By Ejekwu Chidiebere
- US oil and gas production to plateau and decline between 2035-2040
While the United States currently dominates global oil and gas production, it also faces significant challenges to maintaining the same level of leadership in the coming decades, Wood Mackenzie’s latest report has highlighted.
According to the report “Tough at the top: The threats to US energy dominance”, posted to Energy Window International (Media) by email, oil and gas will fuel 52% of the world’s primary energy. However Wood Mackenzie models have suggested that this share of supply would remain above 50% for another 20 years.
Currently, the US is the world’s largest producer of oil and gas, accounting for 20% of global oil production and 25% of global gas output. But Woods say that even if demand for oil and gas remains robust for decades, the idea of “US energy dominance” as positioned by the Trump administration will become more challenging particularly in the long-term. It adds that the US production is set to decline in the 2030s so the rise of low-carbon energies across the globe, particularly in China, could potentially leave the US exposed.
“The US has achieved remarkable success in oil and gas production over the past two decades,” Robert Clarke, vice president, upstream research at Woodmac has said. “However, maintaining this dominance will require addressing several key challenges, including resource maturation and an ongoing global shift towards lower-carbon energy sources.”
The report further highlighted that the US oil and gas production was projected to decline by about 1.7 million barrels of oil equivalent per day between 2035 and 2040. “But if demand expectations erode prior to this and a drop towards US$50/bbl becomes embedded for crude, declines would occur much sooner and be more severe.”
According to Woods, there are indications that this decline could have far-reaching implications for the industry’s ability to raise capital and maintain export relationships. It would also mean, Clarke says, a different value proposition for US upstream that prioritizes value capture from late-life assets.
At the same time, China is rapidly advancing in low-carbon technologies such as electric vehicles, battery storage, and solar cells, the report therefore notes China’s global market share in these technologies which according to Woods is now greater than the US share in oil and gas production.
Despite the challenges, the report highlights several ways the US could preserve and prolong its energy leadership which includes fostering innovation collaboration, particularly in shale technology. New technology initiatives in the Permian Basin are tight oil’s current wildcard and therefore of a great essence. Innovative subsurface diagnostics and reservoir models – including artificial intelligence (AI) – are focused on lowering the cost of supply by redesigning wells and pads in nearly real time to eliminate non-productive capex. If successful, lower unit costs will open new tranches of undrilled inventory for greater resource recovery.
“If new digital tools can lower breakevens by US$5/bbl, which we think is possible, future tight oil projects will remain as competitive as any other global supply source and extend the Permian Basin’s production profile,” says Clarke.
Exploration is needed to replenish top-tier well inventory and the sector’s exploration spending which has been falling precipitously, down 65% since 2012. Within 10 years, Woods models suggest the industry will have drilled nearly half of all its remaining low-cost tight oil locations.
“Play-opening projects in the Utica, Uinta and deeper Permian benches have had good results, but more can be done,” says Clarke. “Derisking, delineation and midstream investment are needed to make the size of these new opportunities as material as existing assets.”
The Trump administration Woodmac says has embarked on reform of federal permitting frameworks, with the aim of creating a faster path to infrastructure expansion, which could help relieve constraints on long-haul interstate pipeline expansions and boost the profitability of high potential supply projects.
However, despite the opportunity to extend US oil and gas production, Woods concludes that an over-reliance on upstream for too long could leave the US exposed if the world moves towards low-carbon energy.
“The future of US energy sector isn’t as clear as it could be,” concluded Clarke. “While its oil and gas dominance is likely to continue in the near term, the industry must prepare for a changing global energy landscape. Excitement over the US upstream growth story should not mask the reality that the world does not stand still. Balancing continued hydrocarbon production with investments in low-carbon technologies will be crucial for maintaining America’s energy leadership in the long run.”