When the shale boom took off, several U.S. shale plays were producing at levels never seen before. Since then, driven by OPEC’s claim on market shares and the global oil glut, wells have been shut down in the hundreds and production is slipping.
According to estimates from the Energy Information Administration, production in the Eagle Ford in South Texas will slow by 10% from March to August this year. North Dakota’s Bakken shale will lose about 5%.
The Permian Basin, which stretches over 75,000 square miles between West Texas and Southeast New Mexico, has thus far been immune to such production cuts.
Of course, the shale play’s biggest asset is its pipeline system, which offers direct contact with Gulf Coast refineries. In the past year, these pipelines have added 750,000 barrels a day of capacity between companies like Magellan Midstream Partners, Plains All American Pipeline, and Sunoco Logistics Partners.
And although output from these projects has only increased by 400,000 barrels per day, the fact that any growth is taking place at all is impressive.
Think about it…
When prices dropped below $60 per barrel of oil, a lot of companies had to shut down expansion plans, as well as cut operations — with even more curtailment happening when oil prices fell below $50 per barrel.
Still, Permian producers with access to the Gulf were able to stay cost-efficient in the low price market. You see, by sending their supply to refineries with higher premium costs, they could keep up profits while other northern and mid-continental producers had to cut back.
This is just a continuation of the Permian’s prolific history. West Texas output seemingly peaked in 1973 at 2 million barrels a day, which was then followed by a 50% decline in daily production by 2000.
In 2010, however, the shale boom was fully underway in the lower 48-states, and the combination of hydraulic fracturing and horizontal drilling to tap into tight oil plays helped raise production back to its peak of 2 million barrels per day.
“Even at $50 oil, a lot of development in the Permian looks pretty tight,” says senior research analyst at Wood Mackenzie Christopher Kopczynski.
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Until next time,
Keith Kohl
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