Best of the Week
Most Popular
1. Trumponomics Stock Market 2018 - The Manchurian President (1/2) - Nadeem_Walayat
2.Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - Dan_Amerman
3.China is Now Officially at War With the US and Japan - Graham_Summers
4.Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18 - Plunger
5.Stock Market Longer-Term Charts Show Incredible Potential - Chris_Vermeulen
6.U.S. Stock Market Cycles Update - Jim_Curry
7.Another Stock Market Drop Next Week? - Brad_Gudgeon
8.The Death of the US Real Estate Dream - Harry_Dent
9.Gold Market Signal vs. Noise - Jordan_Roy_Byrne
10.The Fonzie–Ponzi Theory of Government Debt: An Update - F_F_Wiley
Last 7 days
Rent Your House: The Ultimate US Real Estate Strategy - 21st Aug 18
US Economy Beholden to Fed Interest Rate Policy; Here's One Way Gold Could Reach $14,000+ - 21st Aug 18
Turkey Debt Crisis is Not Contained - 20th Aug 18
Surviving a Trade War in the Age of Trump and Brexit - 20th Aug 18
Stocks Get Closer to January's Record High, What's Next? - 20th Aug 18
London Eye Best Times to Visit for Shortest Queues - Tourist Tips - 20th Aug 18
What the Copper and Gold Crash Means for Commodities and Stocks - 20th Aug 18
Stock Market Challenging Recent High - 19th Aug 18
Venezuela's Great Bolivar Scam, Nothing but a Face Lift - 19th Aug 18
Heavy Truck Sales Sending a Bullish Sign for Stock Market - 19th Aug 18
Why Oil Prices Fell -- Stockpiles or Price Pattern? - 18th Aug 18
Why The Uranium Price Must Go Up - 18th Aug 18
Land Rover Discovery Sport 90% Motorway Driving MPG Fuel Economy in ECO Mode - 18th Aug 18
GDX Gold Mining Stocks Q2’18 Fundamentals - 18th Aug 18
SPX Losing Gains - 17th Aug 18
What Gold Is Not - 17th Aug 18
Dollargeddon - Gold Price to Soar Above $6,000 - 16th Aug 18
Stock Market Higher Again, Correction Over? - 16th Aug 18
Up Your Forex Trading Game - 16th Aug 18
Large Caps Underperformance vs. Small Caps is Bullish for Stocks - 16th Aug 18
“The Big Grab” - Failing Pension and Retirement System - 16th Aug 18
How US Indo-Pacific Vision Forgot Asian Development - 16th Aug 18
Impulse Moves in the Currencies - 15th Aug 19
Best Merlin UK Theme Park Summer Holiday 2018 - Thorpe, Alton Towers, LegoLand or Chessington? - 15th Aug 18
The Essence of Writing an Essay that Must be Understood - 15th Aug 19
Is Solar Energy Rising From The Ashes Again? - 15th Aug 18
A Bullish Bond Argument That Hides in Plain Sight - 15th Aug 18
Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - 15th Aug 19
A Depressed Economy And A Silver Boom - 15th Aug 19
Moving Averages Help You Define Market Trend – Here’s How - 14th Aug 18
It's Time for A New Economic Strategy in Turkey - 14th Aug 18
Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - 14th Aug 18
Dow Stock Market Trend Forecast 2018 - Video - 13th Aug 18
Stock Market Downtrend to Continue? - 13th Aug 18
More Signs That the Stock Market Will Rally Until 2019 - 13th Aug 18
New Stock Market Correction Underway - 13th Aug 18
Talk Cold Turkey Economic Crisis - 13th Aug 18

Market Oracle FREE Newsletter

Trading Any Market

Can The Shale Oil Boom Avoid These Bottlenecks?

Commodities / Shale Oil and Gas Feb 02, 2018 - 10:03 AM GMT

By: OilPrice_Com

Commodities

Shale companies continue to drill at a frenzied pace, adding rigs and breaking U.S. oil production levels with each passing week. Yet, the oil production is becoming increasingly geographically concentrated. Not only is the Permian basin accounting for much of the new oil production in the U.S., but a relatively small number of counties within the Permian are home to most of that action.


