This is an interesting chart. Oil demand growth has actually remained fairly stagnant over the past few years, but it is the steep fall in production that has driven the recent surge in crude prices. Now I am not an oil & gas analyst, but to me the production cuts do not seem sustainable. The Permian basin is a big reason for that. There was a time when a major concern for the industry was that new oil finds were mostly situated in regions with high geopolitical risk. Then the Permian basin happened. The industry found oil, billions of barrels of it, right in the heart of the US.
Just how much oil does the Permian basin produce? About 3.2mn barrels per day (bpd). To give some perspective, the whole of Iran produces 3.8mn bpd, and Kuwait produces 2.8mn. If the Permian was part of OPEC, it would be the fourth-largest OPEC member. Now, production at Permian will only go up with technological breakthroughs - to about 4mn by 2023. Pipeline capacity is a constraint now, but that is an easy problem to solve. Studies show that the Permian might have more than 50 years of oil reserves at current rates of production. Plenty of reason for E&P companies to keep investing.
Now, with every passing year of high crude prices, people the world over will start thinking even more seriously about renewables. Some renewables, like solar, become increasingly viable with technology developments. There might be more threats on the horizon, including electric vehicles. So, a question that might come to E&P companies' mind is: how long should I hold onto my oil? What if the $70+ prices force people to look for alternatives? What if I do not get anything meaningful at all for the reserves that are left over after 20 years, because the world has shifted to a new fuel resource?
In such a scenario, with so much oil in their kitty, will the O&G companies keep production levels drastically low, for years to come? Views welcome #oil #Permian
