NAPE ‘18: Texas Railroad Commissioner Ryan Sitton forecasts strong U.S. supply growth to meet demand

By Alex Endress, News Editor, World Oil on 2/9/2018

HOUSTON -- As murmurs of peak oil demand pervade the oil and gas industry, Texas Railroad Commissioner Ryan Sitton sees a different trend—rising production from the U.S. to meet inflating demand from non-OECD countries like China and India.

In fact, the world may even struggle to fill global demand growth six years from now. This dilemma would cause oil prices to increase, enabling operators to extract hydrocarbons from high-cost regions that are too pricey for today’s oil market, Sitton said during a market outlook presentation at Nape 2018 in Houston on Feb. 9. The commissioner said that the world’s oil production could grow to 110 MMbpd to 115 MMbpd within the next 20 years.

“The problem is, to produce that oil, it will cost more than what it costs now to produce 100 MMbpd,” he said. As increased demand continues to squeeze supply, operators will be incentivized to develop more “tier-two” acreage, which can be found in abundance in plays like the Eagle Ford, Sitton noted. “At the end of the day, the world has a lot of oil. The question is simply, how many dollars does it take to produce it?”

There’s no problem with demand, either, he said. In the past year, international crude oil stockpiles dropped at a rate of about 400,000 bpd, Sitton said, noting that he projects global oil demand to grow by as much as 1.9 MMbpd in 2018. “The world has yet to come up with a more efficient way of storing energy than hydrocarbon, and if you are in a non-developed country, and you don’t have sophisticated electrical grids, it is much easier to store a gallon of gasoline.” While increasing oil prices have traditionally correlated with decreasing oil demand, he references a forecast by the International Monetary Fund (IMF) that the global economy will grow 3.6% this year. “That is the highest economic growth we have seen since 2010, and nothing drives energy consumption like economic growth.”

In the short term, Sitton forecasts WTI prices to remain between $58 and $66/bbl throughout 2018. Bolstering this perspective, he said he expects OPEC production to remain consistent at about 32.5 MMbopd to support balance in the oil market. While OPEC and Russia could easily overproduce and flood the market with an extra 1 MMbopd this year, Sitton said that these countries should hold at current levels unless significant spikes in demand or drops in production take place, to keep oil prices in the $60s.

He said he expects the U.S. to produce nearly 1 MMbpd more than it produced in 2017, which was about 9.3 MMbpd, according to the U.S. Energy Information Administration (EIA). About 700,000 to 800,000 bopd in growth are expected to come from the Permian basin, Sitton said. The commissioner pointed out two early indicators of promising activity for Texas this year. In January, drilling permits for the Permian basin were 10% higher than the average for 2017, and permits for the Eagle Ford were 20% higher than the 2017 average.

Other nations with high growth in 2018 will be Canada and Brazil. Together, these countries will increase production by 800,000 to 900,000 bopd this year.

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