The drilling craze in the Permian has been going on for some time, but activity continues to pick up pace. The rig count in the Permian has surged over the past year, and jumped by 18 in the most recent week for which data is available, to 427, the highest total for the basin since early 2015.

But the Permian encompasses a wide swath of territory, and the rig increases are really concentrated in surprisingly small geographical area.

The rig count in the sub-basins of the Delaware and Midland has jumped by 54 since last summer, rising to 388. There are 25 counties located within these two sub-basins, but really, 95 percent of drilling activity is located in just 12 of them, according to a research note by Standard Chartered. Digging deeper, roughly half of that activity is located in just four counties — Midland, Reeves, Lea and Eddy.

Against that backdrop, the shale bonanza "has an increasingly narrow base," Standard Chartered analysts wrote, growing rapidly in this core area at a time of "sluggish activity elsewhere." For U.S. oil production, that may not necessarily be a problem, as long as the region can handle the blistering pace of drilling.

Fourth-quarter earnings will be released in the next few days and weeks, and if the shale industry continues to report strong production gains from this small geographical footprint, "then the Midland and Delaware basins seem set to lead strong U.S. growth in 2018," the investment bank said.

However, because so much drilling is concentrated in such a relatively small area, the risk is that bottlenecks will start to crop up. The strain on gathering lines, pipelines, processing facilities, plus a shortage of fracking crews, labor and/or equipment will become a point of focus as production continues to mushroom. If a number of shale companies raise concerns about infrastructure or other equipment and services bottlenecks in these areas, Standard Chartered says the heady growth forecasts for U.S. shale "may disappoint."

Anecdotally, at least, there have been stories of bottlenecks for more than a year. So far, there has been no obvious impact on overall output. Production from the Permian is exploding, and plenty of market forecasts predict the U.S. will add upwards of 1 million barrels per day over the next year; some say more.

Still, there is some evidence that the cost of oilfield services is on the rise. A wider metric that captures total costs for the shale industry also points to cost inflation. This would be consistent with a tighter market for services and equipment. But again, thus far, the production figures continue to climb unimpeded.

One factor to keep in mind going forward is that the U.S. EIA is planning on tweaking the way it reports its production figures. Because the weekly production data — a closely watched figure that has a great deal of influence on short-term fluctuations in oil prices — is only an estimate based on the best available data to the agency, it can’t paint a precise picture of what is going on at the ground level with 100 percent accuracy. The EIA has tried to make this clear, but it comes under fire when the data is revised in subsequent weeks and months as better data becomes available.

In response, moving forward the EIA will report production figures rounded up to the nearest 100,000 bpd. As such, the most recent data, for instance, shows that the U.S. produced 9.919 mb/d for the week ending on January 26. Under the revised system, that figure would appear as simply 9.9 mb/d. That, the agency argues, will make it clear that the figure is an estimate and not intended to be a precise measurement. This may prevent media types (*ahem*) from reading too much into a figure that inherently involves a bit of guesswork.

The flip side is that the data will get more clunky. Standard Chartered argues that because the data will likely stay the same for the next several weeks (at 9.9 mb/d) and then suddenly jump to 10.0 mb/d, it may have a jarring impact on market psychology. "The proposal seems a retrograde step to us, designed more to create a defensive shield of opaqueness around what has unfortunately become a political number, rather than to improve transparency in the market place," Standard Chartered analysts wrote.

Regardless of one’s view, the best bet is to keep an eye on the monthly figures, which are more accurate, although published on a lag. For that, the EIA reported on Wednesday that the U.S. produced a staggering 10.038 mb/d in November, a massive jump of 384,000 bpd from a month earlier.

Based on that figure, at least as of November, the shale industry was not being held back by any bottlenecks.

Link to original article: https://oilprice.com/Energy/Energy-General/Can-The-Shale-Boom-Avoid-These-Bottlenecks.html

By Nick Cunningham of Oilprice.com

© 2018 Copyright OilPrice.com - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules