With “worrying” demand trends in the 100 million b/d global crude oil market and domestic supply continuing to grow, the United States is expected to need additional export markets to absorb supply, with China seen as being key.

China, the largest oil importer, brought in record volumes of U.S. crude in 2018 before adding a 5% tariff on supply in the ongoing trade war. Chinese customs data showed imports in the first seven months of 2019 fell 63% year/year to about 126,000 b/d.

There are other markets that may take U.S. volumes, but prices would need to come down for that to happen, according to Enverus’ Bernadette Johnson, vice president of market intelligence.

“Our ability to continue growing production in the United States is heavily dependent on our ability to send out barrels,” Johnson said last Thursday during a webinar. “Someone else will take it; they’ll just command a discount.”

India has been a “bright spot” for U.S. crude exports, whereas the most recent economic data from Europe showed that its leading economy, Germany, narrowly avoided slipping into recession in the third quarter. Growth indicators from China and Japan also remained weak, stoking fears of a global economic slowdown.

Enverus is projecting stable demand growth in developing countries through at least 2023, even as growth from advanced economies continues to slide. “We need strength in those emerging and developing economies to see crude markets expand and prices come up,” Johnson said.

For now, the global crude market remains about 732,000 b/d short in supply, even as production from Saudi Arabia has recovered from attacks that took place in September and briefly reduced about 5.7 million b/d of supply. October production averaged 10.2 million b/d in October, according to Enverus.

Nevertheless, production is still well below the 2.7 million b/d overhang the market saw last year at this time, which Johnson attributed to the Organization of the Petroleum Exporting Countries (OPEC) and its allies ramping up ahead of negotiations to curtail output. OPEC and its allies agreed to reduce oil output through March by 1.2 million b/d. The cartel is due to meet in Vienna during December to review terms of the policy. Enverus expects to see the OPEC-plus cuts continue.

The firm’s most recent projections for global crude and condensate production growth show supply increasing by 2.1 million b/d in 2020. Of that growth, the United States is expected to contribute around 1.3 million b/d, although Johnson said that figure may be revised lower. Norway is also expected to see about 400,000 b/d of growth, while Brazil could see production climb by 300,000 b/d.

By 2021, Enverus expects the market to become more or less balanced but then falling short by around 170,000 b/d in 2022. That deficit is forecast to increase to 520,000 b/d in 2023 and 820,000 b/d in 2024.

With the need to replace about 6-7 million b/d every year because of naturally declining output, which is estimated to be around 5%/year, and demand gains (1-2%/year), the United States can’t be the only region growing oil production, according to Johnson. “You need that growth in Brazil and other places to support that growing market.”

That said, the forward curve is too low, according to Enverus. Although the world is on track for one major crude discovery every five years, the market has essentially lost an investment cycle because of low prices.

“We’re going to get to 2022, and we don’t have a big project coming on to fill that gap,” Johnson said.

What will likely occur is renewed volatility in the oil markets, where West Texas Intermediate oil prices surge, “probably higher than $70/bbl and maybe higher than $80/bbl,” she said. “The market is going to be shocked, which will spur investment. You’re going to see that crude come in and prices will come back down to equilibrium. But it’s going to be volatile.”

Meanwhile, the International Maritime Organization’s (IMO) revised rules for marine sector emissions take effect on Jan. 1. The so-called IMO 2020 rules require ship fuels to reduce sulphur emissions by more than 80% by switching to lower sulphur fuels.

The changes are occurring far downstream, but the need to high grade fuel products may impact the value of refined products and the value of crude, according to Johnson. “It’ll change how pipelines flow, and how crude flows and where. It’s still very important even if you’re in upstream.”

Despite the low natural gas price environment, Lower 48 dry gas production has continued to rise, more so than what Enverus and most other market observers had projected.

“Production forecasts have been trending higher. They’re never lower,” Johnson said.

At the beginning of 2019, the U.S. Energy Information Administration had estimated that dry natural gas production would average 90.2 Bcf/d this year, up 8.3% year/year, with a further increase to 92.2 Bcf/d in 2020.

The United States is now expected to average 92.1 Bcf/d in 2019, a 10% increase from the 2018 average, according to the EIA.

Total production is up 5 Bcf/d year/year through September, with solid gains in the Marcellus and Utica shale plays, where production rose to 30.3 Bcf/d in September from 28.8 Bcf/d in September 2018, according to Enverus.

Haynesville Shale production is up 1 Bcf/d year/year so far in 2019, “a bit of a surprise” to the firm, with recent gas permitting data compiled by Evercore ISI reflecting continued growth ahead. Permitting in the play has increased an average 14% over the last four months and has jumped 20% month/month in November.

“A lot of this is due to who owns those assets,” Johnson said, noting private equity has become a major player in the basin and is seeing improved well results and economics. “This is one to watch. The forward curve doesn’t reflect growth, but it will come anyway.”

Comstock Resources Inc., now the largest operator in the Haynesville following its acquisition of Covey Park Energy LLC, cited lower well costs in its third quarter earnings report. The company reported that its latest well cost per lateral foot is down 19% compared to the average at the end of 2018.

Permian Basin associated gas growth has also continued to increase, climbing 2 Bcf/d year/year. However, Johnson noted this figure would be higher if flared volumes were included. A quarterly analysis by Rystad Energy found that gas flaring and venting in the Permian reached an all-time high in the third quarter, averaging more than 750 MMcf/d.

However, with the top five Northeast producers slashing 2020 capital expenditures (capex) by $1.5 billion and liquids-weighted producers averaging a roughly 5% decrease in capex, growth is seen waning over the next year, according to Enverus.

“Those are some big numbers there,” Johnson said.

In its latest Short-Term Energy Outlook, the EIA said it expects dry natural gas production to average only 94.9 Bcf/d in 2020.

Meanwhile, liquefied natural gas (LNG) capacity, already well above 7 Bcf/d in 2019, is seen hitting 10 Bcf/d by 2024. However, “going much above that is going to be pretty tough,” Johnson said. “It’s not an infinite market. It won’t grow forever.”

Despite the expected increase in LNG export capacity, strong production is softening the Enverus Henry Hub price outlook beyond 2019. The firm is projecting Henry Hub to average $2.65 in 2019 but to fall to an $2.50 average each year through 2024.