EIA: U.S. oil output to top 11 million barrels per day end of 2018, could be net exporter by 2022

Shale-driven U.S. crude oil production is projected to soon reach levels not seen since the early 1970s when Arab members of OPEC imposed an oil embargo against the U.S. that lead to record high pump prices and gasoline rationing in several regions of the country.

In its annual 145-page outlook for U.S. energy production, consumption and transportation needs through 2050, the U.S. Energy Information Administration (EIA) forecasts that the U.S. will switch from being a net energy importer to a net exporter by 2022 and surpass 11 million barrels per day of production by the end this year.

Earlier this week, the EIA first reported that U.S. crude oil production reached 10.038 million barrels per day (b/d) in November 2017. That is the first time since 1970 that monthly U.S. production levels surpassed 10 million b/d and the second-highest U.S. monthly oil production value ever, just below the November 1970 production value of 10.044 million b/d.

In its annual energy forecast, the EIA provides modeled projections of domestic energy markets through 2050, and it includes cases with different assumptions regarding macroeconomic growth, world oil prices, technological progress and energy policies. Those projections for U.S. energy markets through 2050 are based on the so-called “reference case” and six other sensitivity areas.

The “reference case” assumes improvement in known technologies along with a view of economic and demographic trends reflecting existing views of leading economic forecasters. Under that scenario, U.S. crude oil production in 2018 is expected to surpass the 9.6 million barrels per day (b/d) record set in 1970 and will plateau between 11.5 million b/d and 11.9 million b/d.

The United States has been a net energy importer since 1953, but the EIA projects the nation’s shale-driven oil and gas industry will be a net energy exporter by 2022.

“This transition occurs even earlier in some … sensitivity cases that incorporate assumptions supporting larger growth in oil and natural gas production or that have higher oil prices,” the EIA stated.

In addition, the continued development of tight oil and shale gas resources supports growth in natural gas plant liquids production, which reaches 5.0 million b/d in 2023 —a nearly 35% increase from the 2017 level. Natural gas production is forecasted to account for nearly 39% of U.S. energy production by 2050 in the reference case. Production from shale gas and tight oil plays as a share of total U.S. natural gas production is projected to continue to grow because of the large size of the associated resources.

Wind and solar generation leads the growth in renewables generation throughout the projection, accounting for 64% of the total electric generation growth through 2050. With a continued but reduced tax credit and declining capital costs, solar capacity continues to grow throughout the projection period, while tax credits that phase out for plants entering service through 2024 provide incentives for new wind capacity in the near term.

Hydropower, nuclear power and coal production will remain relatively flat through 2050, the EIA predicts, limited by slow growth in electricity demand as well as unfavorable economics and other considerations.

Other key sensitivity cases that reflect market, technology, resource and policy uncertainties that affect energy markets include Low and High Economic Growth, Low and High Oil Price, and Low and High Oil and Gas Resource and Technology. For example, in the “high oil price” scenario, certain global market factors could push international oil prices to $229 per barrel by 2050, compared to $114 per barrel in the reference case and $52 per barrel in the “low oil price” setting.

However, strong domestic production coupled with relatively flat energy demand will allow the U.S. to become a net energy exporter over the projection period in most cases, the EIA stated. Total U.S. energy production is forecasted to increase by about 31% from 2017 through 2050, led by increases in the production of renewables other than hydropower, natural gas and crude oil.

Following are other key findings from the EIA annual energy outlook.

• Almost all new electricity generation capacity is fueled by natural gas and renewables after 2022, the EIA forecasts. Natural gas prices are projected to remain lower than $5 per million British thermal units until the very end of the projection period. The costs associated with adding new renewable electricity generation capacity are expected to continue declining, especially for solar photovoltaic systems.

• Renewable generation is projected to increase 139% through the end of the projection period, reaching 1,650 billion kilowatthours (BkWh) by 2050. The increase in wind and solar generation leads the growth in renewable generation through the projection period, accounting for nearly 900 BkWh (94%) of the total growth. Solar photovoltaic (PV) growth continues through the projection period as solar PV costs continue to decrease.

• Lower 48 states onshore tight oil shale development continues to be the main driver of total U.S. crude oil production, accounting for about 65% of cumulative domestic production between 2017 to 2050. Previously announced deepwater discoveries in the Gulf of Mexico lead to increases in Lower 48 states offshore production through 2021. However, offshore production then declines through 2035 and remains flat through 2050 as new discoveries offset declines in legacy fields.

• Retail prices of motor gasoline and diesel fuel are projected to increase from 2018 to 2050, largely because of expected increases in crude oil prices. Growing demand in domestic and export markets leads to increasing natural gas spot prices over the projection period at the U.S. benchmark Henry Hub despite continued technological advances that support increased production.

• Natural gas used for electric power generation generally increases over the projection period but at a slower rate than in the industrial sector. This growth is supported by the scheduled expiration of renewable tax credits in the mid-2020s. Natural gas consumption in the residential and commercial sectors remains largely flat because of efficiency gains and population shifts that counterbalance demand growth.

• Coal-fired generating capacity decreases by an additional 65 GW between 2017 and 2030 as a result of competitively priced natural gas and increasing renewables generation, before leveling off near 190 GW through 2050.