RPT-UPDATE 2-Shale boom could bring record US oil output in 5 years-EIA

Mon Dec 16, 2013 10:39pm GMT

(Overwrites previous update. Adds factbox link. No changes to text)

By Sabina Zawadzki

NEW YORK Dec 16 (Reuters) - U.S. crude oil production, rejuvenated by the advent of "fracking" shale formations, will approach historic highs by 2019, the Energy Information Administration (EIA) said on Monday, raising its forecast to levels that would have been unforeseen just a few years ago.

The U.S. oil and gas industry has been a bright spot in recent years as the economy struggles to recover from a financial crisis and growth stagnation.

The energy renaissance has prompted some large U.S. oil companies to sell foreign assets and come home to focus on shale, leading to a upsurge of infrastructure projects. Cheap gas, meanwhile, has reinvigorated the refining and energy-heavy industrial sectors by lowering costs.

The EIA said production in the world's largest oil consumer will rise by 800,000 barrels per day (bpd) every year until 2016, when it will total 9.5 million bpd. By 2019 it will peak at 9.61 million bpd, nearly matching a 1970 record of 9.64 million bpd.

In 2019, domestic production of crude oil will account for 63 percent of total supplies, a significant increase from 2011 when it barely covered 38 percent of the country's needs.

The government agency's two-million-barrel-per-day upgrade from last year's report shows how production from tightly packed shale rock has consistently confounded analysts, as higher prices and rapidly evolving technology fuel growth.

The EIA increased its forecast for shale oil production and pushed back the year of its peak. It now sees production peaking in 2021, from 2020, at 4.8 million bpd, not 2.8 million bpd.

"One thing I am sure of: The technology and prices really, really matter when you look at what the likely production numbers for oil and gas are going to be," EIA Administrator Adam Sieminski told analysts. "It's not just trying to estimate what the resource level is in the ground."

The EIA is the statistical arm of the U.S. Department of Energy.

REVERSED FORTUNES

Just a few years ago, U.S. policymakers were considering the risks of an ever-rising dependence on imported fuel. The EIA itself barely mentioned shale oil in its 2010 outlook, focusing rather on offshore production growth.

Now policymakers are struggling to get to grips with a complete reversal of that equation. The government has begun approving more natural gas exports and may consider lifting a ban on crude oil exports.

Sieminski said the government may want to consider oil swaps with Mexico, if not a total elimination of the near-blanket ban on exports which was imposed after the 1970s Arab oil embargo. A mere 60,000-130,000 bpd leave the country, all for Canada under special licenses.

"They might want to look at the possibility of whether it would make some sense to allow the light sweet crude to go to refineries in Mexico that need that oil and have more sour crude coming from Mexico," he said.

Members of OPEC, including Saudi Arabia, are being forced to confront a trend they initially greeted with skepticism. The global oil cartel said in November it may lose 8 percent of its market share to shale in the next five years.

The EIA on Monday said OPEC's world market share would fall to below 40 percent in the near term but then recover after 2016. Last year it had expected OPEC's share to remain at 40-45 percent in the coming years.

The EIA maintained its view from last year that output will peak by 2020 and begin to decline. The sharp decline rates of most shale oil wells has fueled some skepticism of the long-term trend from a handful of geologists.

The EIA said the United States would be pumping 9 million bpd by 2025, a million barrels more than today, and 7.5 million bpd in 2040, above last year's 6.1 million bpd forecast.

Higher U.S. production will also help tamp down global benchmark Brent crude oil prices, which are now expected to fall to $92 a barrel in 2012 prices in 2017, before rising to $141 in 2040. Last year the EIA saw a fall of $96 in 2015.

GAS SLICKER THROUGH SHALE

U.S. oil and gas output reversed years of decline after companies learned how to drill long horizontal wells and hydraulically fracture shale rock to entice out oil and gas.

The EIA raised its forecast on natural gas production to 31.9 trillion cubic feet (tcf) by 2025 from the 28.7 tcf it had forecast last year, and to 37.6 tcf by 2040 against the 33.2 tcf touted earlier.

The 2040 total annual gas production number equates to just over 100 billion cubic feet a day from around 70 bcf/d now.

Natural gas output will increase steadily, growing 56 percent between 2012 and 2040.

"It turns out it's easier for natural gas molecules to squeeze their way through the (fractured) cracks than crude oil," said Sieminski. "The resource base in terms of the level of production that it would support for gas looks better at least at this point than it does on the oil side."

Natural gas exports will continue to rise. The country will become a net natural gas exporter two years sooner than the EIA had previously judged, in 2018, and a net exporter of liquefied natural gas (LNG) by 2016.

Imports of liquid fuels will fall to 25 percent of total U.S. consumption by 2016, far lower than the EIA's previous forecast of 34 percent by 2019, from 40 percent today. As oil output starts to fall, the share will increase to 32 percent by 2040, still lower than the 37 percent it expected a year ago.

Consumption of liquid fuels will rise to 19.3 million bpd in 2025, but then slip to 18.7 million bpd from 18.5 million bpd in 2012. Natural gas consumption will rise to 28.4 tcf by 2025 and to 31.6 tcf in 2040 from 25.6 tcf last year.

(Reporting by Sabina Zawadzki; Editing by Joseph Radford and Cynthia Osterman; Editing by Alden Bentley)

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