Boston, MA -- (SBWIRE) -- 02/11/2013 -- BMI View: We have increased our oil production forecasts this quarter to reflect the rapid advances that E&P in the US is making. We believe that following the Presidential election, policy will remain broadly supportive to drilling. This will be most pertinent in relation to drilling in the Gulf of Mexico, in addition to policy on unconventionals, especially shale gas and liquids production. Energy production in the US has progressed significantly in the past five years, and it is highly unlikely that the next administration will not want to continue this. Therefore, we expect that supportive policy environment towards E&P will help keep a lid on West Texas Intermediate prices, as new supplies will continue entering the market in the years to come.

The main trends and developments we highlight in the US oil and gas sector are:

- We have increased our forecasts for US liquids production this quarter, starting from 2012 onwards. Our forecasts err on the side of caution, seeing a moderation in liquids production growth in the coming years, as base effects subside.
- According to our forecasts, the boom in US unconventional liquids production is set to combine with higher output from the Gulf of Mexico (GoM) to push total liquids supply (crude oil, natural gas liquids, other liquids and refinery gains) to 11.7mn b/d in 2013. By 2016, we anticipate that total liquids output will have hit 12.6mn b/d.
- Oil demand growth is set to remain muted despite the slow recovery in the macro-economy (BMI's latest forecasts point to average real GDP growth of 2.0% in 2012, rising to 2.1% in 2013). We estimate a fall in consumption of 1.15% and muted growth of 0.2% in 2012 and 2013, respectively. Demand growth will remain below trend over the course of the forecast period (to 2021) as the US energy market reduces its energy intensity. We expect total oil demand of 18.6mn b/d in 2012 and 18.86mn b/d by 2016.
- The shale gas revolution in the US saw total output soar 6.3% in 2011, to approximately 651bn cubic metres (bcm). However, this unconventional boom has created a supply glut, forcing prices down to 10-year lows. Gas producers have therefore started shutting in non-associated wells and are endeavouring to channel capital expenditure (capex) towards liquids-rich plays where possible. We therefore estimate the fall in gas production growth in 2012 to accelerate over 2013. We forecast gas production to moderate to 0.3% growth for 2013 and reach 677bcm, up from our revised estimate of 675bcm in 2012.

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