Applying meteorological terminology to the oil and gas industry, experts say the forecast through 2018 and beyond is mostly sunny, with intermittent cloudiness.
"Oil prices have risen and forecasts are optimistic, but we see challenges for it to go beyond $60 on a sustained basis," said ADI Analytics CEO Uday Turaga.
While oil and gas rig counts are expected to remain significantly lower than recent peaks due to growing drill productivity, oil and gas prices in the U.S. will continue to rise "at a robust pace driven entirely by growth in unconventionals," Turaga continued.
Speaking on the outlook for oil and gas at the 2018 ADI Natural Gas and NGL Forum held recently in Houston, Turaga said gas supply has grown significantly, with most of the growth coming from Marcellus, and will continue through 2020.
"Light tight oil production in the United States has risen significantly since 2010, and future growth will come from the Permian Basin," Turaga added.
Although expectations are high, U.S. producers "are unlikely to show restraint, especially as oil prices touch $60," he said.
Citing statements made by CEOs from Anadarko, Encana, Chesapeake Energy and Gulfport Energy Corp., Turaga noted "shale players are under pressure to live within their means, and many are responding accordingly."
However, Turaga noted ExxonMobil is tripling its investment in the Permian to as much as $50 billion over the next year, with Chevron increasing its U.S. shale capex by 70 percent to $4.3 billion, even though it had reduced overall capex for the fifth consecutive year. Similarly, ConocoPhillips has increased its capex for 2018-2020 by 22 percent at $5.5 billion per year but is "also extending share buybacks," Turaga said. Finally, EQT has also increased capex for 2018 by 60 percent to $2.4 million.
Additionally, Warburg Pincus, ATX Energy Partners, Double Eagle Energy Holdings and other private equity firms continue to invest heavily in Permian drilling.
"Energy-focused private equity fundraising is robust, and private equity funds are having a record year in a world awash with capital," Turaga said, adding these firms currently have more than $1 trillion to invest.
Bottlenecks and battery power
Despite these investments, Turaga indicated a number of "bottlenecks the industry is currently navigating," which reflect the state of the drilling industry. Fracturing equipment, he said, is limited, requiring long lead time for repair or new build.
While demand for proppant is growing rapidly, response to requests for new supplies has been slow, and truckers, truck and rail cars are all in short supply when prices rise.
Oilfield service companies "still smarting from recession" have been slower to ramp up, Turaga said, and oilfield labor will be hard to find and train "in a near-full employment economy."
Turaga expects oil growth to be supported by emerging markets, while carbon and infrastructure limits will drive both fuel and crude exports.
"Global vehicle sales are growing at a slightly slower rate than in the past decade, with Asia driving the most growth," he continued.
Battery-powered and plug-in hybrid vehicle fleets are experiencing rapid worldwide growth "with China and the United States leading the pack," as the global push toward reducing the carbon footprint of vehicles and other transportation options continues, Turaga said.
"Even so," he added, "there is tremendous uncertainty around the share electric vehicles and other powertrains will take in the future."
Ultimately, natural gas demand growth will be eclipsed by pipeline and LNG exports, Turaga concluded, "which will after a long time surpass power and industrial demand growth."
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