Oil: Crisis Coming in 2022?

OilPrice (Jun 17) looked at the lack of investment and how that might impact future oil supply. This lack of investment has been in dramatic decline since 2014. The OilPrice article looked specifically at shale and how even if there is a rush to investment more in shale, it might take time for oil production to come back to previous levels:

Thanks to capital restraint, billions of dollars of equipment have been written down and scrapped. Employees have found new careers, and are reluctant to return given the turmoil in the industry. But, even if we could scramble that much hardware and talent to meet the moment, it wouldn't matter.

How lacking is oil investments?

In fact, an article carried in the Wall Street Journal noted that “Planned investment in oil supply globally falls about $600 billion short of what will be needed to meet projected demand by 2030, according to JPMorgan Chase & Co. analyst Christyan Malek. 

API (Feb 24) looks into how we could have a crisis as soon as 2022.

First: global oil production in existing fields decline between 4% - 7% based on level of investments in those fields.

Second: the estimate is that 93.6 mb/d were produced as of Feb 2021, which indicates that by Feb 2022, we could see production drop by 3.7 mb/d to 6.6 mb/d.

Third: global oil production is expected to hit 100.8 mb/d by 2022 in order to align with demand, which would indicate another 4.0 mb/d to 7.1 mb/d decline.

Fourth: Meanwhile, oil demand is expected to increase by 6.9 mb/d by the end of 2022.

Fifth: So the argument is that with an increase of demand by 6.9 mb/d and the potential loss over two years of between 7.5 mb/d to 13.7 mb/d, new production of between 14.7 mb/d to 20.5 mb/d needs to be found by the end of 2022.

Sixth: of that gap, it is estimated (as of Feb 2021) that 8.4 mb/d would come from OPEC +.

Seventh: Can shale really make up the difference? Well, based on the OilPrice article, that would be a stretch. And at least via EIA data, as of Feb 2021, shale production was 1.6 mb/d below the peak production level. So is it possible that the United States could at most make up only 1.6 mb/d of the remaining 8.4 mb/d gap? I'm sure the shale production could increase even more, but then there is the equipment constraint mentioned by OilPrice and could it really increase by anywhere close to 8.4 mb/d? 

This analysis from API is definitely something to keep an eye on into 2022.