Tuesday, July 23

U.S. energy dominance: what will happen to the oil industry

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U.S. energy dominance: development forecasts

The crisis in the oil market has forced industry players to make tough decisions to stay afloat. This also applies to American companies, which suspend drilling of new wells and freeze some projects. These actions could stop the U.S. energy dominance in the market and reduce production by 20%.
Record low oil prices caused a crisis in the American oil shale industry. Experts speak about the reduction of daily production volumes by 1.75 million barrels, which leads to stoppage of facilities and dismissal of people. About 51 thousand specialists have lost their jobs, the rest are cutting their salaries. A number of companies have declared themselves bankrupt, and the more the oil price drops, the more enterprises have to close down.
The reason for this market situation was the coronavirus pandemic, which suspended production and some economic processes in the countries, resulting in a sharp drop in demand for fuel. Due to the peculiarities of production, oil producing companies are unable to significantly reduce their output, so they are aimed at filling the storage facilities, where there will soon be no space left. In order to get out of the situation with as little loss as possible and wait until the demand for raw materials increases, American companies reduce production as much as possible.

Experts are afraid that the current crisis may cause irreparable damage to the oil shale industry and set aside its development for several decades. Companies in the industry are unable to repay their loans, and the debts of the energy segment are increasing at a frightening rate. They now amount to $190 billion, and this figure has increased by $11 billion in a week alone.
Oil companies from profitable ones have become problematic. Their loans are huge amounts that they are unable to repay. Experts predict that by the end of June the production of American enterprises will decrease by about 5 million barrels per day, which is 40% of today’s volume.
The peculiarity of shale wells is their rapid depletion. Only in the first year of their development the reserves of the object are reduced by 60%. Therefore, for normal operation of the industry it is necessary to drill new wells on a regular basis. Suspension of projects will lead to production decline. According to forecasts, by the end of this year the decline will amount to 10 million barrels per day. Under the worst-case scenario, the industry will not be able to recover in 2021 and 2022 – here the daily production decline will be at 8.5 mln barrels.
In April, the price of WTI oil broke record lows. It fell to negative values, which was caused by lack of storage facilities and oversupply.

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