EIA Forecasts Record-Shattering Oil and Natural Gas Production in 2018

In its latest Short-Term Energy Outlook released this week, the U.S. Environmental Information Administration (EIA) forecasts domestic oil and natural gas production to reach annual record levels in both 2018 and 2019, with the United States rivaling Russia and Saudi Arabia as the world’s top oil producer by the end of 2019. This incredible growth, EIA projects, will stem from shale formations across the country, as innovations such as hydraulic fracturing allow for the development of vast, previously unreachable oil and natural gas resources.

Oil Forecast: 10.3 Million Barrels Per Day

According to the new EIA report, U.S. oil production is estimated to average 10.3 million barrels per day (b/d) this year, and grow to an annual average of 10.8 million b/d in 2019. These levels are unheard of in the United States and smash the previous annual record of 9.6 million set in the early 1970s. If EIA’s forecasts are achieved, that would mean a 1 million b/d and 1.5 million b/d growth from 2017 levels in 2018 and 2019, respectively. The bulk of this increased production is estimated to come from shale development – specifically from the Permian Basin – which currently accounts for over 6.3 million b/d. As the report states:

“Increased production from tight rock formations within the Permian region in Texas and New Mexico accounts for 0.8 million b/d of the expected 1.2 million b/d of crude oil production growth from December 2017 to December 2019. EIA expects most of the remaining 0.3 million b/d of growth to come from the Federal Gulf of Mexico, as seven new projects are expected to come online by the end of 2019.”

In fact, EIA estimated that the Permian region to produce 3.6 million b/d by the end of 2019 – an increase of about 900,000 b/d from the December 2017 production estimate – meaning the Permian alone would account for roughly 32 percent of total U.S. crude production in 2019. Such growth has been made possible by continued advances in hydraulic fracturing and the shale development process, coupled with world-class reserves in the region, as the report notes:

“With the large geographic area of the Permian region and stacked plays, operators can continue to develop multiple tight oil layers and increase production, even with sustained prices lower than $50/b. Increases in proppant intensity, lateral lengths, changes to slick-water completions, and drilling in sweet spots have driven increased initial production (IP) rates and rig activity in the Permian, allowing it to remain one of the most economic regions for oil production.”

Other shale regions are predicted to experience production increases over the next two years as well. According to the report, the Eagle Ford in South Texas is expected to produce between 1.2 million b/d and 1.3 million b/d in 2018 and 2019, just above the region’s 2017 levels. Meanwhile, production from the Bakken region in North Dakota is forecast to increase by about 100,000 b/d annually over the next two years, hitting 1.3 million b/d in 2019.

Natural Gas Forecast: 80.4 Billion Cubic Feet Per Day

Along with staggering oil production growth, EIA’s report forecasts U.S. natural gas production to grow by a record 6.9 billion cubic feet per day (Bcf/d) this year from the 2017 level. Moreover, the agency predicts natural gas production to grow even further next year – an average of 2.9 Bcf/d – hitting roughly 83 Bcf/d in 2019. Year-over-year, these incredible leaps in production would represent an 9.3 percent increase from 2017 to 2018, and a 3.2 percent increase from 2018 to 2019.

According to the report, EIA anticipates a majority of the production increase to derive from the Marcellus and Utica Shales in the Appalachia Basin, as well as the Permian. The Appalachia region is already by far the largest natural gas producing shale region in the country, producing just over 26 Bcf/d in December 2017, or nearly 42 percent of total shale gas production. A majority of this growth, EIA notes, is due to improved pipeline infrastructure in the Appalachia region:

“Growth is expected to be concentrated in Appalachia’s Marcellus and Utica regions, along with the Permian Basin region. Much of the expected increase in natural gas production is the result of increasing pipeline takeaway capacity out of the Appalachia producing region to end-use markets.”

Natural gas exports through both pipeline and liquefied natural gas (LNG) are expected to be the main beneficiaries of this projected domestic natural gas growth. According to the EIA, LNG exports will increase by 1.1 Bcf/d in 2018 from 2017 levels, averaging 3.0 Bcf/d this year. Moreover, liquefaction capacity is predicted to continue expanding with projects such as Freeport LNG and Cameron LNG coming online in 2019, helping LNG exports reach an average of 5.5 Bcf/d in the second half of 2019. In terms of pipeline exports, EIA forecasts gross exports increasing by 0.6 Bcf/d in 2018 and 0.8 Bcf/d in 2019, driven by demand from Mexico.

Notably, with soaring production and increasing natural gas exports, the EIA forecasts the United States to solidify its status as a net export of natural gas. According to the report:

“In 2017, the United States was a net exporter of natural gas for the first time on an annual basis, with net exports averaging 0.4 Bcf/d. Overall, net natural gas exports are forecast to average 2.3 Bcf/d in 2018 and 4.6 Bcf/d in 2019.”

Conclusion

As this latest report shows, the United States, facilitated by shale development, now stands on the cusp of not only breaking all-time oil and natural gas production records — but completely obliterating them. Such a notion would have been completely implausible just a decade ago, but thanks to fracking, it’d be crazy to deny the fact that the U.S. is about to enter uncharted territory in oil and natural gas production.

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