EIA, IEA Grossly Overestimating US Shale: ESAI

ESAI Energy, an oil & energy data provider, believes both the US Energy Information Administration (EIA) and the International Energy Agency (IEA) are overly optimistic in their November projections of US crude oil production in 2020, according to the company’s latest North America Watch.

ESAI Energy sees a deceleration in growth to about 650,000 b/d next year, in contrast to the EIA and IEA forecasts of 1.0 million b/d and 900,000 b/d, respectively.

ESAI points to declining capital expenditures by many shale producers in response to investor pressure to spend within cash flow, a service sector that is idling equipment and laying off workers, along with weak demand for frac sand in reaching its conclusion of slower growth than the EIA and IEA projections.

In its quarterly review of shale producers’ financial positions, ESAI Energy notes the steep drop in overall net income in the third quarter of this year compared to last year, and the difficulty of adding rigs for higher growth when oil prices are below $60.

With the slowdown in drilling over the past year, production growth has been given a boost with a drawdown in DUC (drilled but uncompleted) wells. ESAI points out that at some point rigs will have to be added or productivity and efficiencies will need to increase to offset high rates of legacy decline.

ESAI Energy analyst Elisabeth Murphy notes that “as shale producers keep moving toward a returns-based model rather a growth-based model, the oil market will eventually strengthen. But in the near-term, oil prices will need to rise before we see higher rates of production growth.”