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Page added on December 15, 2014
The Shocking Data Proving Shale Oil Is Massively Over-hyped
Hooray, Crude Oil is suddenly much cheaper than it used to be. That’s great news, right?
Not so fast. For certain it’s not good news for those counting on a continued rise in US oil production from the “shale miracle”. Many drillers were challenged to operate profitably when oil was above $70 per barrel. Very few will remain solvent with oil in the $50s (as it is as of this writing).
So, expect US oil production to suffer from these lower prices if they persist. But even if oil prices rise and rise soon, there’s new data that indicates the total amount of extractable oil from America’s shale plays is less — much less — than what we’re being told (or better put, “sold”).
On today’s podcast, Chris talks with oil analyst David Hughes, who has complied several recent studies based on a massive database of production results on a play-by-play basis of America’s shale basins. The data show that declines tend to be hyperbolic in all shale fields. The average first-year decline is 70%; down to 85% by year three. And we’re drilling the best plays first: meaning future ones will yield less even under the best results.
We’re pinning our hopes of “oil independence” on faulty data. Worse, we’re using it to dismiss the Peak Oil theme at exactly the time we should be using this extra oil to construct the infrastructure for our next energy age (whatever that may look like), while we still have the net energy available to us:
Let’s just take a play like the Bakken.: 45% fuel decline, sweet spots are getting to be drilled out. We know that they need to drill 1,500 wells a year just to keep production flat. But as you go into lower quality rock, the well quality in most of the plays is only about half of what it is in the sweet spot. If you have to rely on the lower quality price of the play you need 3,000 wells per year instead of 1,500 to offset the fuel decline. But the wells aren’t any cheaper. They cost the same amount to drill. To be profitable for producers, it’s going to take a lot higher prices in order to make that happen. And you can go through play after play and see the same thing. We are drilling the best parts of the plays now and it is just going to get worse down the road. We are going to need higher and higher prices.
The EIA has not only made what I consider really optimistic estimates on production, they have also made optimistic estimates on price. A lot of the infrastructure that is being built on the assumption of cheap prices for the foreseeable future. That is not in the cards. With these recent cheap prices we are going to see production go down a lot faster than my estimates. My estimates are best case: I assume that the capital will always be there to drill the wells and that there will be no environmental concerns that restrict access to drilling locations. So in that way I am the best case. But even if you take my best case, that would be rather disturbing to me if I were a petrochemical company.
Sadly, corporations tend to think about the next couple of quarters. Politicians may think about the next election, but this is an energy plan an energy sustainability plan has to have a vision of decades we certainly don’t see that in all the hype read every day. If you look at the mainstream media, I don’t think there is a lot of original research that is done there. I think people tend to repeat what other people said and it kind of takes on a momentum of its own, which is why I was so interested in trying to lay out as much of that as I could. It’s dangerous.
I mean, if you look at the infrastructure going forward in an era of declining oil and gas the number one way to promote energy sustainability in my view is figuring out ways to use less. And some of the infrastructure needs to be built in order to give people an alternative to high energy throughput lifestyles. It takes a lot of oil and gas to build. And you know, this short term bounty that we are looking at should in fact be used to do that not to maintain business as usual to the bitter end and then face the consequences.
17 Comments on "The Shocking Data Proving Shale Oil Is Massively Over-hyped"
shortonoil on Mon, 15th Dec 2014 8:47 am
We have been following David Hughes since his publication of Drill Baby Drill with the Post Carbon Institute. His work is an attempt at truism in an industry where exaggeration, and hyperbole has become the norm. The Etp model (our model) is an entropic evaluation of the petroleum production cycle. Its functional data base is the quantity of petroleum that has already been extracted, not the amount that may, or may not be. It is not encumbered by estimates of how future price, or extraction costs may change.
Using the output of the model we have determined that shale production is not a long term sustainable process. Its elevated cost of production is greater than the economy can afford to pay for the oil. The comment in the article:
We’re pinning our hopes of “oil independence” on faulty data.
rings particularly true to us. We hope that the public, and policy makers take notice of Mr. Hughes’ warnings.
http://www.thehillsgroup.org/
rockman on Mon, 15th Dec 2014 9:53 am
Nothing wrong with his presentation except that most of it is old news. The high decline rates were obvious from the very first wells drilled. Which also made it very obvious from the start that a continuous drilling program would be required just to maintain the trends’ production rates let alone increase them. Same true for the oil patch poking the sweet spots first: how every trend ever developed has progressed. A far as some counties having better production then others in the trend that was also proven long ago. It might not have been the story pushed by the MSM but these aspects were cover long ago right here.
He also does do a good job of explaining how overall drilling efficiency has improved. But it would have been more meaningful if he had figured out how to quantify the advent of longer laterals, more frac stages, higher well costs, higher production rates and higher URR. Wells might be coming on at high initial flow rates with better URR but that doesn’t mean they are more economic given higher costs. It would also give the appearance of some areas being sweeter then they would have been under the old procedures. But getting that much detail data would have required a lot of info directly from every operator…and that wasn’t going to happen.
