Last updateThu, 04 Jun 2020 6pm

U.S. Shale Output May Drop Significantly This Year

As a price-elastic source of supply, U.S. shale production will respond relatively quickly to the steep drop in oil prices. Already U.S. E&Ps are reporting further reductions to their 2020 spending guidance and cutting back on planned drilling activity. A new normal is here, with fiscal discipline and strong balance sheets even more important to weather current and future price volatility. ESAI Energy examined three price scenarios and the impact on shale basin production for the rest of 2020 under each scenario. A decline of somewhere between 170,000 b/d and 1.0 million b/d seems to be in the cards.

A sustained price under $40 will require significant restructuring, with many smaller producers unable to continue operating; bankruptcies will increase. This results in U.S. shale ending 2020 almost 1 million b/d lower than at the start of the year.

Global Chemicals Output Fell Sharply in January

Led by a large decline in China due to the effects of the COVID-19 coronavirus, the American Chemistry Council’s Global Chemical Production Regional Index shows that global chemicals production fell by 1.0% in January, a reversal of gains in November and December. During January, chemical production increased in Latin America, the Former Soviet Union, and Africa and the Middle East. Production fell in North America, Europe, and Asia-Pacific. Headline global production was up only 0.9% year-over-year on a three-month moving average basis and stood at 117.6% of its average 2012 levels.

Among chemical industry segments, January results were mixed, with bulk petrochemicals and organics, plastic resins, synthetic rubber, and manufactured fibers showing gains. Production was soft in other segments. Considering year-earlier comparisons, growth was strongest in manufactured fibers, followed by synthetic rubber, plastic resins, coatings, and bulk petrochemicals and organics.

U.S. Ethanol Reeling from Low Oil Prices, Lower Demand

“U.S. ethanol producers are feeling the pain as margins on the corn-based fuel slumped this week to an eight-year low for this time of year, weighed by concerns over lower fuel demand from the coronavirus and the recent collapse in oil prices,” Hydrocarbon Processing reports.

“With falling gasoline prices and lower expected gasoline demand, some market participants said it’s only a matter of time before ethanol plants decide to cut rates or shut.”

U.S. Natural Gas Production Grew 10% in 2019

U.S. natural gas production grew by 9.8 billion cubic feet per day (cf/d) in 2019, a 10% increase from 2018. The increase was slightly less than the 2018 annual increase of 10.5 billion cf/d. U.S. natural gas production measured as gross withdrawals (the most comprehensive measure of natural gas production) averaged 111.5 billion cf/d in 2019, the highest volume on record, according to the U.S. Energy Information Administration’s (EIA) Monthly Crude Oil and Natural Gas Production Report. U.S. natural gas production, when measured as marketed natural gas production and dry natural gas production, also reached new highs at 99.2 billion cf/d and 92.2 billion cf/d, respectively. 

Shell Explores Selling Two U.S. Refineries

Equilon Enterprises, a U.S. subsidiary of Royal Dutch Shell, is selling two of its refineries in the U.S.: Mobile, AL, and Puget Sound near Anacortes, WA. This process could take many months and may or may not result in a finalized transaction. Shell may elect to discontinue the marketing process for one or both assets at any time. If the marketing process does not result in a finalized sales transaction, Shell plans to continue operating the refineries.

The U.S. Gulf Coast will remain a key manufacturing hub for Shell, along with Rotterdam and Singapore. Likewise, Shell will maintain its marketing presence and continue to honor branded wholesale agreements within both the West and Gulf Coast regions.

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