BOSTON, MA, November 29, 2017
Hedging and Pipelines Support Shale Growth
Higher oil prices have encouraged hedging 2018 shale output, supporting production even as procyclical costs are lifting breakeven prices, according to ESAI Energy’s North America Watch. With a weighted average floor price of $50 per barrel, roughly 1.5 million b/d of production has been hedged so far, about double the volume hedged at the end of Q2. US shale is forecast to rise by about 660,000 b/d on average in 2018, but by 375,000 from start to finish during the year.
Meanwhile, constraints on takeaway capacity out of the Permian will be alleviated by Q2-2018 as 780,000 b/d of new pipeline capacity ramps up. Production growth from the Midland and Delaware sub-basins of the Permian outpaced pipeline capacity growth by the third quarter of 2017. Compounding this constraint was the backlog created by the reduction in crude processing by Gulf Coast refiners during September due to Hurricane Harvey and the associated limitations on pipelines.
ESAI Energy estimates roughly 650,000 b/d of increased throughput to the USGC by June 2018. ESAI Energy analyst Elisabeth Murphy points out that “Permian basin production will grow 200,000 b/d by June 2018, leaving room in the pipe for more throughput in the second half of 2018”.
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