The Permian Basin Continues To Drive Record U.S. Energy Growth
Despite recent low crude prices and a significant drop in the DrillingInfo rig count during January, the giant Permian Basin of West Texas and Southeast New Mexico continues to expand its role as the main driver of energy growth in North America. In just the past week, we have seen the following significant events that are attributable all or in part to what has become the world's second most-productive oil and gas resource:
A driver of upstream and midstream profits - Both ExxonMobil and Chevron beat analyst expectations with their 4th quarter earnings announcements, driven mostly by their upstream and midstream developments in the Permian. Exxon beat forecasts by almost one-third, with its full-year 2018 earnings coming in at the highest level since 2014. Driven by its Permian drilling, Chevron's oil and natural gas production rose to an all-time high as the company produced a record 3 million barrels of oil per day (bopd) during the 4th quarter.
A driver of downstream expansion and acquisitions - Early last week, Exxon also broke ground on a major expansion of its Beaumont refinery, a project that will add the capability of processing an additional 250,000 bopd and make it the largest refinery in the country. The new refining train being installed will be fit for processing the light, sweet crude produced in the Permian Basin and other North American shale plays, a growing volume of which must currently be exported in order to be refined. Meanwhile, Chevron confirmed on February 1 that it was acquiring the interest in the Pasadena Refining System owned by Petrobras America Inc. This purchase gives Chevron an additional 110,000 bopd of capacity to refine its own light sweet crude.
A driver of record domestic production - In its new Annual Energy Outlook released on January 24, the U.S. Energy Information Administration (EIA) now projects in its reference case that domestic crude oil production will rise to more than 15 million bopd by 2022, years before previous projections, and will remain above 14 million bopd through the year 2040. The main driver of this record production? The Permian Basin:
"Growth in Lower 48 onshore crude oil production occurs mainly in the Permian Basin in the Southwest region. This basin includes many prolific tight oil plays with multiple layers, including the Bone Spring, Spraberry, and Wolfcamp, making it one of the lower-cost areas to develop."
Meanwhile, the EIA's "High Resource and Technology" case projects U.S. domestic production to grow to an even more impressive 20 million bopd by the year 2040. This case may well be the most relevant here since, if we know anything about EIA projections as they relate to the Permian Basin over the past decade, it is that they are constantly having to be revised upwards.
A driver of record exports - In that same report, the EIA also finds it necessary to accelerate its previous projected date for when the U.S. will become a consistent net exporter of crude oil. The agency now projects that that threshold will be crossed in 2020, two full years sooner than it had previously anticipated just last year:
“The United States becomes a net energy exporter in 2020 and remains so throughout the projection period as a result of large increases in crude oil, natural gas, and natural gas plant liquids (NGPL) production coupled with slow growth in U.S. energy consumption.”
Those "large increases in crude oil", as quoted above, are driven mainly by the Permian Basin.
It's important and almost stunning to remember that, just a decade ago, the dusty plains of West Texas and Southeast New Mexico that make up the greater Permian Basin were widely considered to be a "dead area" by most in the oil and gas industry. Major oil companies like Chevron and ExxonMobil had pretty much abandoned any drilling activities or other major capital investments in the region, preferring to focus their capital dollars on searching for oil in more promising parts of the world. In September of 2008, total U.S. oil production was roughly 3.2 million bopd. This month, the EIA projects that the Permian Basin alone will put that much crude onto the market.
Now, just 10 years later, this basin is the hottest oil and gas play on the face of the earth, the driver of energy growth for the world's largest oil and gas-producing nation.