©Kim Christensen
Lee College Economic Alliance event in Pasadena 2017
Lee College Economic Alliance event in Pasadena 2017 (Photos by ©Kim Christensen)
Over the past year, Texas oil production has been robust and natural gas production has skyrocketed. The industry is now emphasizing infrastructure to enable moving product to market. Without these needed investments, product will be stranded and/or not produced.
The second half of 2019 and most of 2020 will be robust but volatile for Texas oil and gas producers. I anticipate larger price fluctuations throughout the year based on changing market fundamentals and infrastructure obstacles. Markets were relatively stable in 2018.
Prices recovered in the first quarter of 2019 as a result of OPEC and Russia collaborating and other factors. West Texas Intermediate prices should be in the $60- $65 per barrel range most of the next year, depending heavily on continued OPEC and Russia cooperation and other factors such as Iran and Venezuela. With the oil market oversupplied by as much as 900,000 bpd, prices will be hyper-sensitive to key supply and demand drivers.
In 2018, the U.S. shattered the 1970 record for annual oil production: 9.64 million bpd. The new 2018 record was 10.96 million bpd -- up 17 percent from 2017. In December 2018, U.S. production grew to 11.96 million bpd. In 2019, U.S. annual oil production will top 12 million bpd. The U.S., with Texas leading, is producing much more oil than it did five years ago. Texas is up 60 percent over 2014 production.
The challenges of increased production are mainly in transportation infrastructure. We need more pipelines and oil and natural gas export facilities to move energy to markets. As a result, Texas has seen an increase in flaring in the Permian Basin. New oil wells produce associated natural gas that has nowhere to go because the pipelines are full. Producers' options are to shut in their wells and not produce the oil or flare the natural gas that at times trades for less than zero because of the lack of "takeaway capacity." We are currently flaring about 2.5 percent of Permian natural gas production.
These challenges are being addressed, but energy transportation infrastructure is not built overnight. There are enough pipeline projects announced to address the bottlenecks, but when and if they get built is unknown. Projects, including ongoing work at Texas ports, will enhance our ability to move energy to markets.
Global energy demand grew by 2.3 percent in 2018, the highest rate of growth this decade. Natural gas accounted for 45 percent of that growth. Demand for all fuels increased, with fossil fuels meeting nearly 70 percent of the growth for the second year in a row. China, the U.S. and India accounted for nearly 70 percent of the rise in global energy demand. The U.S. saw the largest increase in oil and gas demand, driven primarily by petrochemical expansions and increased demand for jet fuel. Energy demand is not slowing down, and Texas is well positioned to meet demand.
Despite an oversupplied oil market, these key factors are supporting prices:
- Saudi Arabia and Russia continue to carefully manage oil production.
- President Trump's decision not to extend waivers for importers of Iranian oil has caused its production to decrease to close to zero.
- Venezuela's chaos has continued to decrease its oil production to less than 1 million bpd.
- Oil demand growth is almost entirely composed of growth in China (whose rate of growth is slowing), India and the U.S. If those countries' demand softens or doesn't meet expectations, that would put downward pressure on prices.
Natural gas remains the cheapest and most abundant global energy source. The U.S. leads global supply growth and is poised to become a major LNG player. China represents one-third of projected global demand growth through 2025 as it attempts to restrain its use of coal and improve air quality.
U.S. natural gas production grew 10.2 percent from 2017 to 2018 and is projected to grow another 8 percent in 2019. In February 2019, the U.S. exported 4.6 bcf/d in natural gas exports, and in all of 2018, the U.S. was a net natural gas exporter. Texas natural gas production led the nation at 26 bcf/d, representing 28.5 percent of U.S. production.
With demand growing and infrastructure working to catch up, U.S. and Texas energy is poised for a strong 2019-2020.
For more information, visit www.rrc. state.tx.us or call (512) 463-7147.
