The Permian basin has been the chief growth driver for U.S. shale oil production. The most prolific shale basin in North America has been the focus of attention for industry players and traders alike. But there might be a problem with the Permian. U.S. oil growth may be a bit too dependent on it.
For proof, look no further than the Energy Information Administration’s drilling productivity report, which is now part of its Short-Term Energy Outlook. Month after month, the EIA reveals that of all major oil basins in the country, the Permian is usually the only one that sees growth in production. On occasion, another basin records some growth in output, but that growth is rather minor as compared to the solid five-figure growth numbers for the Permian.
Indeed, the Energy Information Administration itself suggested growth in U.S. crude oil production has been heavily leaning on the Permian—for over a decade, at that. In a new report, the authority noted that onshore U.S. oil production had expanded threefold since 2010, driven by the shale boom, with that boom led by the Permian. Shale output, the EIA reported, grew from 800,000 bpd in 2010 to 8.9 million bpd in 2024. Of that, the Permian accounts for over 6 million barrels daily.
But here’s the thing. In the same period, conventional oil production onshore declined from 2.4 million bpd in 2010 to 2.1 million bpd in 2024. This is certainly not a sharp decline, but it is a decline, and it might be noteworthy because growth in the Permian is starting to slow down as well.
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Not everyone is in agreement about the reasons. The exhaustion of top-tier acreage is certainly a fact, but opinions differ as to what comes next—a gradual and irreversible decline or another boom down the road. Top executives at major shale firms have already said that Permian oil production could hit its peak as early as the end of this decade. This is because some parts of the play have hit geological limits while others, yet to be drilled, are not expected to be as prolific as that top-tier acreage that the industry is running out of currently.
Yet others, such as industry vet and commentator David Blackmon, argue that there may be another boom still left in the Permian. Granted, it probably won’t be the same as the original boom in the earlier 2000s, but there is still a lot of oil and gas left underground—it just needs the right price. It also seems to need the right producer configuration, namely a more consolidated industry with fewer but larger companies with greater resources in terms of cost efficiency by virtue of their sheer size and structure.
Back in 2017, oil production in the Permian stood at 2.2 million barrels daily. Today, the Permian is producing over 6 million barrels daily, accounting for nearly half of the U.S. total, including both onshore and offshore production. This is truly impressive growth that is currently only comparable perhaps to Guyana’s meteoric rise to oil stardom. But this rate of production growth is unsustainable, at the very least, because of technical constraints.
Shale wells get drilled faster, start producing faster and, unsurprisingly, deplete faster. There is also the issue of the oil-to-gas ratio in the yield. Pressure within the reservoir declines as more oil is brought to the surface, which allows more natural gas to be released from the geologic formation, so the ratio changes in favor of gas. Add cost considerations and the dominant expectation among analytical outlets that the Permian will slow down this year, and over the medium to long term, it starts to sound like the only reasonable expectation for the region.
Wood Mackenzie recently forecast that production in the Permian will peak at 7.7 million barrels daily. This should happen around 2035, the consultancy said. But this will not be the end of the Permian—because when it reaches this level, production will stay there for a while. There will be no falling off a cliff for Permian oil output. At this level, Permian production will continue to offset declines in other shale plays, keeping the U.S. national total at a stable level.
“It’s going to be a slow decline beyond that because there’s a lot of resource,” ConocoPhillips’ Ryan Lance said about the Permian recently. Occidental’s Vicki Hollub, for her part, said that peak U.S. production will occur sometime between 2027 and 2030, “and after that some decline.” Both predictions are quite guarded and rightly so. After all, no one really expected the original shale boom.
This is the interesting thing about the oil industry, in fact, and this is why, although U.S. crude oil production may be heavily reliant on the Permian for its growth, this is not necessarily cause for worry. As long as there is demand for the product, which makes supply growth economically justifiable, there will be supply. It really is as simple as that.
By Irina Slav for Oilprice.com
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