Crude oil production growth could be limited in the United States amid fewer drilled but uncompleted wells and natural gas pipeline constraints, according to the U.S. Energy Information Administration (EIA). Meanwhile, high natural gas prices aren’t expected to keep coal-fired electricity generation from declining this year.
Between July 2020 and September 2022, more oil wells were completed than were drilled in the United States. As a result, the number of drilled but uncompleted wells fell to 4,333, the fewest since at least December 2013.
The decline in the number of drilled but uncompleted wells has coincided with high oil prices and rising domestic production. According to Baker Hughes, the number of active oil rigs has risen to 610 as of Oct. 14 from 172 rigs on Aug. 14, 2020. While the number of active oil-directed rigs that drill new wells increased earlier this year, the rig count has remained flat since July, according to the EIA.
When a well is drilled, a drilling rig and crew drill one or more wells on a pad site. A separate crew usually completes the well by casing, cementing, perforating and hydraulically fracturing the well so it can start production. Generally, the time between drilling and completion is several months. Without more drilling, the lag between drilling and completion might limit increases in crude oil production.
The Permian region, spanning Texas and New Mexico, accounts for about 60% of total crude oil production among the seven largest oil and natural gas production regions in the United States. Most natural gas in the Permian region is produced along with and as a result of crude oil production. The capacity limitations to transport natural gas from the region could limit the growth of crude oil production there.
Crude oil producers can flare excess natural gas, but the Texas Railroad Commission regulates how much flaring is allowed in the Texas portion of the Permian region. As the capacity tightens to transport natural gas from the region, the commission can grant flaring permits to lessen oil production constraints.
According to the EIA, the capacity to transport crude oil from the Permian region is sufficient to meet growing demand. Over the next two years, several new projects are expected to be completed that will add capacity to transport natural gas from the region. Still, the existing capacity constraints might limit the amount of crude oil and natural gas produced from the region in the fourth quarter and into 2023.
According to the EIA, coal-fired electricity generation is expected to decline by 6% in 2022, from 2021, despite high natural gas prices. In 2021, coal-fired generation rose by 16% as a result of increased electricity demand and higher natural gas prices. While the prices remain high, coal-fired generation is projected to fall this year as a result of tight coal inventories.
Between 2014 and 2020, the coal-fired generation had been falling. Coal-fired generation increased in 2021 for the first time since 2014 and averaged 23% of U.S. generation, up from 20% in 2020. This year, the share of electricity generation attributed to coal is expected to fall to 20%.
In 2022, natural gas-fired generation is expected to rise slightly, and its share of annual U.S. generation is projected to rise from 37% to 38%. According to the EIA, the electric power sector is not moving from natural gas-fired generation because coal-fired plants have not been receiving enough coal to meet demand. In 2022, coal production is projected to rise by 2%, but most of that gain in coal will be exported.
Coal inventories at power plants were on average 23% lower than in 2021. The majority of coal is delivered to power plants by U.S. railroads, which have experienced several disruptions this year.