Implications of US Oil Production Productivity Gains

Crédit Agricole’s Energy and Infrastructure Group (EIG) business is focused on debt financing for energy companies and energy-related assets.  The 2014 fall in global oil prices has led to a marked drop in the cost of production for U.S. oil and gas producers.  The Capstone team has been tasked with analyzing recent productivity gains in U.S. production and assessing implications for oil and gas markets and trade flows from North America. 

The team concluded that productivity gains may slow on an industry-wide basis due to the diminishing effects of “high-grading” and a natural limit to continued improvement of operational efficiencies.  Overall, however, the team believes that 2017 will experience a slight oil price recovery, allowing U.S. shale production growth to resume in 2017/18. U.S. export volumes outside Mexico would only rise along with production if WTI rises back to $60-70 per barrel, as the narrow WTI-Brent spread and infrastructure constraints make exports currently uneconomical.  As for natural gas, the team’s consolidated price stack shows prices between 3-4 $/MMBtu in 2020.  Although U.S. LNG exports from the L48 have officially started in February 2016 with total export capacity reaching 9 Bcf/d over the next four years, oversupply and weak LNG spot prices will temper full utilization. 

The team concluded that the medium-term economics behind U.S. shale competitiveness of LNG exports is too close to call, given the weak price outlook in the destination markets and that the window to export US LNG profitably to overseas markets will likely open and close periodically.

Center on Global Energy Policy Report by Jason Bordoff and Akos Losz.  

If You Build It, Will They Come? The Competitiveness of US LNG in Overseas Markets

(This paper is an expanded version of research done by Mr. Losz as part of Professor Bordof’s Spring 2016 SIPA Capstone course.)