RE:RE:RE:RE:IEA Medium Term Oil Market reportGiven that US output is nearly 10% of global output now; link this to the very short half life of a shale well; then consider that drilling for shale wells will be at about one fifth of the level required to maintain output by the end of March.
Official estimates for the drop off in shale outputs are well off. Shale output will be falling by 2% to 4% per month by the summer. That will take c0.2% to 0.4% out of global output each month and that is from US shale alone. Rig counts elsewhere are now falling by c5% each week also.
When the oil price spikes upwards, it won't just be a case of bringing production back on line. Production has not been taken off line, quite the opposite, production, even uneconomic production has been ramped up to the max as a cash flow survival tactic. It is development projects and drilling that have been abandoned. Such projects will be nervously reinstarted over the next couple of years but they will take a year or two before they generate much oil, meanwhile demand continues to grow and existing outputs deplete - it will take years for oil production to catch up.
North Sea development investment has dropped by 90% over the past year. The UK government is under real pressure to cut the taxes on North Sea oil production. The issue is being whipped up into a 'Scottish issue' with good reason due to the impact on Aberdeen and the Scottish economy per se. This the UK government can ill afford with the SNP riding high and pushing for another independence vote within 5 years - sooner if we vote to leave the European Union. The tax benefits enjoyed by drillers on the Norweigan side of the North sea divide is an embarrassment for the UK governemtn now. I suspect that North Sea oil taxes are about to be cut within the March budget.
Doug