EIA: This Week in Petroleum - 12 August 2020 - eng Избранное

Среда, 12 августа 2020 21:11

Aggregate and well-level data show magnitude and drivers of North Dakota’s declining crude oil production

The sharp decline in petroleum demand caused by the 2019 novel coronavirus disease (COVID-19) and efforts to contain it has led to a similarly significant decline in the supply of petroleum in the second quarter 2020 and, by extension, crude oil production, both internationally and domestically. According to data from the U.S. Energy Information Administration (EIA), total U.S. crude oil production declined by 21.9% between December 2019 and May 2020, with the Federal Offshore Gulf of Mexico falling by 18.2%, Alaska by 16.0%, and the Lower 48 states (excluding North Dakota) by 19.4% (Figure 1). Although significant production declines were reported throughout much of the United States, North Dakota’s reduction is particularly notable given its speed and severity; the state’s production experienced a 41.6% decline between December 2019 and May 2020.

Figure 1. Monthly U.S. crude oil production by area (November 2019-May 2020)

Between December 2019 and May 2020, crude oil output in North Dakota fell from an average of 1.5 million barrels per day (b/d) to 0.9 million b/d, a decline of more than 615,000 b/d. This production decline is greater than it would have been if producers had simply halted new drilling and allowed production from current wells to naturally decline. With only natural declines, EIA’s analysis of Enverus’ data (which covers most, but not all, wells operating in North Dakota) indicates that crude oil production for most of North Dakota would have been approximately 1.1 million b/d in May 2020. This estimate is, however, 0.4 million b/d more than those wells actually reported. This difference suggests that many producers decided to reduce production from their existing wells beyond the volume they would have naturally declined (Figure 2).

Figure 2. North Dakota crude oil production

The principal driver of North Dakota’s production decline was low crude oil prices. After averaging $55.70 per barrel (b) throughout 2019, monthly prices in North Dakota (defined as the average of the Bakken Clearbrook and the Bakken Guernsey prices) averaged $29.82/b in May 2020 after having declined as low as -$38.13/b on April 20 (Figure 3). According to survey data from the Federal Reserve Bank of Dallas, the region’s average producers need prices of at least $28/b to cover their operating expenses and $51/b to incentivize the region’s average producers to drill new wells.

Figure 3. North Dakota Bakken Formation average crude oil price

In response to these price signals, most North Dakota producers reduced production, which was accomplished in at least one of three ways. First, some operators chose to completely halt production at some of their wells. As a result, although North Dakota had an average of 16,000 producing wells in December 2019, by May 2020, that number had fallen to the lowest level in more than four years at 12,800 wells (Figure 4).

Figure 4. Number of producing crude oil wells in North Dakota

Second, in addition to reducing production by shutting in wells, many producers also elected to stop or reduce the drilling of new crude oil wells, which is normally required to offset the natural decline in production volumes from mature wells. Although calculating the exact number of new wells drilled is complicated by differences in the methodologies of the various well-level datasets, the general direction and magnitude of drilling activity can be approximated by changes in the number of rotary rigs operating in the state. According to Baker Hughes, an average of just 12 oil and natural gas rotary rigs were actively drilling new wells in North Dakota in May 2020, which is significantly fewer than the 50 operating in December 2019 and the lowest level in at least 12 years.

Finally, while some producers may have chosen to respond to price signals by removing wells from service or postponing the drilling of new wells, other producers have instead opted to reduce, but not completely halt, production from some of their wells. This trend is observable in the changing productivity of North Dakota oil wells, which fell from an average production rate of 94 b/d per well in December 2019 to 70 b/d per well in May 2020, the lowest level since May 2011 (Figure 5).

Figure 5. North Dakota crude oil production per well

Crude oil wells are not homogenous, and the economic viability of a well can vary significantly depending on its location, configuration, and resource target. Under the extreme price environment that developed in April and May 2020, operators decided to optimize operations at all levels. These decisions included targeted production shut-ins and curtailments, as well as limiting new drilling activities.

EIA does not expect North Dakota crude oil production to decline further, however. In its August Short-Term Energy Outlook, EIA forecasts that a combination of higher crude oil prices and increased refiner demand for crude oil inputs will increase oil production in North Dakota to an average of about 1.2 million b/d between August 2020 and July 2021 (83% of the December 2019 level). This forecast assumes that Energy Transfer LP’s 570,000 b/d Dakota Access Pipeline (DAPL) will continue to provide takeaway capacity from the region. On July 6, 2020, a U.S. District Court ordered the temporary closure of the Dakota Access Pipeline beginning in early August. A U.S. appeals court has overturned the lower court decision, allowing the pipeline to remain running while further litigation proceedings continue.

U.S. average regular gasoline prices fall, diesel prices increase

The U.S. average regular gasoline retail price fell 1 cent per gallon from the previous week to $2.17 per gallon on August 10, 46 cents lower than the same time last year. The Gulf Coast price fell more than 3 cents to $1.81 per gallon, the East Coast price fell more than 1 cent to $2.09 per gallon, the West Coast price fell nearly 1 cent, remaining virtually unchanged at $2.83 per gallon, and the Rocky Mountain price fell less than 1 cent, remaining virtually unchanged at $2.37 per gallon. The Midwest price rose less than 1 cent, remaining virtually unchanged at $2.06 per gallon.

The U.S. average diesel fuel price rose less than 1 cent from the previous week to $2.43 per gallon on August 10, 58 cents lower than a year ago. The Rocky Mountain price rose nearly 3 cents to $2.37 per gallon, the Midwest price increased nearly 1 cent to $2.31 per gallon, and the Gulf Coast price rose nearly 1 cent, remaining virtually unchanged at $2.18 per gallon. The West Coast price was unchanged at $2.96 per gallon. The East Coast price fell less than 1 cent to $2.51 per gallon.

Propane/propylene inventories rise

U.S. propane/propylene stocks increased by 2.6 million barrels last week to 89.3 million barrels as of August 7, 2020, 10.2 million barrels (12.9%) greater than the five-year (2015-19) average inventory levels for this same time of year. Gulf Coast, Midwest, and Rocky Mountain/West Coast inventories increased by 1.4 million barrels,1.3 million barrels, and 0.2 million barrels, respectively. East Coast inventories decreased by 0.3 million barrels.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

Retail prices (dollars per gallon)

Conventional Regular Gasoline Prices Graph. On-Highway Diesel Fuel Prices Graph.
 Retail pricesChange from last
Gasoline 2.166 -0.010 -0.458
Diesel 2.428 0.004 -0.583

Futures prices (dollars per gallon*)

Crude Oil Futures Price Graph. RBOB Regular Gasoline Futures Price Graph. Heating Oil Futures Price Graph.
 Futures pricesChange from last
Crude oil 41.22 0.95 -13.28
Gasoline 1.208 0.021 -0.466
Heating oil 1.220 0.003 -0.588
*Note: Crude oil price in dollars per barrel.

Stocks (million barrels)

U.S. Crude Oil Stocks Graph. U.S. Distillate Stocks Graph. U.S. Gasoline Stocks Graph. U.S. Propane Stocks Graph.
 StocksChange from last
Crude oil 514.1 -4.5 73.6
Gasoline 247.1 -0.7 13.3
Distillate 177.7 -2.3 42.1
Propane 89.336 2.623 6.713
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