The shale revolution that made the US the world’s biggest oil and gas producer and offered the prospect of energy self-sufficiency has run out of steam, as drillers slash spending and production in response to the price war and coronavirus-led collapse of crude demand. US oil output, now a record high of 13m barrels a day, will begin falling steeply in the second half of this year and could drop 2.5m b/ d by the end of 2021, analysts have calculated. Even a modest further oil price drop could cut US production back by almost 4m b/d, fully reversing three years of increases.
“Shale growth helped to lead the US out of the Great Recession, but may fall victim to the Covid-19-fuelled recession,” said Jamie Webster, senior director of BCG’s Center for Energy Impact. The capex cuts have come thick and fast since the collapse of the Saudi-Russian oil pact on March 6 sparked a market rout that has more than halved the price of West Texas Intermediate, the US benchmark, to about $23 a barrel. Occidental, Apache, Diamondback Energy, Continental Resources, ConocoPhillips, Concho Resources, Pioneer Natural Resources, Parsley Energy and Cimarex are among the shale patch’s big producers to have collectively wiped billions from planned spending.
On Tuesday supermajor Chevron joined them, saying it would reduce its capex in the Permian shale this year by $2bn. The number of its operating rigs in the region would soon drop by more than half and output by year-end would be a fifth lower than planned. Some of shale’s big spenders are cutting back hard