BMI View: The US will lead gains in non-OPEC crude oil production over the next decade despite the fall in oil prices . High growth rates seen in recent years will moderate through our 10-year forecast period , reflecting abrupt depletion rates in shale oil fields, a glut in the domestic market for light sweet crude and lower oil prices dampening a portion of production . Fuels c onsumption growth will temper over the course of the next decade as energy efficiency gains take root. I n the gas market, we forecast a ramp - up in production as new LNG export facilities and pet ro chem ical plants come online.
|e/f = BMI estimate/forecast. Source: EIA, BMI|
|Crude, NGPL & other liquids prod, 000b/d||12,995.6||13,923.9||13,145.3||13,074.4||13,360.9||13,676.1||13,943.7|
|Refined products production, 000b/d||19,654.0||19,893.0||20,106.1||20,163.4||20,198.8||20,191.8||20,161.4|
|Refined products consumption & ethanol, 000b/d||19,950.5||20,236.5||20,538.6||20,685.1||20,727.9||20,765.8||20,778.5|
|Dry natural gas production, bcm||728.5||766.4||784.1||815.4||856.2||890.4||921.6|
|Dry natural gas consumption, bcm||756.0||777.9||797.4||819.7||840.2||857.0||874.1|
The more pronounced spending pullback by North American oil producers supports our view that a supply-side correction of the market will primarily be led by this region in 2016. The US will witness the most dramatic decline, supporting a strengthening of international benchmark prices beginning in H216.
A reduction in the bo rrowing base available to US exploration and production (E&P) companie s following the spring redeterminations does not pos e a major liquidity risk to the sector. Leveraged companies with highly utilised borrowing bases and poorer asset quality are at higher risk of default.
O&G debt issuance in the United States in the year-to-date signals that the risks of a sector-wide credit crunch have been overstated. Liquidity risks will remain contained to a small pool of highly-leveraged producers and will not spill over to the O&G sector more broadly. With the market pricing in a more systemic credit risk, we believe the low corporate bond pricing does not accurately reflect the underlying fundamentals of the sector.
Weakness in crude prices will spur greater resourcefulness on the part of shale oil producers, with companies targeting uncompleted well inventories, identifying refrac opportunities and bringing in new partners. New drilling will be limited in 2016, supporting our downbeat production trend for the year.
Job cuts and the limited number of high horsepower rigs will limit the strength of US onshore production growth once oil prices recover to incentivise investment. We maintain our view that production growth will return in H217, but at a limited pace.
Sustained weakness in US gas prices will dampen growth prospects in the Marcellus/Utica shale play in 2016. With combined production across the Marcellus and Utica having grown at a rate of 22.0% y-o-y in 2015, we believe continued downside pressure on natural gas prices will temper this trend to 5.5% y-o-y in 2016 as producers cut back investment and development plans throughout the play.
The development of refined products midstream assets from the US will help satisfy a long-standing shortfall in the Mexican market. Falling domestic crude supplies over the past decade by national oil company (NOC) Pemex has limited production of refined fuels at the country's six downstream facilities. Given these dynamics, we believe demand will remain strong for more affordable transport infrastructure via pipeline from the US over the next several years.
We maintain that the narrower spread between WTI and Brent will remain in play over H216 as the global market rebalances, despite much of that correction coming from the US. This will close overseas arbitrage opportunities and limit demand for US crude exports.
The price-elastic US consumption has reacted well to low prices at the pump, increasing both vehicle miles travelled and the use of less fuel-efficient vehicles. While the demand outlook for gasoline is positive for 2016, on the supply side bulging stockpiles will put a cap on the upside for prices.
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Summary of BMI’s key forecasts and industry analysis, covering oil and gas reserves, supply, demand and refining, plus analysis of landmark company developments and key changes in the regulatory environment.
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