US and Russia duel over production dominance
Fuelled by shale gains, US output has risen rapidly, now outstripping Russia’s production; but Moscow won’t accept the shift lying down
Surging crude oil output in the United States has disrupted an oil order that's been in place for decades. The US has this year overtaken Russia to become the world's largest producer for the first time. But the record-breaking run is threatened by Moscow's bullish ambitions.
US oil companies' production averaged 10.59m barrels a day in April, according to Jodi data
released this week. Their Russian peers produced only 10.3m b/d-meaning the US retained a lead that started in February.
"Over the next five years, the US will be producing more than Russia," Tariq Zahir, a commodity fund manager at Tyche Capital Advisors LLC told
Petroleum Economist. "New pipelines, new infrastructure and the ability in the Permian basin to bring costs down will make the US a larger producer."
Without this shale contribution, US output would be lower than China's. Crude production from major shale formations rose to over 7.2m b/d in June, the US Energy Information Administration
said in a monthly productivity report.
But the stability of Russian output-it has ranged between 10.5 and 10m b/d since February 2017-also highlights a restraint that only gave way in recent weeks. Compliance with the Opec+ cuts deal amounted to 95% in May, but Russia's energy giants are eager to benefit from greenfield developments.
Their impatience influenced Russia's desire to seek an end to the Opec/non-Opec cuts deal. Russian pressure, in turn, contributed to Saudi Arabia's decision to back such a move. Opec on Friday reached a preliminary agreement to raise production
by 1m b/d from July—500,000 b/d less than Russia's proposed rise—although supply increases are more likely to fall in a range between 600,000 to 800,000 bpd.
Speculation is now rising over the extent to which Moscow will open the taps following the deal, and the output it can achieve. Russia doesn't publish spare capacity figures, but Rosneft alone believes it can add 100,000 b/d "in just a few days", as Aton LLC analysts said in a note on 31 May.
Even with the pact still in place, Russia's oil production pre-emptively spiked to 11.1m b/d
in the first week of June, Interfax cited a source as saying on 9 June.
The long game
So current Russian output is already higher than 10.8m b/d—the EIA's May estimate of average US production for 2018, but below the
11.76m b/d it expects in 2019.
A longer view would give the US a clear lead, according to
research consultancy Rystad Energy . The US added nearly 50bn barrels of recoverable oil in 2017, reaching an estimated 310bn barrels. This is equal to 79 years of US production at the current rate of output. Russia's reserves are projected at 190bn barrels—48 years of production at current levels.
Naturally such estimates can change over time as new information is gained through drilling, production, and technology; but the turnaround is remarkable given the historic context. In 2005, US output had dwindled to just
4.9m b/d , less than half of today's figure, while imports surged to nearly 14m b/d. As talk of peak oil gained popularity, Princeton professor emeritus Ken Deffeyes famously wrote, " you can kiss your lifestyle goodbye ".
As ever, predictions in the energy sphere are notoriously unreliable. Nothing is certain—not even who will be the ultimate winner in the two-horse race for production dominance.
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