* World prices seen too low to support U.S. shale oil output
* Lack of bank financing seen for new shale developments
* Risk low production levels may cause price spike
* U.S. oil sector productivity improvements seen near limit
(Recasts; adds U.S. production forecasts)
By Dmitry Zhdannikov and Ron Bousso
LONDON, Oct 6 (Reuters) - Oil executives warned on Tuesday
of a "dramatic" decline in U.S. production that could pave the
way for a future spike in prices if fuel demand increases.
Delegates at the Oil and Money conference in London, an
annual gathering of senior industry officials, said world oil
prices were now too low to support U.S. shale oil output, the
biggest addition to world production over the last decade.
"We are about to see a pretty dramatic decline in U.S.
production growth," the former head of oil firm EOG Resources (NYSE:EOG)
EOG.L Mark Papa, told the conference.
Papa, now a partner at U.S. energy investment firm
Riverstone Holdings LLC, said U.S. oil production would stall
this month and begin to decline from early next year. He said
the main reason for the decline would be a lack of bank
financing for new shale developments.
Official data show that nationwide U.S. output has already
begun to decline after reaching a peak of 9.6 million barrels
per day (bpd) in April, although production in some big shale
patches, including North Dakota, has held steady thus far. The
Energy Information Administration forecast on Tuesday that
output would reach a low of around 8.6 million bpd next year.
Until this year, U.S. oil output was growing at the fastest
rate on record, adding around 1 million bpd of new supply each
year thanks to the introduction of new drilling techniques that
have released oil and gas from shale formations.
But oil prices have almost halved in the last year on
oversupply in a drop that deepened after the Organization of the
Petroleum Exporting Countries in 2014 changed strategy to
protect market share against higher-cost producers, rather than
cut output to prop up prices as it had done in the past.
Benchmark Brent crude LCOc1 was up 5 percent, or $2.50 a
barrel, at $51.75 on Tuesday as investors digested news from the
London conference. It peaked in recent years above $115 a barrel
in June 2014.
SPIKE
The chief executive of Royal Dutch Shell Plc RDSa.L
agreed, saying U.S. oil producers would struggle to refinance
while prices remained so low, leading to lower output in future.
"Producers are now looking for new cash to survive and they
will probably struggle to get it," Ben van Beurden said.
Longer term, there was a risk that low levels of global
production could bring a spike in oil prices, he said.
If prices remained low for a long time and oil production
outside OPEC and the United States declined due to capital
expenditure cuts, there was not likely to be any significant
spare capacity left in the system, he said.
"This could cause prices to spike upwards, starting a new
cycle of strong production growth in U.S. shale oil and
subsequent volatility," van Beurden said.
Adam Sieminski, administrator at the U.S. Energy Information
Administration, told reporters on the sidelines of the
conference the U.S. oil industry had reacted to lower prices by
improving its productivity.
But this process could not continue forever.
"Now we are seeing the limits at least in the near term and
it is beginning to impact production," Sieminski said. "We see
(U.S. oil production declines) continuing into next summer."
The Secretary-General of OPEC, Abdullah al-Badri, said oil
supply growth from non-OPEC producers might be zero or negative
in 2016 because of lower upstream investment.
But Papa said if U.S. light crude oil CLc1 prices went
back up to $75 a barrel, U.S. oil production would resume growth
at around 500,000 bpd - or around half the record growth rates
observed in the past few years.
"I see the United States as a long-term growth producer," he
said. "If low oil prices prevail - then the correction in oil
prices will be much more severe."
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Graphic on U.S. oil production forecasts http://reut.rs/1Jc3EJO
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(Writing by Christopher Johnson; editing by David Evans and
Christian Plumb)