US oil production to test record high in 2016

US crude oil production will come close to its record highs in just three years time as the shale boom sends output soaring, according to the government's Energy Information Administration.

The forecast marks a spectacular reversal from the assumptions of five years ago, when US crude production appeared to be in inexorable long-term decline.

The EIA said on Monday that it had revised sharply higher its estimates of future US crude output to about 9.5m barrels per day in 2016. That is very close to the previous peak in US production of 9.6m b/d in 1970 and almost double its low point of 5m b/d in 2008.

The prediction, made in the EIA's Annual Energy Outlook, shows how improvements in the techniques of horizontal drilling and hydraulic fracturing - "fracking" - made economic by higher oil prices have unlocked oil and gas reserves that were not previously commercially viable.

A year ago, the EIA was predicting US crude production of about 7.5m b/d in the second half of this decade, a level that has already been surpassed this year. It has now revised sharply higher its estimates of future output in its central "reference case", which assumes that current laws and regulations remain generally unchanged.

The shale boom is already reshaping global energy markets, pushing the US behind China as the world's largest net oil importer, and putting pressure on the members of Opec, the oil-producing countries' cartel. It is also giving the US additional global influence.

The EIA now predicts that US crude output will begin to tail off slowly after 2020, but says there is still great uncertainty over the outlook. Adam Sieminski, the administrator of the EIA, said factors influencing the outlook for production would include future discoveries about the geology of US shale oilfields, regulatory requirements imposed on producers, and investment in new pipelines.

Sustaining the surge in US oil production will require prices that are high by the standards of a decade ago. Mr Sieminski said US shale production would be profitable at prices above $90 per barrel, and possible at above $80-$85 per barrel.

However, he added, there were many other oil-producing countries that required relatively high prices to sustain their economies and government spending, "and those numbers are probably higher than the marginal cost of shale production in the US".

For natural gas, meanwhile, the EIA is predicting continued indefinite growth in production. Gas is easier to produce than oil from shale and other "tight" rocks, and by 2040 the EIA expects US production to be 56 per cent higher than in 2012.

Among the markets for that new production will be electricity generation, with gas overtaking coal as a fuel for power plants in 2030, and exports, with pipeline sales to Mexico taking the largest volumes, but also shipments of liquefied natural gas around the world.

At the report's launch, Mr Sieminski refused to take a view on the debate over the relaxation of US export restraints that bar almost all crude oil sales overseas, with the exception of some shipments to Canada for refining and resale back into the US.

However, he pointed out that as US production rose, it was resulting in higher exports of refined products such as diesel, which are not subject to restrictions, and the US refining industry had limited capacity.

If US oil product exports were to continue to increase at the rate of the past two years, he said, then substantial new refining capacity would need to be built.

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