Surplus or Shortage? | Russell T. Rudy Energy LLC
“Rigzone” reports that before the shale revolution predicting oil supplies was much easier. Investment bankers, oil companies, consultants, etc. could look at current production, new projects in the pipeline, and factor in variables such as political risk in oil producing nations and get a pretty good idea as to future supplies. Conventional projects typically involved huge amounts of capital, long lead times, and stable production for relatively long periods. Consequently, when oil prices collapsed and capital budgets for major projects were cut to the bone, many analysts, such as the International Energy Agency and OPEC, predicted a drop in future production and accordingly, an oil shortage within the next two years.
Shale projects typically involve relatively modest capital outlays, can be brought on stream quickly and deplete rapidly. This enabled shale operators to react quickly to modest price improvements and bring new production on line and avert a shortage.
Rather than deal with a well-known number of big projects, analysts now have to contend with a large, and ever changing, number of smaller ones. Rather than consensus, we now have quite different forecasts from well-respected institutions.
For example, Goldman Sachs believes that the large number of new conventional projects, as well as shale related drilling initiated in response to recent price improvement, will lead to a substantial surplus by 2019. This is in spite of OPEC and its allies’ efforts to rein in production and reduce the current oil glut. In fact, Goldman contends that OPEC and friends will have to realize that any production cutbacks will be offset by a million barrels a day (bopd) of new output. This in turn would shrink the cartel’s market share.
Wood Mackenzie, Morgan Stanley, and others take the opposite view; Wood Mackenzie predicts a supply shortfall of 20 million bopd by 2025.
Morgan Stanley agrees with Wood Mackenzie and believes that any production surge in the U. S. will not disrupt the market’s rebalancing. Alternatively, it anticipates cartel production cutbacks resulting in significant inventory declines by the end of this year. UBS (Union Bank of Switzerland) sees the potential for a 4 million bopd shortfall by 2020.
Bank of America-Merrill Lynch notes that the collapse in global capital spending and rig counts do not indicate any sign of improvement outside the U. S. It sees this as an indication of a future shortage. In fact, the Baker Hughes rig count shows that the foreign rig count has only improved by 29 since reaching an 11 year record low last year of 666.
To read the article in its entirety, please go to http://www.rigzone.com/news/oil_gas/a/149152/Oil_Surplus_Or_Scarcity_Shale_Makes_It_Even_Harder_To_Predict/?all=HG2 .
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