U.S. oil production has peaked, Oxy’s Hollub says
America’s oil production will never again reach the record 13 million barrels a day set earlier this year, just before the pandemic devastated global demand, according to Occidental Petroleum Corp.
“It’s just going to be too difficult to replace the 2 million barrels a day of production that we’ve lost, and then to further grow beyond that,” Chief Executive Officer Vicki Hollub said last week at the Energy Intelligence Forum. “Over the next three to four years there’s going to be moderate restoration of production, but not at high growth.”
Occidental is one of the biggest producers in the U.S. shale industry, which added wells at such a rate prior to the spread of COVID-19 that the country became the world’s top crude producer, overtaking Saudi Arabia and Russia, ushering in an era that President Donald Trump called “American energy dominance.”
Shale’s debt-fueled expansion came to a juddering halt due to lower gasoline demand and oil prices, but also because of Wall Street’s increasing reluctance to fund growth at any cost. Shale operators are increasingly prioritizing cash flow and returns to investors over production growth.
Occidental, which vies with Chevron Corp. to be the biggest producer in the Permian Basin, has been forced to throttle back capital spending, lower growth targets and cut its dividend in a bid to save cash during the downturn. Its finances were already severely challenged by the debt taken on through its $37 billion purchase of rival Anadarko Petroleum Corp. last year.
Hollub said global consumption stands at about 94 billion barrels a day, and it will take a COVID-19 vaccine before it returns to 100 million barrels. Due to cutbacks around the world, supply and demand for oil will likely balance again by the end of 2021, she said.
Unlike some of her European peers, Hollub sees strong long-term demand for oil. “I expect we’ll get to peak supply before we get to peak demand,” she said.
Energy demand to get work-at-home boost
“Get yours before they go,” says the headline on a home improvement article dedicated to the hottest housing trends. The must-have item? A patio heater.
With winter in the northern hemisphere fast approaching, the COVID-19 pandemic is prompting families to buy outdoor heaters. Restaurants and bars are also snapping them up to provide al fresco dining and drinking, while Google searches for “patio heating” have jumped to a record high. These heaters rely on electricity or liquefied petroleum gas, like propane.
Residential energy demand is set to increase in the coming months as millions of people in Europe, Asia and North America spend more time at home — either working, studying or relaxing on their patios. With many offices still open, commercial use should remain steady, creating a so- called “double-heating effect” that could lead to more use of everything from kerosene to natural gas.
Commodity traders are also beginning to bet on a colder-than-normal winter, due to the formation of a La Nina weather pattern in the Pacific Ocean. That — combined with the impact of the coronavirus — may mean that demand for some energy products could be surprisingly strong.
“Weather agencies are forecasting a cold start to the 2020-21 winter,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London. “Demand for LPG, kerosene, heating oil and low-sulfur fuel oil could all be boosted by varying degrees.”