Threats to the shale's strength are hidden beneath the surface

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Oil production in the US shale sector continues to pick up at a record pace, but many hidden threats beneath the surface may dampen the sector's growth this year.

Despite investors' demand for capital discipline and high returns, the financial results of the shale sector have been uneven – a problem compounded by falling prices. The barrel of US benchmark crude West Texas Intermediate (WTI) ended Wednesday at $ 51.24 a barrel, down almost 20% from the peak reached at the end of April.

The market is officially in territory of bear despite some very bullish indicators.

The shale gas and shale gas flood is partly responsible for lower prices: producers pump a record 12 million barrels a day and could reach 13 million barrels a day by now the end of the year, according to the Department of Energy. The Permian basin of western Texas and southeastern New Mexico produces 4 million barrels a day.

The biggest culprit, however, is not the increase in production – the industry should achieve its 16% growth goal despite the low price environment – but the growing uncertainty about future demand.

Ongoing trade disputes and regional clashes are worrisome for nervous traders who fear a global economic downturn that could hurt demand for oil and gas. The two largest economies in the world can only fight so long before the effects are pbaded on to the consumer.

The only thing that currently supports oil prices is the willingness of OPEC and Russia to continue to reduce their own production to support rising prices. If they reverse the trend, the market could collapse and prices go down to $ 40 a barrel. For the moment, the market is functioning as if the OPEC and Russia cuts would continue until the end of the year.

The risk of overfeeding the market is low as long as & nbsp; OPEC is willing to exchange market shares at moderately higher prices. The American producers will accept this agreement each time and continue to produce. The caveat is that the profitability of shale also decreases. Shale producers will have to tighten their belts if prices fall below $ 50 per barrel.

Environmental regulation, particularly the regulation of methane emissions, is another uncertainty that the industry faces. Shale producers burn or release natural gas at record rates in some basins – burning the gas badociated with the wellhead to achieve a more valuable crude.

The lack of pipelines to get all this gas to the market is why the producers burned or broken down 661 million cubic feet per day at the Permian in the first quarter, according to Rystad Energy. Together, the Bakken and the Permian flare out or purge about 1.1 billion cubic feet of gas per day – roughly equal to the demand for gas from Israel.

Producers in the Permian often generate as much badociated gas that they give it or, worse, pay someone to take it. The problem of gas badociated with the sector has attracted undesirable attention from environmentalists due to rising methane emissions.

President Trump easing Obama's rules on methane emissions, Posted Executive Orders accelerate the establishment of infrastructure to enable and prevent attempts by the state to block pipelines and other energy projects. But with Democrats committed to making climate change a major theme of the presidential campaign, emissions of methane and flaring could become the Achilles' heel of shale.

In the traditional oil producing states – Texas, Louisiana and Oklahoma, for example – the problem is less serious. A number of new pipelines are expected to be commissioned in the West Texas Permian after 2021 to alleviate bottlenecks and strengthen price differentials with international markets. But in two years, production continues to increase.

The construction of gas pipelines for natural gas is even less certain. Permian gas production is currently about 10 billion cubic feet per day, for which take-home capacity is already insufficient. But a number of shale projects are being prepared, which could add 4.3 million barrels of oil per day to Permian production by 2021. RBN Energy estimates these same things. These projects will more than double the region's gas production to 23 billion cubic feet per day..

At the same time, only one new pipeline, the Gulf Coast Express with a capacity of 2 billion cubic feet per day, is expected to be online in the Permian this fall. Half a dozen pipes are proposed, but only two are sure to be built. The gas market will appear more favorable to pipeline companies as the second wave of LNG projects progress, providing better market access for exports. In the meantime, ventilation and burning will continue.

Producers are taking voluntary measures to solve their stuck gas problems. EOG Resources reinjects the badociated gas into oil wells to accelerate recovery. This is an example that other companies would be wise to follow in order to put an end to environmental concerns about methane emissions. Devon Energy announced this week its intention to reduce methane emissions on the scale of the company to demonstrate its commitment to the environment.

Capital efficiency is another area in which the shale sector needs to be improved. A report from Rystad Energy revealed that only 10% of shale oil companies had positive cash flow in the first quarter. Capital expenditures in the sector continue to exceed cash flows. The shale sector is mature enough to free itself from dependence on external capital.

Investors lose patience. And despite consistent steady growth, shale producers are being criticized for failing on other parameters, including debt reduction, dividends and share buybacks. Comparing the red paint bonanza of the shale sector with the nearly 50% gain of the S & P 500 over the same period is downright depressing.

Increased consolidation in the shale sector should help Stronger players engulf weaker companies. However, the disappointing first quarter results suggest a much larger reshuffle. Companies can only venture to the extent possible, with debt restructuring and extended maturities, before having to demonstrate their ability to generate liquidity and growth without borrowing.

the The US Energy Information Administration has revised its 2019 forecast this week to reduce oil production in the United States per 100,000 barrels a day. Similar downgrades could become common if the industry does not resolve operational, financial and pricing issues.

The sector is no longer an excuse for youth. The shale boom propelled the United States to the forefront of world producers. It is now time to reward the investors who made the production of all the wells possible.

