While oil production in the U.S. will continue its return towards pre-Covid levels, limits on refining capacity and inventory mean it will not grow as much as some hope, according to Pioneer Natural Resources CEO Scott Sheffield.
“We just don’t have that potential to grow U.S. production ever again,” Sheffield told CNBC’s Brian Sullivan on Tuesday at CERAWeek.
To be clear, this doesn’t mean no production growth. Many oil companies have outlined production increases as part of spending plans this year, though oil companies are now in an era of greater fiscal discipline, not shy about signaling they will favor shareholder rewards like stock buybacks over higher production levels. Sheffield expects growth to top out at a level that was already reached pre-pandemic.
“We may get back to 13 million barrels a day,” he said, which would match the record high average recorded in November 2019 by the U.S. Energy Information Administration. But he added it will be at a “very slow pace,” taking two and half to three years to match that previous record level.
For consumers, that means gas prices are more likely to stay within the current range, and pricing risk be tilted to the upside later this year.
According to the EIA, an average of 11.9 million barrels of U.S. crude oil were produced per day in 2022, below the record in 2019 of an average of 12.3 million barrels per day. The EIA is forecasting a new record for this year, but barely higher, at an average of 12.4 million barrels per day.
“We don’t have the refining capacity … if we all add more rigs, service costs will go up another 20%-30%, it takes away free cash flow,” Sheffield said. “And secondly, the industry just doesn’t have the inventory.”
Drilling rigs sit unused on a companies lot located in the Permian Basin area on March 13, 2022 in Odessa, Texas.
Joe Raedle | Getty Images News | Getty Images
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