Don’t expect the pressure on world oil prices, and therefore on the share prices of a host of companies larger and small, to slacken anytime soon in 2015.
America now has more oil than at anytime since 1975, with all the impact that has on imports, thereby pushing more oil onto global markets.
And it seems the US will go on producing as much of the stuff as possible as many of the companies in the shale and fracking sector have high debts and need to generate as much cash as they can to repay debt and pay for new drilling – much the way the iron ore sector is performing at the moment.
America’s proven oil reserves reached their highest level since 1975, official figures for 2013 have shown, but could this be the peak thanks to the recent 40% slide in global oil prices?
It’s undeniable that America’s energy outlook has been transformed as oil production has soared to where it’s approaching 10 million barrels a day, so the jump in reserves was sure to follow as companies proved out the myriad small deposits they have been finding in the shale and fracking ‘revolution’.
US oil production is up 80% since 2008 and has seen US oil imports plunge by more than third since 2010, and helped drive down world prices this year by upwards of 35 to 40%, depending on oil type.
With OPEC (Saudi Arabia) refusing to cut production, the current rate of production in the US will continue to pressure global oil prices for much of the next year.
US gas production is also higher and reserves are now so large that the country has stopped importing LNG and has enough gas to last for decades.
The US is looking to export LNG in coming years, but the weakness in oil prices could put a lid on those ambitions as global gas prices dip, just as a major export project in British Columbia in Western Canada seems to have run into delays this week.
Proven oil reserves — oil that is expected to be recoverable with existing technology at current prices — were falling in the US up until 2009, when companies began experiments with producing oil from the Bakken shale of North Dakota.
They used technologies first developed further south in the gas fracking areas of Texas (now a big shale oil producer), Oklahoma, Kentucky and other states.
These new reserve estimates are based on the companies’ own reports of their reserves, which reflect drilling plans over the next five years.
Last year the EIA said US companies produced about 2.7 billion barrels from their reserves, but added 5.5 billion in new discoveries.
As a result, the US ended 2013 with about 36.5 billion barrels of proven oil reserves: up 9.3% in the year, and one of the highest levels ever reported in records that go back to the 19th century.
The EIA said proved reserves of crude oil and lease condensate increased for the fifth year in a row in 2013, and exceeded 36 billion barrels for the first time since 1975.
The peak came in 1970, when the industry reported proven reserves of 39 billion barrels of crude oil.
As upbeat as these figures are, they still leave the US well behind Russia and Canada in terms of proven reserves, and also behind most OPEC members.
Saudi Arabia’s proven oil reserves, the world’s largest conventional ones, were 266 billion barrels at the end of last year, according industry estimates.
The largest additions to US reserves were in the Bakken shale in North Dakota, which gained 1.68 billion barrels in 2013, and the Eagle Ford shale of south Texas, which gained 805 million barrels.
But is this an illusion, given the sharp falls in oil prices this year and the belief that oil prices won’t see the $US100 a barrel mark for a while?
The 2013 estimate is based on an average oil price of about $US97 per barrel for US benchmark West Texas style crude.
That traded around $US67 a barrel this week,meaning that in the next two years, if prices remain under $US97 a barrel (which is quite possible), America’s reserves position will fall.
Because oil prices only started falling from June, the 2014 average price won’t be that much below the $US97 a barrel mark. The 2015 figure is the one which will fall sharply if prices remain under $US97 a barrel.
The EIA said that America’s total natural gas proved reserves increased 10% (31 trillion cubic feet (Tcf)) in 2013 to record a new record high of 354 Tcf.
The EIA said the increase in 2013 "reflect both geological and financial factors. In 2012, low natural gas prices led to significant downward revisions to the reserves of existing natural gas fields. As natural gas prices increased in 2013, a portion of those reserves from existing fields were restored by positive net revisions.
“Other increases in natural gas reserves came from extensions of existing natural gas fields and new discoveries,” the agency said.
The increase in gas reserves came as average prices rose from $US 2.75 a million btus (British Thermal units) to $US3.66. The fall in reserves in 2012 came as the average price fell to $US2.75 a million btus from $US4.12 a million btus in 2011 when reserves soared.
