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US oil production may undermine OPEC-Plus cuts

The United States becomes a net energy exporter in 2020, EIA says.

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The United States becomes a net energy exporter in 2020 and remains so throughout the projection period as a result of large increases in crude oil, natural gas, and natural gas plant liquids (NGPL) production coupled with slow growth in US energy consumption, according to US Energy Information Administration’s (EIA) Annual Energy Outlook 2019, released on January 24.

“The United States has become the largest producer of crude oil in the world, and growth in domestic oil, natural gas, and renewable energy production is quickly establishing the United States as a strong global energy producer for the foreseeable future” said EIA Administrator Linda Capuano.

US President Donald J. Trump has repeatedly criticised the Organization of Petroleum Exporting Countries (OPEC), which has forged an alliance with Russia and other oil producers to cut production and boost oil prices that could be affected by a global supply glut.

Natural Hydrocarbons Company CEO Charles Ellinas told New Europe on January 25 that US shale oil production is price-sensitive. Production does well when WTI prices are high, over $50 per barrel and slows down when prices are low. In effect it provides a cap to the oil price. When shale oil production goes up then it contributes to a glut in the global oil market, driving prices low, he explained. Equally when production slows down, the glut in global oil supply disappears and prices go up, Ellinas noted. “But, of course, there are other factors coming into the equation such as OPEC-Plus production cuts, sanctions on Iran and what happens to the wavers, what happens in Venezuela in view of the recent developments, and even Libya.”

“US shale oil production in in the hands of many independent oil companies, small and large, and as such it is market driven. When it goes up it undermines the efforts of OPEC-Plus to keep production under control and prices high,” Ellinas said.

Of the fossil fuels, natural gas and NGPLs have the highest production growth, and NGPLs account for almost one-third of cumulative U.S. liquids production during the projection period, according to the EIA.

The power sector experiences a notable shift in fuels used to generate electricity, driven in part by historically low natural gas prices. Increased natural gas-fired electricity generation; larger shares of intermittent renewables; and additional retirements of less economic coal and nuclear plants occur during the projection period.

Increasing energy efficiency across end-use sectors keeps US energy consumption relatively flat, even as the US economy continues to expand, the EIA said.

According to the EIA, natural gas prices remain comparatively low based on historical prices during the projection period, leading to increased use of this fuel across end-use sectors and increased liquefied natural gas exports.

US shale gas production is expected to carry on increasing and given that most of this is associated gas, Ellinas said, prices will stay low. “The EIA forecasts that US natural gas production will grow much faster than demand growth, leaving increasingly large amounts for export. As a result, US liquefied natural gas (LNG) exports will carry on increasing with time,” he said, noting that the main destination is Asia where LNG prices tend to be higher. “But Asia is not likely to be able to absorb all the LNG expected to come into the market, with increasing amounts having to be diverted to Europe.”

With Russian gas monopoly Gazprom committed to maintaining, and possibly increasing, its gas exports to Europe in 2019, competition will increase and gas prices are set to fall in comparison to 2018, possibly nearer the $7 per million British Thermal Units mark, Ellinas said, noting that nevertheless, more US LNG will find its way to Europe in 2019, especially to countries that prefer to diversify away from Russian gas, such as Poland – but amounts will be small in comparison to Gazprom exports.

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Co-founder / Director of Energy & Climate Policy and Security at NE Global Media

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