America’s energy dominance could be coming to an end as the country’s shale industry is experiencing steep production declines. Rarely do we hear President Trump these days touting shale jobs and production output, mostly because the industry has entered a bust cycle.
Matt Gallagher, CEO of Parsley Energy, a top 20 producer in Texas, spoke recently with the Financial Times and said crude output of 12 or 13 million barrels per day is over:
“I don’t think I’ll see 13m [barrels a day] again in my lifetime.
“It is really dejecting, because drilling our first well in 2009 we saw the wave of energy independence at our fingertips for the US, and it was very rewarding . . . to be a part of it,” Gallagher,37, said.
Us Crude Oil Production
The shale bust of 2020 is an ominous sign of America’s energy dominance is over. Crude output will continue to wane this year and likely into next. The lack of shale profitability, mainly due to West Texas Intermediate (WTI) prices sub-$40 per barrel won’t be enough for highly indebted shale companies to survive.
We’ve pointed out the shale industry could be on the verge of destruction due to the sharp decline in demand and plummeting energy prices brought on by coronavirus pandemic. So far, bankruptcies in the shale patch are accelerating to levels not seen since the first half of 2016.
Another significant driver of lower production levels is a halving of rig counts due to collapsing price and demand; rigs dropped from 539 in mid-March to 258 last week.
“Tight oil production will decline by 50% by this time next year. As a result, US oil production will fall from to less than eight mmb/d by mid-2021,” we noted via Arthur Berman via OilPrice.com.
The combination of the Saudi-Russia oil price war and the virus pandemic has been nothing but disastrous for shale companies. These two factors forced Gallagher earlier this year to shut down wells and slash spending.
He said the recent oil-price crash was “hands down” the worst ever. In April, WTI prices dove below the zero mark for the first time in history due to oversupplied conditions triggered by virus-related lockdowns.
WTI May contracts dove into negative territory in April.
Gallagher said car and air travel demand has slumped – which could result in oil production stabilizing around 11 million barrels per day. He said producers would focus on maintaining output, not increasing it.
Gallagher concluded the interview by saying hundreds of thousands of jobs depend on the shale industry, adding that activity levels for the industry will be “dramatically lower for a long time.”
Slumping crude production is more bad news for the stock market…
Contrary to Larry Kudlow’s constant touting of a “V-shaped” recovery – this is more bad news that deep economic scarring from the virus pandemic will result in years of high unemployment and sub-par economic growth. And it now appears shale has lost its energy dominance in the world.