Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Oversupply Causing Drillers to Scale Back

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Oversupply Causing Drillers to Scale Back

Article excerpt

Oil and natural gas drillers are hitting the brakes on U.S. shale production as prices tumble, but the U.S. remains poised to slash its reliance on energy imports by 2040, according to a government report.

In the short term, the domestic drilling industry is facing significant headwinds as plummeting oil prices and oversupply have prompted companies to scale back spending, backtrack on production and lay off workers. Oil prices have dropped by about 60 percent since last June.

Oil production is expected to drop by nearly 60,000 barrels a day between April and May, the first decline since the agency began reporting the figures in 2013, according to the U.S. Energy Information Administration's monthly drilling productivity report released Monday.

"I think the EIA coming out with this is a warning that we're hitting a wall," said Carl Larry, director of oil and gas for Frost & Sullivan. "Drillers are able to extract more oil with less rigs, but what's starting to happen is we're seeing a drop-off.

"I think we're at a tipping point," he said.

With extended low prices, some companies that aren't positioned to weather the storm will disappear, whether through mergers with better positioned companies or through bankruptcy, Mr. Larry said.

Still, some oil supply could be absorbed by refiners who are beginning to ramp up production to produce gasoline for the summer months.

Refiners have typically drawn about 1 million to 3 million barrels of oil a week for refining. Mr. Larry said that number could jump to 2 million to 5 million barrels a week.

"And we have a lot of cushion there," he said, referring to the oversupplied oil market.

In the natural gas-rich Marcellus Shale play of Pennsylvania and West Virginia, production is expected to rise by about 10 million cubic feet per day (MMcf/d) between April and May to 16.7 MMcf/d, according to the EIA.

There are a couple of reasons production in the Marcellus, the country's largest gas field, has continued to climb.

One reason is that there is rising demand for natural gas for power generation, Mr. Larry noted. In addition, natural gas isn't as difficult to store as oil. …

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