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Tuesday, April 9, 2013

CSFB - We Need Shale Oil !


US liquids production is growing strongly (both crude oil and NGL’s). However, non-OPEC performance outside north America has been weak, offsetting much of the growth in the US and Canada. Given these trends, we thought it helpful to look at global decline rates and new field additions to help put the shale oil revolution in context.

■ We believe US total liquids production (Oil, NGL, US GoM and biofuels) can rise towards 15MBD (from 10MBD today). However, we see a large offset from global decline of 4.5MBD annual decline on production outside the US.

Taking new fields and shale into account, our long range supply model points to 1.4MBD pa productive capacity growth from 2012-2019, slightly in excess of demand growth but not noticeably so. There is no explosion of spare capacity. Indeed we could argue we need oil shale growth to avoid a capacity shortage.

■ Our long range forecasts include 3MBD of capacity from a return into service of Syria, Sudan, Nigeria and international shale (Argentina, Canada, Russia, Colombia). Were this not to occur, there would be downside risk to our capacity forecasts.

■ Similar to the IEA, we find that the decline challenge is getting tougher not easier when looking further out beyond 2019.

Shale oil could be "required barrels’ rather than a price destroyer, providing a natural safety valve during high oil prices but not in themselves collapsing near term Brent markets. Meanwhile, infrastructure adds should close the WTI-Brent discount over time also.

■ We believe, the greater threat to longer term oil prices will likely come from a combination of policy to promote natural gas usage and energy efficiency. We remain comfortable with balanced spare capacity through 2019, unless the global economy collapses.

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