bone Springs, and Monterey—is expected to rise from 4.96 million bpd in 2017 to 5.59 million bpd in 2022, and then to start declining on a steady downward trend by 2050, when tight oil production is expected to be at 4.42 million bpd.

This is one of the side cases in EIA’s models, and one of the most unlikely, because it assumes no technological breakthroughs, lower resources, and higher costs. Under this model, total U.S. crude oil production is pegged at 9.14 million bpd this year, while figures are currently available, showing that production is already above 10 million bpd and likely to average more than 10.5 million bpd this year.

The Reference case scenario shows tight oil production jumping to more than 7 million bpd by 2025 and surpassing 8 million bpd in 2036, before starting to level off some time in the early 2040s. Total U.S. crude oil production in the Reference case is between 11 million bpd and 12 million bpd by 2050, “as tight oil development moves into less productive areas and as well productivity declines,” the EIA says.

Sure, longer-term projections are much more uncertain than shorter-term forecasts, and U.S. oil production will depend on many factors—oil prices, the pace of technological advances, costs, well productivity, and U.S. and global oil demand growth, to name a few.

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Moreover, the pace of the booming shale production over the next five years will also be determined by several factors that could limit the supply growth potential, which the EIA has not accounted for in its modeling, energy expert Robert Rapier writes on Forbes. These are midstream infrastructure constraints, the flaring of associated natural gas that has limits imposed, cost inflation, and shortage of fracking service providers that could potentially slow down growth over the next few years and could shift the timing of peak tight oil, Rapier argues.

Everyone agrees that shale will grow in the near term—even OPEC, which admitted in its World Oil Outlook 2017 that U.S. tight oil will grow at least until 2025 as “drillers seek out and aggressively produce barrels from sweet spots in the Permian and other basins.” OPEC sees U.S. tight oil peaking in the latter half of the 2020s.

Still, the shale growth rate will depend on how fast pipeline infrastructure can keep up with increased production.

Midstream companies will continue to pour billions of dollars into takeaway capacity infrastructure in the Permian, with each project worth around US$1 billion, for a total of tens of billions of dollars, Aaron Blomquist, managing director, investment banking with Tudor, Pickering, Holt & Co., told Midland Reporter-Telegram in an interview at the end of 2017.

The question is whether the rise in takeaway capacity will catch up with the surge in production.

U.S. shale growth will also hinge on how fast labor shortages or shortages of frac sand could be overcome.

In addition, growth will depend on whether drillers—who could soon start to test the Permian region’s geological limits—will be able to overcome the geological constraints with tech breakthroughs. If drillers can’t overcome the law of physics with technology, Permian production could peak in 2021, putting more than 1.5 million bpd of future production in question, and potentially significantly influencing oil prices, Wood Mackenzie has warned.

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The pace of shale growth will also be determined by the shift in investor sentiment toward drillers that gained momentum in the second half of 2017. Oil tycoon Harold Hamm issued a warning that U.S. producers won’t succeed if they “drill themselves into oblivion”. Now there is a shift from ‘grow at all costs’ to ‘make some profits for a change’, and companies are more focused on cash flow generation.

“Investors really want companies to generate good economics which, for the most part, means living within your means, spending cash flow or below cash flow and using any free cash flow to do something good for the shareholders, whether it’s pay off debt, buy back shares or even pay a dividend,” Robert Watson, chief executive at San Antonio-based Abraxas Petroleum Corporation, told North American Shale magazine’s Patrick C. Miller earlier this month.

There is no doubt that U.S. shale production will grow over the next three to four years. But there are many economic, geological, technological, corporate finance, and infrastructure factors that will set the pace for that growth, both in the short term and in the long run.

By Tsvetana Paraskova for Oilprice.com

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