The US is expected to produce roughly one million more barrels a day by the end of this year, compared with last. But that has much room to grow –- potentially helping to push down prices and supplies for Britain, which gets 8pc of its oil from Russia but is phasing this out. Europe gets 40pc of its gas from Russia and 25pc of its oil.
If they were to take their lead from Opec, US shale producers may be of little use. Alongside its allies in the Opec+ coalition, which includes Russia, the cartel is in no mood to ramp up production, agreeing last Thursday to stick to modest output plans as they disregarded oil market data from the International Energy Agency (IEA) which warned of a supply crunch.
Questions linger over whether the US’s oil and gas producers will do the same, as domestic demand increases since President Biden banned Russian oil from the country and attempts to push down prices for customers at the pump.
“The short answer is yes and no,” says Eugene Kim, a research director at Wood Mackenzie, based in Houston. “Production will be incentivised by higher oil and gas prices. But the response will not be as large as we’ve had previously.”
Modern drilling techniques triggered a boom in production from shale rocks in the US after 2010, with heartlands such as the Permian Basin and Eagle Ford, in Texas, helping the country pump out 13m barrels per day of oil. It became the world’s largest energy producer, before prices crashed as the pandemic took hold.
US oil production has recovered to almost 12m barrels per day while gas production is almost back to pre-pandemic highs, but growth rates are slower and any rapid acceleration is in doubt.
Although oil prices are well above the $40 needed for shale producers to break even, drillers are under pressure from investors to keep spending tight following the pandemic bust. Bottlenecks on labour and materials, as well as uncertainty over the future of prices is also holding back growth.
Scott Sheffield, chief executive of major Permian driller Pioneer Natural Resources, recently told the Financial Times that shale operators “can’t change this year” highlighting a six-to-eight month lag between adding a rig and production, and the need for investors’ approval.
“In the past, industry was very responsive to short-term prices. Now, it’s much more about capital discipline and cash returns to investors,” says Artem Abramov, head of shale research at Rystad Energy. “Operators are not really rushing to increase activity.”
Some investors, he adds, “are a little bit more open to production growth and looser budgets, but for every such investor, you still have two others who really want industry to stay committed to the targets and strategic shift they announced.”
A focus on returns is not the only thing holding investors back – the shift to cleaner energy sources has grown hugely since the last shale boom in 2010. Yet Christopher James, founder of Engine No.1, the activist investor which forced an overhaul of ExxonMobil’s board, argues a boost in Permian oil production could be a relatively climate-friendly substitute for Russian oil.
