U.S. shale has long been a driving force behind global oil and gas production growth. Forecasts often rely on continued growth from this sector to offset global price pressures. However, the rapid expansion of U.S. shale may soon be reaching its natural limits.
In recent years, the shale industry has surprised analysts by boosting production, even with a reduced number of drilling rigs. Last year, for instance, the U.S. saw a one million barrel per day (bpd) increase in production, despite a drop in rigs. This surge was largely attributed to efficiency gains, allowing producers to extract more oil at a lower cost.
The Energy Information Administration (EIA) has predicted that these productivity improvements will continue to drive output higher, but the key question remains: how much further can production grow?
The EIA’s Short-Term Energy Outlook forecasts that U.S. oil production will reach 13.5 million barrels per day in 2024, up from 13.2 million bpd in 2023. This follows a steady increase from 12.9 million bpd in 2023, marking a 300,000 bpd rise over the past two years. While shale production specifically has seen notable gains, this trend may be nearing its end.
Productivity in the Permian Basin, the leading shale oil region, has dropped by 15% since 2020, according to Enverus data. However, producers are drilling longer and more efficient wells, extracting more oil from existing reserves. This has fueled optimism about the potential for continued growth through technological advances.
But there are limits to how much further these improvements can go. As Wil VanLoh, CEO of Quantum Energy Partners, pointed out in an interview with Bloomberg, the U.S. shale revolution has likely run its course. “There’s not a lot of gas left in the tank,” he said, echoing concerns from some investors who argue that long-term production growth at current rates is unsustainable.
That said, growth is not over. Advancements in artificial intelligence (AI) and other technologies are helping reduce production costs, which could further increase output in the short term. AI, in particular, is expected to lower costs by up to 50%, which could provide additional incentives for drilling, according to analysts at KPMG.
Demand for oil remains a key factor in driving production. As long as demand stays strong, producers will continue to supply the market—especially if they can do so more cheaply than before.
In the Permian Basin, for example, output from new wells has increased from 350,000 bpd in 2019 to over 450,000 bpd this year, thanks to improved efficiency. However, despite these gains, production from 34 major public oil companies has plateaued at pre-pandemic levels, despite ongoing improvements in drilling efficiency and cost reductions.
This trend could be linked to natural depletion in older fields, which offsets growth in newer areas. While oil demand continues to rise globally, the natural decline of mature fields is starting to take its toll. As drillers move into lower-quality reservoirs, the rate of production growth is expected to slow.
U.S. shale producers have proven adept at doing more with less in recent years, relying heavily on efficiency gains. However, natural depletion is an inevitable part of the process, and as prime acreage becomes scarce, production growth is likely to peak. Efficiency gains have been key to keeping production levels high, but these improvements can’t continue indefinitely.\
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