U.S. Shale Producers Face Growing Challenges Along The Road To Recovery

June 15, 2021 01:30 PM
U.S. shale oil production is back to 7.8 million bpd, the highest we’ve seen since last November
The push to become more green and carbon neutral is forcing investment dollars away from the oil and gas sector
Russia will raise the import duty on oil starting July 1
The Energy Report

The Energy Report

The Phil Flynn Energy Report 

The Shale Road Back

The U.S. shale patch recovery has been a rocky road and is now facing more challenges, this time unlike anything they’ve seen before. 

As oil prices reached their highest level since October 2018, The Energy Information Administration (EIA) reported that U.S. shale oil production increased by 38,000 barrels a day (bpd) in July. That puts U.S. shale oil production back to 7.8 million bpd, which is the highest we’ve seen since last November. Finally, we’re starting to see some signs of life in the U.S. shale patch, but it’s still a shadow of its former self and remains under fire by the Biden administration and the green movement.

Not only does shale need to try increasing output to meet demand, but the sector also has to deal with a lack of investment dollars which are being diverted elsewhere because of climate change fears. There’s still a shockwave surrounding a Reuters report that "Royal Dutch Shell is reviewing its holdings in the largest U.S. oil field for a potential sale, people familiar with the matter told Reuters, marking a key moment in its shift away from fossil fuels as it faces growing pressure to slash carbon emissions.”

This pressure is also on the back of investors that are turning away from fossil fuels. U.S. shale producers have shown restraint, partly because their shareholders are pressuring them to show a profit and partly because of the lack of investment. 

Fossil fuel investment has become unpopular and that’s going to harm oil production both in the U.S. and around the globe. The push to become more green and carbon neutral is forcing investment dollars away from the oil and gas sector, which is putting the global oil market on the path towards an energy crisis. 

Argus reports the following:

Climate activists aiming to stop new oil and gas drilling in Norway's Arctic territory are taking the issue to the European Court of Human Rights.

Environmental groups Greenpeace Nordic and Young Friends of the Earth Norway alongside six activists have filed an application to the court arguing that Norway has breached fundamental human rights by allowing new oil drilling in the midst of a climate crisis. In December, the Supreme Court of Norway dismissed their attempt to halt oil exploration in the Arctic.

Their latest effort follows a Dutch court ruling last month that ordered Shell to sharply reduce its CO2 emissions this decade, and a scenario published by the IEA warning that new fossil-fuel investments must stop if the world is to stand a chance of cutting net emissions to zero by 2050.

Norway's oil policy has drawn criticism from politicians and climate activists who say the country's approach is at odds with its drive to cut emissions. Last year the Norwegian parliament approved fiscal stimulus measures for the oil industry to spur spending and protect jobs. And only last week the Norwegian government published a white paper that showed no change to oil policy, although there was an increased focus on renewables.

"The petroleum sector will remain a significant factor in the Norwegian economy in the years to come, although not on the same scale as today," the government said. "The government will facilitate long-term economic growth in the petroleum industry within the framework of our climate policy and our commitments under the Paris Agreement."

Russia is more confident that oil prices will stay strong: they’ve raised the import duty on oil starting July 1 to 61.5.

Natural gas is on a roll! The EIA reports that "[n]atural gas production from the major shale basins was expected to increase for the first time in [4] months, according to EIA's drilling productivity report going back to 2007. Total gas output will increase less than 0.1 billion cubic feet per day (bcfd) to 84.3 bcfd in July. That compares with a monthly record high of 86.6 bcfd in December 2019.”

Still not enough to cool this red hot market.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.