Is the US shale boom starting to fizzle?

Today's post comes from a new report from Plastics News Research department: "Shale Gas Industry Review and Outlook 2015."

Reversing a trend that has lasted more than half a century, the federal government predicts the U.S. will become a net energy exporter within 15 years, as the shale boom increases the production of crude oil and natural gas.

Despite the optimism, there are many industry leaders who question whether the U.S. shale boom will last. The recent decline in oil prices has left more questioning whether it can be sustained.

Through the first half of 2015, companies have been deactivating rigs across the country. The number of active rigs fell from 1,609 in October to 1,223 in January and some experts predict fewer than 1,000 will remain by the end of the year.

More than six months of declining oil prices, along with low prices for the Utica shale's natural gas, have turned things around — and turned the almost daily shale news from good to bad.

“There hasn't been a shortage of bad news for about the last two months now,” said Shawn Bennett, executive vice president and spokesman for the Ohio Oil and Gas Association.

Or, as another industry insider put it, anonymously: “This is really starting to suck.”

John White, a senior research analyst at Roth Capital Partners, said: “All the economics for shale exploration are being reset. There is going to be a much lower level of drilling activity.

“In the sweet spots of shale, drilling will continue, but you're going to see fewer wells drilled but more production per well.”

Still, the long-term impact of shale gas remains positive.

While oil prices currently remain week, if that continues and confidence in future prices remain volatile, U.S. production in 2016 could possibly flatten or even decline.

However, there are a number of possible scenarios that could shift the landscape over the next 12 to 18 months, including a recovery in oil prices, lower upstream costs and improved well productivity, all of which could quickly change the calculus of drilling new wells and reinvigorate U.S. production growth.”

In its Annual Energy Outlook, the U.S. Energy Information Administration (EIA) says advanced technologies are reshaping the nation's economy. The outlook includes predictions to 2040 and assumes a business-as-usual trend, with current laws and regulations going unchanged.

“With continued growth in oil and natural gas production, growth in the use of renewables, and the application of demand-side efficiencies, the projections show the potential to eliminate net U.S. energy imports in the 2020 to 2030 timeframe,” EIA Administrator Adam Sieminski said in a statement. ”The United States has been a net importer of energy since the 1950s.”

The EIA expects the country will also switch from being a modest net importer of natural gas, to a net exporter by 2017. By 2040, the agency expects gas exports to range from 3 to 13 trillion cubic feet, depending on a high or low resource scenario. The agency predicts dry natural gas production to continue to grow, with most of that growth coming from the Marcellus and Utica shales. This will cause a significant realignment of pipeline infrastructure.

The large supply of gas will also benefit the manufacturing sector with lower fuel prices. The agency expects consumption of natural gas and hydrocarbon gas liquids to increase by more than 50 percent by 2040. Most of that growth comes from an expansion in the petrochemical industry.

Renewable energy sources will also become more attractive in electric generation, according to the report, due to rising long-term natural gas prices, high capital costs of coal and nuclear power, slowing demand for electricity, and lower prices for renewables. The nation's energy-related carbon dioxide emissions are also expected to stabilize over the next 25 years and stay below 2005 levels, thanks to better energy efficiency and less carbon-intense electric generation.

Sieminski said current trends attest to the strength of America's energy revolution – fueling economic growth and increasing U.S. security in the world – and suggest the need for energy policies going forward that keep these trend lines going.

Providing a boost

According to Kyle Isakower, API vice president for regulatory and economic policy, the revolution in U.S. oil and natural gas production has provided an incredible boost to workers and consumers here in America.

“The latest federal forecast shows that U.S. production can remain strong, despite the downturn in prices, but an all-of-the-above energy policy will be critical to our competitive edge in the decades to come,” he said. “We need more energy – not less – especially as natural gas plays a rapidly growing role in America's energy mix and domestic oil production continues to replace imports.”

But the downturn has some industry insiders wondering how quickly can and will things rebound, and when might that happen? In recent months, companies have announced layoffs and drilling budget cuts.

Many who have been in the industry for much longer than the Utica shale has been in the news point out that the oil and gas industry always has been cyclical — if not sometimes swinging outright from boom to bust. It has happened before, most notably in the 1980s, but as long as people keep burning oil and gas, the industry always comes back.

If announced capacity expansions and other projects continue to be delayed or even put off, it could lead to difficulties for drillers looking to start back up in some shale plays. And it takes time to restart a drilling program, once it's stopped.

“It remains to be seen how long this downturn will last,” Bennett said. “You have some analysts saying it will be two years or more. It will take a year for the industry to get comfortable, back on solid ground and moving forward.”

Supply glut?

Overall, the shale oil boom appears to be slowing down due, in part, to a glut of supplies.

Oil output from the most productive U.S. shale fields was expected to drop off in May by 57,000 barrels of crude daily from April to May, the U.S. Energy Information Administration said. It would be the first monthly decline in more than four years.

The EIA forecasted that the seven shale formations — Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica — would produce a total of 5.56 million barrels of crude oil daily in May, down from 5.62 million barrels per day in April. While the most productive formation, Permian, was to see slightly higher output — by 11,000 barrels per day, to 1.99 million — output at the next-highest producer, Eagle Ford, was expected to drop 33,000 barrels daily while Bakken's output was to decline by 23,000 barrels in May.

Today's post comes from a new report from Plastics News Research department: "Shale Gas Industry Review and Outlook 2015." The lead author of the report is Plastics News senior reporter Frank Esposito. For more information on PN reports, go to PlasticsNews.com/store.