US Shale Forecast: IHS Markit

Via the Oil and Gas Journal, IHS Markit forecasts that Permian basin oil production will double between 2018 - 2023. Per the article, that would mean oil production will hit 5.4 million bpd. This would make the Permian basin production higher than every OPEC nation outside of Saudi Arabia.

There is an interesting quote from the article:

Permian oil production already is a major force in world supply growth, the report said, adding that IHS Markit analysts expect a “stunning” level of growth that will comprise more than 60% of net world production growth.



If I take the article's statement that this doubling is really equal to about 3 million bpd, then can we argue that world net production is estimated to increase by 5 million bpd by 2023?

I read a few more articles about the report as I couldn't find the report from the IHS Markit website (I'm sure reading the report requires money). Via Reuters, we have this quote:

The output from the Permian was projected to climb 78,000 bpd to a fresh record of 3.28 million bpd in June, the Energy Information Administration said in its monthly drilling productivity report last month.

If you take the 3.28 million bdp number and add 3 million bdp, you end up with 6.28 million bdp, which is much higher than the 5.4 million bpd quote. So something is going on.

Nasdaq has this headline: New IHS Markit Outlook – “Stunning” Permian Basin Oil Production to More than Double from 2017-2023, Exceeding Expectations. 

It appears that what Oil & Gas Journal means is that oil production will double from the 2017 baseline between the years 2018 - 2023.

Here's my math thinking on global supply and demand:

1. 2018 to 2023 is 6 years.

2. Let's assume oil demand increases at an average of 1.2 million bpd. IEA expects demand to increase by 1.4 million bpd in 2018. Making the assumption that peak oil demand will hit around 2035 - 2040, I should probably assume that oil demand increases will gradually decline. So let's say that oil demand will increase by 7.2 million bpd by 2023.

3. We have output increasing by 5 million bpd.

4. We know that OPEC + Russia is holding about 2.5 million bpd off the market via their agreement and the fact that Venezuela is falling apart.

5. It would be interesting to see what IHS Markit means by net production growth -- does this take into account or does not take into account the OPEC + Russia agreement?

6. If it does take into account the agreement with their 5 million bpd increase, does that mean IHS Markit sees a huge oil crisis around the corner as supply will increase by 5 while demand is likely to increase by 7?

7. Or is this 5 million bpd increase needing an adjustment for what is currently behind held off the market by OPEC + Russia. If so, then the market will be fairly balanced through 2023 as demand will increase by 7 and supply will increase by the 2.5 million currently held off the market + the 5 million estimate net production increase?

One final quote from the Oil and Gas Journal:

The outlook expects operators will operate wells with positive cash flow unlike previous years. Analysts anticipate light, sweet crude oil prices will stay about $60/bbl or higher.

That's a big caveat: that operators will remain cash flow positive.