Global Markets Direct

United States Oil and Gas Report Q2 2012

Unconventional shale gas and tight oil production continue to make waves in the US market, drastically altering domestic energy prices and supply dynamics.

 

London, England -- (SBWIRE) -- 06/18/2012 -- This trend is set to continue, though we expect the lion’s share of production growth to be focused on liquids over the next five years given that low gas prices are rendering a swathe of more marginal plays uneconomic. While the gradual upturn in the business cycle is set to lift both gas and liquids demand, we expect growth to be muted as the US makes strides in reducing its energy intensity.

The main trends and developments we highlight in the US oil and gas sector are: .. According to our forecasts, the boom in US unconventional liquids production is set to combine with higher output from the Gulf of Mexico (GoM) to push crude oil, NGL and other liquids supply (this will be referred to as ‘liquids supply’ throughout the report) to 9.05mn b/d in 2012. By 2016, we see liquids output rising to 9.59mn b/d.

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Liquids demand growth is set to remain sluggish despite a gradual recovery in the macro-economy. BMI’s latest forecasts point to average real GDP growth of 2.0% in 2012, rising to 2.4% in 2013. Total liquids demand growth will therefore recover to 0.1% in 2012 and 0.35% in 2013. Demand growth will remain below trend over the course of the forecast period as the US energy market reduces its energy intensity. We expect liquids demand of 18.86mn b/d in 2012 and 19.16mn b/d in 2016.

The shale gas revolution in the US saw total output soar 6.3% in 2011 to approximately 650bn cubic metres (bcm). However, this unconventional boon has created a supply glut, forcing prices down to 10 year lows. Gas producers have therefore started shutting in non-associated wells and are endeavouring to channel capital expenditure (capex) towards liquids-rich plays where possible. We therefore estimate a sharp fall in gas production growth in 2012. Our forecast is somewhat below consensus, with total gas output anticipated to rise just 0.7% to 655bcm. With prices set to remain well below their five-year average over the medium term, we do not anticipate dramatic growth in gas output. In 2016 we anticipate total output of 677bcm.

Sluggish economic growth is set to limit gas demand growth, despite efforts to boost the use of gas in transportation. The main driver of gas demand growth will continue to be new gas-fired electricity generation, which we expect to rise by approximately 10.9% between 2012 and 2016. Given this outlook, we estimate total gas demand will hit 691bcm in 2012, rising to 718bcm by 2016.

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