Energize Weekly, August 19, 2020
Projections for U.S. energy production in 2020 – from oil to natural gas to coal – continued to fall as the novel coronavirus pandemic and global recession depress economies.
The U.S. Energy Information Administration (EIA) has lowered its estimate for domestic crude oil production by another 370,000 barrels a day (b/d) to 11.3 million b/d in 2020 and 11.1 million b/d in 2021. In January, the EIA had projected U.S. output at 14.1 million b/d for the year.
“Recently released EIA data show that average monthly U.S. oil production for May was 1.2 million b/d lower than the July … forecast, indicating more extensive production curtailments than previously estimated,” the agency said.
The International Energy Agency (IEA) has also cut its forecast for global oil production for 2020 in its August oil market report by 140,000 b/d to 91.9 million b/d, an 8 percent decline from 2019.
The drop is a reflection of “the stalling of mobility as the number of COVID-19 cases remains high, with a particular weakness in the aviation sector,” the IEA said.
After setting record production for U.S. dry natural gas in 2019 at 92.2 billion cubic feet a day (Bcf/d), the EIA is forecasting 2020 production at 88.7 Bcf/d and average 2021 production of 84 Bcf/d in 2021.
The Permian Basin, which stretches from West Texas into New Mexico, has been the country’s biggest producer of oil, which comes mixed with natural gas. The decline in oil drilling has made natural gas a collateral victim.
“Natural gas production declines the most in the Permian region, where EIA expects low crude oil prices will reduce associated natural gas output from oil-directed rigs,” the EIA said.
Drilling activity in the U.S. has declined sharply, and bankruptcies in the sector are rising.
Oil and gas drilling rigs reach a record low 247 rigs on Aug. 7, 687 fewer than were operating in August 2019, according to the Baker Hughes Rig Count. In July, permits for new wells were at their lowest since 2010, with only 454 permits issued.
U.S. horizontal drilling activity has plummeted due to the COVID-19 pandemic and is not likely to recover this year, according to an analysis by Oslo-based energy consultant Rystad Energy.
“This signals the continuity of reduced activity levels throughout the remainder of 2020 at the current strip prices. Unless WTI [West Texas Intermediate] oil prices move towards $50 per barrel in the next few weeks, a rig activity rebound is unlikely before the first half of 2021,” Artem Abramov, Rystad Energy’s head of shale research, said in a statement.
The WTI spot price has hovered around $40 a barrel in the New York Mercantile Exchange since late June. On Aug. 14, it was $41.22 a barrel.
There were nine bankruptcy filings among operators and oilfield service companies in July, after five bankruptcies in June and seven in May, according to Haynes and Boone LLP, a Dallas-based law firm.
Coal production also saw a sharp drop in the second quarter of 2020 to 11.1 million tons, a 24.7 percent decline from the first quarter and a 37.6 percent decline year-on-year, according to S&P Global Market Intelligence.
The EIA, in its July energy outlook, forecast annual coal production for the year at 502 million tons, a 29 percent cut over 2019.
U.S. exports of liquefied natural gas (LNG) have also fallen from a record high to 8.0 Bcf/d in January 2020 to an average of 3.1 Bcf/d in July – about the same as exports in 2018, when the U.S. had a third of the liquefaction capacity it has now.
“Declines in global natural gas demand associated with COVID-19 mitigation efforts, high natural gas storage inventories in Europe and Asia, and an on-going expansion in LNG liquefaction capacity have contributed to natural gas and LNG prices reaching all-time historical lows,” the EIA said.
Low international prices have impacted the economic competitiveness of U.S. LNG and led to numerous shipment cancellations from U.S. terminals. The EIA estimates about 45 LNG cargos have been canceled for August and another 30 for September.