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US to Drive Global Oil Production Growth in the Next Decade

Kaibalya Pravo Dey

The United States is expected to lead global oil output growth for the next 10 years. This view has been expressed by the chief economist of ConocoPhillips COP, Helen Currie, to S&P Global Platts. Moreover, she expects tight oil to grow beyond 2030s and U.S. crude exports to boom.

Shale Dominance

Currie believes that production of tight oil, otherwise known as shale oil, will keep growing even after 2030s, despite the prices remaining moderate. This could give the United States an advantage over other crude-producing countries. The primary reason behind the dominance of tight oil, even in a moderate price environment, is significantly low cost of production at shale plays like Permian and Williston Basins, Eagle Ford Shale, and others. Experts say that it is cheaper to drill and complete oil wells in the Permian Basin compared with other major fields.

Markedly, buying stocks that have immense presence in the Permian will definitely be beneficial for investors in the long run. Per GlobalData Energy, companies like EOG Resources, Inc. EOG, Exxon Mobil Corporation’s XOM subsidiary XTO Energy, Pioneer Natural Resources Company PXD and Chevron Corporation CVX have one of the lowest breakeven prices in the region. At lateral lengths in the range of 7,560-10,500 feet, these companies have breakeven prices of less than $26 per barrel. In comparison, the lowest WTI Crude benchmark reached over the past year was near $40 per barrel toward 2018-end.

Chevron currently has a Zacks Rank #1 (Strong Buy), while EOG Resources, ExxonMobil and Pioneer Natural carry Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Production Surges & Exports Boom

Per U.S. Energy Information Administration (EIA), 2018 crude output in the country reached a record level of 11 million barrels per day (BPD). The output is expected to rise 1.4 million BPD in 2019 and 0.9 million BPD in 2020. Enterprise Products Partners L.P. EPD, a Houston, TX-based midstream giant, expects U.S. oil and condensate production to grow 46% to 17 million BPD from the current level within 2025.

Given the surge in domestic oil output, crude exports from the United States are bound to grow rapidly. Enterprise Products expects more than 50% of production or 8 million BPD to be exported in 2025, which will mostly be light, low-sulfur crude oil. This will surely require more export infrastructure. Currie acknowledges the hurdles the proposed exporting facilities are facing, especially in the Gulf Coast. However, she foresees these constraints as temporary issues and not permanent ones.

Crude Demand Support

Although recent international political tensions have affected the global energy market, the situation is expected to improve in the long run. The growing tension stemmed from the trade war between the United States and China has dampened the demand outlook for 2019. However, surging demand for crude in Asia, Europe and Latin America is expected to support U.S. production growth in the long term. Rising global refining demand is expected to absorb a big chunk of future production. In the domestic market, the expansion of Gulf Coast refineries and petrochemical plants, and other proposed projects will likely support a considerable portion of the projected output. Notably, per International Energy Agency, the demand for plastics is anticipated to double over the next two decades. This will likely comprise more than 33% of total oil demand growth by 2030.

Last Words

For the next 10 years, ConocoPhillips expects net oil production growth from the Organization of the Petroleum Exporting Countries (OPEC) in the range of 2-3 million BPD. As such, rising global oil demand will largely rely on non-OPEC production. The United States, one of the major non-OPEC producers, will lead supply growth with the help of shale power. The appetite for light U.S. crude in the Asian markets will support the country’s oil exports well into the future. This will further strengthen U.S. shale dominance in the global market.

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Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Chevron Corporation (CVX) : Free Stock Analysis Report
EOG Resources, Inc. (EOG) : Free Stock Analysis Report
Pioneer Natural Resources Company (PXD) : Free Stock Analysis Report
ConocoPhillips (COP) : Free Stock Analysis Report
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