Rumors of Shale's Demise are Exaggerated

Though the pace of the increase is on the decline, inland crude oil production in the United States continues to set records, supporting a flood of exports from the country.

The Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, reported in its Drilling Productivity Report for March that oil production from the seven primary shale basins should average 9.78 million barrels per day (BBL/d) next month, an increase of just 10,000 BBL/d from the expected levels for March.

About 60% of that growth comes from the Permian basin, spread out over parts of Texas and New Mexico. The EIA estimates the Permian will yield about 6.1 million BBL/d in April, a change of only 0.13% from March.

That lackluster growth month-on-month is indicative of broader trends in the shale patch. The same report from 2019 shows a monthly increase across all basins of around 1%, with output from the Permian growing by a full percentage point as well.

It was perhaps fashionable throughout much of last year to suggest shale oil production had peaked. If it has, it's peaked at a decidedly high level. Permian production in 2019, for example, was about half what it is today. Total shale production for March 2019 was 8.6 million BBL/d and if forecasts for this month prove accurate, output will have expanded nearly 14% over the course of five years.

Rather than increasing the rig count, new wells are more efficient. The EIA points to two data sets--new well production, defined as oil extracted during the first 12 months of production, and legacy production, the amount of oil that's been extracted after the initial 12 months.

Since 2021, EIA data show that legacy production has remained stable, while new-well production has increased. Efficiencies emerged in the form of multi-lateral wells. Those laterals, meanwhile, are extending longer, reaching nearly three miles in the horizontal direction, and at increasingly lower costs.

The shale output helped establish the U.S. as the global leader in crude oil production, accounting for about 15% of total global output.

Not only that, but the end of a moratorium on crude oil exports in 2015 helped establish the U.S. as a global player, which carries geopolitical ramifications given the Western pressure on producers such as Iran, Russia and Venezuela. With barrels at a premium because of global conflict, importers are relying more on countries like the U.S.

Barring 2021, U.S. crude oil exports have increased every year since the moratorium on sending oil to foreign markets was lifted. Total crude oil exports set a record last year at 4.1 million BBL/d on average, a 13% increase from the prior year.

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