U.S. shale and tight oil production is forecast to slow in 2020 before flattening out in 2021, according to IHS Markit research.

An oil market fundamentals forecast issued Wednesday indicated domestic production growth should be 440,000 b/d in 2020 and remain at that level in 2021. Modest growth is expected to resume in 2022.

However, the Lower 48 volumes still would be in stark contrast to the boom levels of recent  years, according to Vice President Raoul LeBlanc, who oversees North American unconventionals.

“Going from nearly 2 million b/d annual growth in 2018, an all-time global record, to essentially no growth by 2021 makes it pretty clear that this is a new era of moderation for shale producers,” said LeBlanc. “This is a dramatic shift after several years where annual growth of more than one million barrels per day was the norm.”

The exploration and production (E&P) sector has retrenched to focus on capital returns as it works to meet investor expectations. However, operators must contend with sustained lower commodity prices, which make obtaining capital financing difficult.

E&Ps are trading at “multiples that are half to one-third of what they were in 2017, and debt markets are unwilling to provide fresh debt for all but the largest shale players,” according to the report.

“The combination of closed capital markets and weak prices are pulling cash out of the system,” LeBlanc said. “Investors are imposing capital discipline on E&Ps by pushing down equity prices and pushing up the cost of capital on debt markets.”

West Texas Intermediate oil prices are expected at this point to average around $50/bbl in 2020 and 2021. IHS Markit forecasts capital spending for onshore drilling and completions to fall by 10% to $102 billion this year, another 12% to $90 billion in 2020 and another 8% to $83 billion in 2021. That represents a nearly $20 billion decline in annual spend over three years.

“It all represents the strongest headwinds for shale producers since the oil price collapse in 2015,” LeBlanc says.

Some options for weathering the financial blizzard may not be available as they were during the oil price decline that hit the sector beginning in late 2014.

“Operators were able to outperform the price collapse in 2015-2016 because they were able to vastly outspend cash flow thanks to accommodative debt and equity markets, while at the same time achieving huge leaps in well productivity and capital efficiency,” LeBlanc said.

However, capital markets today “are skeptical and wary, and the scope for further productivity gains is limited.”

The industry still retains the ability to grow rapidly under the correct conditions, however.

The IHS Markit analysis showed that a $65/bbl oil price could allow E&Ps the ability to post strong volume growth while also providing shareholder returns.

“The crucial tipping point” for the new onshore era “appears to be oil prices somewhere near the mid-$50s, the point where it remains viable to have some production growth and deliver shareholder returns.

“There is certainly ample inventory of high-quality wells out there,” LeBlanc said. “Shale producers are making a deliberate change to the business model in response to investor demands. The question becomes, what are the new conditions for growth? The answer is that now the trajectory of production depends almost entirely on the oil price."