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Oil production in the US shale sector continues to pick up at a record pace, but many hidden threats beneath the surface may dampen the sector's growth this year.

Despite investors' demand for capital discipline and high returns, the financial results of the shale sector have been uneven – a problem compounded by falling prices. A barrel of US West Texas Intermediate (WTI) crude oil crude closed Wednesday at $ 51.24 a barrel, down almost 20% from the peak reached in late April.

The market is officially in bearish territory despite very optimistic indicators.

The shale gas and shale gas flood is partly responsible for lower prices: producers pump a record 12 million barrels a day and could reach 13 million barrels a day by now the end of the year, according to the Department of Energy. The Permian basin of western Texas and southeastern New Mexico produces 4 million barrels a day.

The main culprit, however, is not the increase in production – the industry is expected to reach its 16% growth target despite the low price environment – but the growing uncertainty about future demand.

Ongoing trade disputes and regional clashes are worrisome for nervous traders who fear a global economic downturn that could hurt demand for oil and gas. The two largest economies in the world can only fight so long before the effects are pbaded on to the consumer.

The only element that currently supports oil prices is the willingness of OPEC and Russia to continue to reduce their own production to support rising prices. If they reverse the trend, the market could collapse and prices go down to 40 dollars a barrel. For the moment, the market is functioning as if the reductions of OPEC and Russia would continue until the end of the year.

The risk of over-supplying the market is low as long as OPEC is willing to trade market shares at moderately higher prices. The American producers will accept this agreement each time and continue to produce. The caveat is that the profitability of shale also decreases. Shale producers will have to tighten their belts if prices fall below $ 50 per barrel.

Environmental regulation, particularly the regulation of methane emissions, is another uncertainty that the industry faces. Shale producers burn or release natural gas at record rates in some basins – burning the gas badociated with the wellhead to achieve a more valuable crude.

The lack of pipelines to get all this gas to the market is why the producers burned or broken down 661 million cubic feet per day at the Permian in the first quarter, according to Rystad Energy. Together, the Bakken and Permian flares generate about 1.1 billion cubic feet of gas per day, which roughly matches Israel's gas demand.

Permian producers often generate so much badociated gas that they give it or, worse, pay someone to take it. The problem of gas badociated with the sector has attracted undesirable attention from environmentalists due to rising methane emissions.

President Trump has eased Obama 's rules on methane emissions and issued decrees to speed up the implementation of infrastructure and curb state attempts to block pipelines. and other energy projects. But with Democrats committed to making climate change a major theme of the presidential campaign, emissions of methane and flaring could become the Achilles' heel of shale.

In the traditional oil producing states – Texas, Louisiana and Oklahoma, for example – the problem is less serious. A number of new pipelines are expected to be commissioned in the West Texas Permian after 2021 to alleviate bottlenecks and strengthen price differentials with international markets. But in two years, production continues to increase.

The construction of gas pipelines for natural gas is even less certain. Permian gas production is currently about 10 billion cubic feet per day, for which take-home capacity is already insufficient. But a number of shale projects are being prepared, which could add 4.3 million barrels of oil per day to Permian production by 2021. RBN Energy estimates these same things. These projects will more than double the region's gas production to 23 billion cubic feet per day..

At the same time, only one new pipeline, the Gulf Coast Express, with a capacity of 2 billion cubic feet per day, is expected to be commissioned this fall in the Permian. Half a dozen pipes are proposed, but only two are sure to be built. The gas market will appear more favorable to pipeline companies as the second wave of LNG projects progress, providing better market access for exports. In the meantime, ventilation and burning will continue.

Producers are taking voluntary measures to solve their stuck gas problems. EOG Resources reinjects the badociated gas into oil wells to accelerate recovery. This is an example that other companies would be wise to follow in order to put an end to environmental concerns about methane emissions. Devon Energy announced this week its intention to reduce methane emissions throughout the company in order to demonstrate its commitment to the environment.

Capital efficiency is another area in which the shale sector needs to be improved. A report from Rystad Energy revealed that only 10% of shale oil companies had positive cash flow in the first quarter. Capital expenditures in the sector continue to exceed cash flows. The shale sector is mature enough to free itself from dependence on external capital.

Investors lose patience. And despite consistent steady growth, shale producers are being criticized for failing on other parameters, including debt reduction, dividends and share buybacks. Comparing the red paint bonanza of the shale sector with the nearly 50% gain of the S & P 500 over the same period is downright depressing.

Increased consolidation in the shale sector should help more powerful actors engulf weaker companies. However, the disappointing first quarter results suggest a much larger reshuffle. Companies can only venture to the extent possible with debt restructuring and extended maturities before having to demonstrate their ability to generate liquidity and growth without borrowing.

the The US Energy Information Administration has revised its 2019 forecast this week to reduce oil production in the United States per 100,000 barrels a day. Similar downgrades could become common if the industry does not resolve operational, financial and pricing issues.

The sector is no longer an excuse for youth. The shale boom propelled the United States to the forefront of world producers. It is now time to reward the investors who made the production of all the wells possible.