U.S. Crude Output to Climb Toward Record by 2016, EIA Says

U.S. crude oil production will approach a record by 2016, climbing to the highest level in 46 years as rising output from shale formations lifts domestic supplies, reducing the nation’s need for foreign oil.

Domestic output will grow annually by about 800,000 barrels a day to 9.5 million in 2016, nearing the record level of 1970, according to the U.S. Energy Information Administration’s Annual Energy Outlook for 2014. Natural gas production will grow 56 percent to 37.6 trillion cubic feet by 2040, boosting liquefied natural gas exports to 3.5 trillion, the EIA said today.

“The production growth we’ve seen is exceeding what anyone would’ve predicted a few years ago,” John Auers, senior vice president of Tuner Mason & Co., a consulting firm in Dallas, said by phone today. “It’s surprised everyone. We’ll be reaching even higher production very quickly because of breakthroughs in technology.”

U.S. oil production grew 18 percent to a 25-year high in the past 12 months, according to the EIA, as the combination of horizontal drilling and hydraulic fracturing, or fracking, unlocked supplies in shale formations including the Eagle Ford in Texas and the Bakken in North Dakota. Burgeoning output has reduced domestic demand for foreign oil and spurred record exports of fuel from U.S. refineries.

Higher Production

The U.S. pumped 8.075 million barrels a day of oil in the week ended Dec. 6, the most since October 1988, while the nation’s refiners operated at 92.6 percent of capacity, the highest level for the time of year since 2004, the EIA said in a report released Dec. 11. Exports of gasoline, diesel and other fuels reached a high of 3.79 million barrels a day in July, EIA data show.

The EIA last year forecast production would rise to 7.5 million barrels a day in 2019 before gradually declining to 6.1 million in 2040. U.S. output reached an all-time high 9.6 million in 1970.

The 2014 Annual Outlook “shows that advanced technologies for crude oil and natural gas production are continuing to increase domestic supply and reshape the U.S. energy economy, as well as expand the potential for natural gas exports,” EIA Administrator Adam Sieminski said in a statement.

The boom, which has reduced the nation’s reliance on imports, will make the country the world’s largest producer by 2015, five years sooner than last year’s forecast, the International Energy Agency in Paris said last month.

Lower Imports

As a result of rising oil and natural gas output, U.S. energy production increases to 102.1 quadrillion British thermal units in 2040 from 79.1 quadrillion Btu in 2012, according to the EIA’s forecast. The net use of imported energy sources will fall to 4 percent in 2040 from 16 percent in 2012.

The imported share of U.S. petroleum and liquid fuels supply is expected to drop to 25 percent in 2016 before growing to 32 percent in 2040, compared with 37 percent in a 2013 forecast. Domestic crude output is expected to drop after 2019, the agency said.

Natural gas production is forecast to rise through 2040 as higher spot prices through 2037 at Henry Hub in Louisiana, the U.S. benchmark pricing point, encourage higher output. The EIA forecasts gas will settle at about $4.38 per million British thermal units by 2020 and climb to more than $7.50 in 2040, according to today’s report.

Slower Growth

U.S. natural gas output growth slowed after prices dropped to as low as $1.902 per million Btu in April 2012 and rigs were diverted to seek more-valuable crude oil. Production is forecast to rise 1.8 percent in 2013, the slowest pace since 2005, before easing to 1.4 percent in 2014, according to EIA data compiled by Bloomberg.

Rigs targeting oil in the U.S. jumped 14 to 1,411 on Dec. 13, the highest level since June, as activity climbed in North Dakota’s Williston Basin and Texas’s Permian, Baker Hughes Inc., a Houston-based field services company, reported on its website. The gas count dropped six to 369, about 57 percent below the five-year average for the time of year.

“We’re directing less and less drilling toward gas and as long as that continues, we’re going to have an increasingly difficult time maintaining our natural gas production,” Arthur Berman, director of Labyrinth Consulting Services in Houston, said in a phone interview today. “It’s concerning that we’re assuming gas production will carry on forever.”

Futures Prices

Natural gas for January delivery slipped 7.2 cents today to $4.279 per million Btu on the New York Mercantile Exchange. Prices have averaged $3.704 so far in 2013. January-delivery West Texas Intermediate crude oil, the U.S. benchmark, rose 88 cents to $97.48 a barrel.

Taking into account all energy sources, including natural gas, petroleum, nuclear and renewables, the U.S. met 86 percent of its needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, EIA data show.

Miles traveled by light-duty vehicles in the U.S. is forecast to average annual growth of 0.9 percent through 2040, compared with 1.2 percent per year in the 2013 forecast, due to accelerated improvement in vehicle efficiency.

Energy consumption of light-duty vehicles, meaning cars and trucks, will fall to 12.1 quadrillion Btu in 2040 compared with 13 quadrillion projected in the 2013 report, EIA said. The rising fuel economy of light-duty vehicles “more than offsets” growth in miles traveled, according to the report.

Other key findings:

* Brent crude oil spot prices are seen falling to $92 a barrel in 2017 from $112 in 2012, before increasing to $141 barrel, measured in 2012 dollars, in 2040 due to growing demand that requires development of more costly resources.

* Total U.S. primary energy consumption grows by 12 percent between 2012 and 2040. Fossil fuel share of demand falls to 80 percent from 82 percent in 2012.

* Pipeline exports of U.S. natural gas to Mexico will grow by 6 percent a year to 3.1 trillion cubic feet in 2040 and those to Canada by 1.2 percent to 1.4 trillion. Pipeline imports from Canada will fall 30 percent to 2.1 trillion cubic feet in 2040 from 3 trillion in 2012.

* In 2040, natural gas will account for 35 percent of total electricity generation, while coal’s share will be 32 percent.

* Total U.S. energy-related CO2 emissions to reach 5.6 billion metric tons in 2040 compared with 6 billion metric tons in 2005. They will remain below 2005 levels through the period.

To contact the reporter on this story: Christine Harvey in New York at charvey32@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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