US oil, gas Nov14aSometime over the next year, the US is likely to set a new all-time record for oil production, reversing the pre-2008 trend.  Natural gas production has already reached new all-time peaks.  As the chart shows:

  • US natural gas production peaked in 1973 at 62 Bcf/day, and then fell by a quarter to 46 Bcf/day in 1986 (blue)
  • Since 2008, it has rebounded strongly,and the US Energy Information Agency (EIA) expects it to reach 75 Bcf/day in 2015
  • US oil production peaked in 1970 at 9.6 mbd, and then virtually halved to 5mbd in 2008 (green line)
  • The EIA reports output was 8.7mbd in September, and expects it to set a new monthly record in 2015, and to average 9.5mbd

Until recently, attention has focused on these remarkable supply gains.  But in today’s New Normal world, it is really demand that counts.  And gas supply has been rising well ahead of demand as all the new supply comes online.  Thus the EIA report for gas demand:

Growing domestic production is expected to continue to put downward pressure on natural gas imports from Canada and spur exports to Mexico.”

In oil, the supply/demand balance is even worse, as US consumption is now in decline – by 0.6%/year since 2008, according to BP statistics.  As a result, as the EIA also report:

The growth in domestic production has contributed to a significant decline in petroleum imports.  The share of total U.S. liquid fuels consumption met by net imports fell from 60% in 2005 to an average of 33% in 2013. EIA expects the net import share to decline to 20% in 2015, which would be the lowest level since 1968.”

A net import share of just 20% next year doesn’t leave much room for imports from OPEC.  In turn, this raises two key questions.  What will happen to all this new production?  And how will it impact prices?

I will look at these issues in more detail tomorrow.