* 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 (Adds prices in paragraph 9)
By Dmitry Zhdannikov and Ron Bousso
LONDON, Oct 6 (Reuters) - U.S. oil production will start todecline soon unless oil prices rise substantially, oilexecutives said on Tuesday, saying lower production could pavethe way for a spike in the market in future if fuel demandincreased.
Delegates at the Oil and Money conference in London, anannual gathering of senior industry officials, said world oilprices were now too low to support U.S. shale oil output, thebiggest 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 Mark Papa, told the conference.
Papa, now a partner at U.S. energy investment firmRiverstone Holdings LLC, said U.S. oil production would stallthis month and begin to decline from early next year.
He said the main reason for the decline would be a lack ofbank financing for new shale developments.
U.S. oil production has been growing by around 1 millionbarrels per day (bpd) year-on-year since mid 2012, thanks to theintroduction of new drilling techniques that have released oiland gas from shale formations.
But output in North America has started to slow in recentmonths as prices have fallen sharply.
Oil prices have almost halved in the last year on oversupplyin a drop that deepened after the Organization of the PetroleumExporting Countries in 2014 changed strategy to protect marketshare against higher-cost producers, rather than cut output toprop up prices as it had done in the past.
Benchmark Brent crude was up 5 percent or $2.50 abarrel at $51.75 on Tuesday as investors digested news from theLondon conference. It peaked above $115 a barrel in June 2014.
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The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle to refinancewhile prices remained so low, leading to lower output in future:
"Producers are now looking for new cash to survive and theywill probably struggle to get it," van Beurden said.
Longer-term, there was a risk that low levels of globalproduction could bring a spike in oil prices, he said.
If prices remained low for a long time and oil productionoutside OPEC and the United States declined due to cuts tocapital expenditure, there was not likely to be any significantspare capacity left in the system, he said.
"This could cause prices to spike upwards, starting a newcycle of strong production growth in U.S. shale oil andsubsequent volatility," van Beurden said.
Adam Sieminski, administrator at the U.S. Energy InformationAdministration, told reporters on the sidelines of theconference the U.S. oil industry had reacted to lower prices byimproving its productivity.
But this process could not continue forever.
"Now we are seeing the limits at least in the near term andit 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 oilsupply growth from non-OPEC producers might be zero or negativein 2016 because of lower upstream investment.
But Papa said if U.S. light crude oil prices wentback up to $75 a barrel, U.S. oil production would resume growthat around 500,000 barrels per day - or around half the recordgrowth rates observed in the past few years.
"I see the United States as a long-term growth producer," hesaid. "If low oil prices prevail - then the correction in oilprices will be much more severe." (Writing by Christopher Johnson; Editing by David Evans)
Europa Oil & Gas (EOG)
