Big Oil’s shift towards U.S. shale makes fracking less price-sensitive

Wednesday, 03 July 2019
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Tight oil and gas production in the United States could soon become less sensitive to price as super-majors like Chevron and ExxonMobil increase their shale acreage and commit to development spending. BP’s chief economist Spencer Dale said “cash-rich supermajors can smooth through price variations” and just keep fracking regardless.

Falling costs of horizontal drilling and fast lead-time for U.S. shale developments have spurred many oil majors to turn away from conventional resources and focus on shorter cycle returns from fracking shale rock.

"Big Oil has increased its footprint and the incentives for consolidation to exploit the benefits of scale and contiguous acreage have increased," he said when presenting BP’s 2019 Energy Outlook.

In the Permian Basin, one of the most prominent U.S. shale plays, Chevron and ExxonMobil are vary after Occidental’s $33 billion deal to takeover Anadarko’s high-quality assets in the Permian Shale and deepwater licences in the Gulf of Mexico.

Shell and BP also said they are seeking to boost their output of U.S. shale oil and gas.

U.S. shale output to hit record high in June

Unconventional oil and gas output from seven major U.S. shale formations is likely to reach about 83,000 barrels per day (bpd) in June to a new record high of about 8.49 million bpd, according to the EIA’s monthly drilling report. The steepest rise is set to occur in the Permian Basin in Texas and New Mexico, where output is forecast to rise by 56,000 bpd to nearly 4.17 million bpd in June.

Attracted by such bullish production forecasts, international oil majors are striving to boost their foothold in the Permian and the Anadarko region.

Covering a large portion of western Oklahoma and the northeast corner of the Texas panhandle, the Anadarko Region used to be known for some prolific oil and gas plays. The U.S. Geological Survey recently reassessed the entire basin and found technically recoverable undiscovered resources of 495 million barrels of oil, 27.5 Tcf of natural gas, and 410 million bbl of natural gas liquids.

Qatar, U.S. dominate global LNG markets

As the global LNG market matures, the United States and Qatar emerge as the main centres of LNG exports, accounting for around 40% of all LNG exports by 2040, according to BP forecasts. The U.S. and Middle East (Qatar and Iran) together account for almost 50% of the growth in gas production, supported by strong increases in output in both China and Russia.

Asia remains the dominant market for LNG imports - notably China and India - while Europe is seen as a balancing market, or an LNG sink, and a center of gas-on-gas competition between LNG and pipeline gas.

Demand in North America, is driven by a coal-to-gas switch in the power generation sector - though globally, the share of gas in the power mix remains stable at around 20%, according to BP projections. 

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