- Kpler: U.S. shale cannot come to the rescue of the increasingly tightening global oil market.
- A shortage in workers, trucks, sand and completions equipment is constraining production in the shale patch.
- Shale executives also think the U.S. cannot offset lost Russian barrels.
Despite its flexibility to respond to soaring oil prices, the U.S. shale patch cannot come to the rescue of the increasingly tightening global oil market with some Russian crude not making its way to buyers, commodity intelligence firm Kpler said on Tuesday.
U.S. lawmakers passed legislation on Monday to ban the import of energy products from Russia, but it is not clear yet whether President Joe Biden would sign it into law. The United States is reportedly considering going solo on an import ban, while Europe—most notably German Chancellor Olaf Scholz—is not on board with banning imports of oil and gas from Russia.
Even without sanctions on Russian energy exports, oil flows from Russia are already being disrupted as buyers have started to "self-sanction" themselves and are avoiding Russian cargoes.
Russia exports around 5 million bpd of crude and 2.8 million bpd of refined products. According to Kpler's estimates, Russian crude oil exports could drop by as much as 1.5 million bpd from April onwards.
But U.S. shale will not be able to fill the gap over the next few months, despite its flexibility and reactivity to market conditions, Alex Andlauer, Senior Global Energy Analyst at Kpler, notes.
A lack of equipment is the key reason why the U.S. shale patch cannot replace the loss of Russian crude, Andlauer added.
"If there had been no shortage in workers, trucks, sand and completions equipment, the upside for June (three months process) would have been small anyway, at around +130 kbd, or less than 10% of what we expect Russian crude exports could lose next month."
Shale executives also think the U.S. cannot offset lost Russian barrels.
Scott Sheffield, chief executive at Pioneer Natural Resources (NYSE:PXD), the biggest oil producer in the Permian, says U.S. producers will not be able to replace Russian oil this year. In the event of a Russian embargo—which Sheffield supports—oil could jump to $150 and even $200 per barrel, the executive said in an interview with the Financial Times last week.
The U.S. shale patch would need several months to raise production sharply, even if it started drilling many new wells now, Pioneer's CEO noted.
Labor, sand, and equipment shortages are already expected to constrain growth in U.S. shale this year, Sheffield and other U.S. oil executives said last month.