US crude oil production surpasses 12mn b/d in April 2019

US crude oil production reached another milestone in April 2019, totalling 12.2mn b/d, according to the US Energy Information Administration’s (EIA) latest figures.

April 2019 is the first time that monthly US crude oil production levels has surpassed 12mn b/d, and this milestone comes less than a year after US crude oil production surpassed 11mn b/d in August 2018.

Texas and the Federal Offshore Gulf of Mexico, the two largest crude oil production areas in the US, both reached record levels of production in April at 4.97mn b/d and 1.98mn b/d, respectively. Oklahoma also reached a record production level of 617,000 b/d.

The US onshore crude oil production increase is driven mainly by developing low permeability (tight) formations using horizontal drilling and hydraulic fracturing. The EIA estimates that crude oil production from tight formations in April 2019 reached 7.4mn b/d, or 61% of the US total.

The Permian Basin in western Texas and eastern New Mexico continues to drive record national oil production growth. The Permian’s prolific tight oil plays with multiple layers – including the Bone Spring, Spraberry and Wolfcamp – make it one of the lower-cost areas to develop. The Permian Basin accounts for about 63% of Texas and 96% of New Mexico crude oil production. From January 2018 to April 2019, Texas crude oil production increased by 1.1mn b/d (28%) and New Mexico production increased by 345,000 b/d (64%).

Despite pipeline capacity constraints, the Permian region’s month-over-month growth averaged nearly 100,000 b/d for almost all of 2018. Industry efficiencies in pipeline utilisation and increased trucking and rail transport in the region have allowed crude oil production to continue to grow. The EIA forecasts that Permian production will average 4.4mn b/d in 2019, a 920,000 b/d increase from its 2018 average.

EIA forecasts Gulf of Mexico production to average 1.9mn b/d in 2019, making this region the second-largest contributor to crude oil production growth from 2018 to 2019. The forecast growth is driven by 14 new fields brought online in 2018 and nine new fields expected to come online in 2019. These 23 fields collectively are expected to contribute more than 200,000 b/d of the total 1.9mn b/d of Gulf of Mexico production in 2019.

New pipeline needed
Meanwhile, the growing supply of Permian crude means the basin will need extra crude oil takeaway capacity of up to 500,000 b/d by the end of next decade, according to new research from Wood Mackenzie.

A moderate overbuild of pipeline capacity is expected in the early 2020s as the current wave of pipeline investments are completed, with midstream operators set to add about 4mn b/d of new US Gulf Coast-bound capacity by the end of 2022.

This wave of investment includes seven proposals for new Permian pipelines, with four ultimately reaching a final investment decision (FID). More than 2mn b/d of this new capacity will flow into the Corpus Christi market for export.

The rapid addition of pipeline capacity will result in two to three years of overbuild, before normal long-haul capacity supply and demand conditions begin to re-emerge, Wood Mackenzie found.

John Coleman, Principal Analyst, North America Crude Markets, says: ‘As production growth expands well into the 2030s, US Gulf Coast-bound pipeline capacity will tighten. By the mid-2030s, Permian-to-Gulf Coast pipeline utilisation will surpass 92% in the absence of further investment, necessitating pipeline expansions or greenfield capacity.’

Wood Mackenzie's supply forecast indicates there will be an additional call for Permian-to-Gulf Coast crude capacity of up to 500,000 b/d, with FID for the new capacity likely to be reached in the mid-to-late 2020s.

Coleman says: ‘We are in the midst of one of the largest crude infrastructure investment booms in US history, with much of the investment focused on the Permian Basin. As massive as this current investment wave is, we don't think the story is yet finished. Additional capacity will be needed again by the end of the next decade. The next chapter in this story will be focused on ensuring sufficient export terminal capacity in coastal markets. As these new pipelines move into service later this year, we expect a surge in crude export volumes out of Corpus Christi.’

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