America’s oil producers will recover from the collapse in crude prices to 12-year lows and pump millions of barrels a day more over the next two decades amid robust growth in energy demand, according to BP.

Looking beyond the slump that has sent industry revenues and profits tumbling, and imperilled heavily indebted producers that pioneered the shale revolution, BP’s latest annual energy outlook forecasts strong growth in US oil and gas output after “a brief retrenchment due to low prices and falling investment,” writes energy editor Christopher Adams.

The forecast, unveiled on Wednesday by BP chief executive Bob Dudley, contrasts with the extreme bearishness now gripping energy and commodities markets. It reflects longer term, internal thinking around the underlying prospects for the world economy between now and 2035.

Far from predicting an end to booming American output, BP believes the current downturn will be seen as a mere blip in the long run. Production of US “tight” oil is expected to resume its growth, surpassing recent record levels to rise to a new plateau of nearly 8m barrels a day in the 2030s, accounting for almost 40 per cent of total US oil production.

America’s shale gas output will grow by about 4 per cent a year over the same period, says BP, and to comprise nearly a fifth of global production. BP said:

We have been repeatedly surprised by the strength of US tight oil and shale gas. Technological innovation and productivity gains have unlocked vast resources of tight oil and shale gas, causing us to revise the outlook for US production successively higher.

Mr Dudley said oil prices, which have fallen from a peak of over $115 a barrel in the summer of 2014 to just $30, would be “choppy” and “volatile” over the first half of the year. But the market would come into balance in the second half when “every storage tank and swimming pool” would be full of oil. “We will begin to see fundamentals take over,” he told the IP Week conference in London.

BP, which declined to disclose the price assumptions behind its long-term outlook, said that, despite the current weaknes in markets and slowing Chinese growth, demand for energy would continue to rise over the next 20 years and beyond as the world economy expanded.

It forecast 1.4 per cent average annual growth from 2014 to 2035, with fossil fuels remaining the dominant source of energy over the period, meeting 60 per cent of the projected increase in demand. Gas would be the fastest growing fossil fuel, but coal consumption would slow sharply, taking its share of the global energy mix to an all-time low.

Spencer Dale, BP’s chief economist, pointed to a projected increase of 1.5bn in the world’s population to almost 8.8bn as underpinning demand. Gross domestic product would more than double, with China and India acccounting for half the projected increase. He said:

The continuing reform of China’s economy towards a more sustainable pattern of growth causes its energy demand to slow sharply, weighing most heavily on gloval coal, which grows at less than a fifth of the rate seen over the past 20 years.

But it is BP’s projection for US output that is the most striking forecast, running contrary to predictions that the shale industry is set to contract sharply as Opec wages a battle for market share that has started to push out higher cost non-Opec resources such as Canadian oil sands.

Mr Dale said that global tight oil output, of which North America accounts for the lion’s share, would grow from about 5 per cent of total liquids production to 10 per cent by 2035. Almost half the increase would come from outside North America.

Get alerts on Front page when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article