Northwest Resident on Mon, 15th Dec 2014 10:08 am
There must have been a point in time prior to 2008 where some of the top oil and energy security experts looked at all the data and realized that the world was, in fact, on the verge of running out of oil at current and projected consumption rates.
And there must have been a time shortly after that where the various powers that be were made well aware of the fact that our oil based economy and civilization were heading into their final days.
And it must have been at that time that all the oil, financial, military, intelligence and political top dogs agreed on a plan to extend BAU another ten years or so past its ultimate expiration date. And that plan, obviously, was to throw one hell of a Retirement Party for the oil industry, to create a tsunami of debt that would enable extraction of shale and unconventional oil that everyone had known all along was far too expensive to extract during normal times.
And to facilitate and juice this one last final debt-driven extravaganza, they devised and implemented a mass media propaganda blitz on a scale that was equal in scale to the new debt tsunami.
And then, the put their plans into action.
Long before I read the scientific and factual analysis which proved beyond doubt that shale extraction was a big time loser, I had already come to that conclusion. What clued me in was all the propaganda, all the media blitz, all the lies and bullshit. Just like a used car salesman pushing hard for that sale — you don’t need to know the facts to understand that somebody is trying to rip you off.
Anyway, the oil industry and modern oil and technology based civilization got their big Retirement Party, with all the over-hyping and all the propaganda and lies and systemic distortions.
Now the big Retirement Party is winding down. My guess is that sometime in 2015 there will be last call at the liquor bar, a chance to get one last stiff shot before heading home, then that’s it. Party over. Good bye Age of Oil.
keith on Mon, 15th Dec 2014 10:46 am
Watch for Climate change, which I believe is real, to be used as an excuse to usher in global degrowth. It’s a great way to keep the sheeple sedated, while they fall down the latter. Of course BAU would continue forever if it could, but Mother Nature has the final say in the matter. If all government agree to the Climate change doctrine, then we will know peak oil is here.
rockman on Mon, 15th Dec 2014 11:20 am
“There must have been a point in time prior to 2008 where some of the top oil and energy security experts looked at all the data and realized that the world was, in fact, on the verge of running out of oil at current and projected consumption rates.” Yes…some years prior to 1975. At least for the folks who actually hunted for oil back then. As far as “energy security experts” I didn’t know any back then. Except of a geologist with the CIA that tried to recruit me. A guy in his 50’s who didn’t know nearly as much about the oil patch as I did then…and I only had about 5 year’s experience. But Georgetown did look like a great place to live especially with one of those “forever jobs”. LOL.
And as far as the “retirement party” I assume you realize that all the 50+ year old hands with a lick of sense have been positioning themselves for this day. I had a good reason to leave the oil/NG pubcos 5 years ago and go to work for a private company that didn’t borrow money to drill. That still might not save my position but it will last longer and I’ll get a better “good bye kiss”. There’s nothing happening today that wasn’t expected by anyone that survived the 80’s in the oil patch. The only question was “when” and not “if”. When you’ve witnessed countless lives crushed first you don’t forget it not matter how hard you try.
Northwest Resident on Mon, 15th Dec 2014 11:45 am
I have a relative who I tried to reconnect with until I quickly realized that he was a pathetic alcoholic. My relative was always throwing big parties. His life in many ways was just one long drunken party.
My relative had a young daughter. He bragged to me on several occasions that his daughter could go to bed and get a normal night of sleep even with all the late night partying and reveling going on because she had been born into that rowdy level of noise and chaos and had become accustomed to it.
In a sense, we are all like my alcoholic relative’s daughter — born into one big loud, rowdy, noisy, crazy party — the Age of Oil.
What will it be like when that party ends? When the lights go out? The loudspeakers stop blaring? The music stops playing? The bottles of booze and the keg run dry? When everybody goes home and we are, for the first time in our lives, left alone in the terrifying silence of a world that we have never known?
Most likely, we won’t have long to wait before we find out.
coffeeguyzz on Mon, 15th Dec 2014 11:57 am
A few questions/observations directed towards those few who have actually read Mr. Hughes 315 page ‘Drilling Deeper’ …
How do you explain slide 3-99 showing the Marcellus peaking in 2018 at 15bcfd when it is ALREADY producing over 16bcfd?
How does one explain his dismissive characterization of the Niobrara and Permian since they have been drilled for decades while the relevant source rock has been targeted only the past few years?
Why is Mr. Hughes referencing a non existent EIA report on the Monterey shale?
How can his methodology be given credence when he projects Bakken wells at four per square mile when operators are ALREADY drilling/permitting 12/16 per square mile?
How can one overlook the Utica dry gas formation when numerous 40mmcfd monster wells have been produced, with the formations’ productive area found to extend at least 400 miles across?
The long anticipated refrac process has just begun with results like Marathon Oil’s refrac of a 2008 Bakken well showing a tenfold increase (1,100bpm versus 11,000bpm).
In the Eagle Ford, EOG has started reinjecting gas in a push-pull process that is showing positive results.
The fact that Mr. Hughes invested a great deal of time and effort into a demonstrably flawed work does not reflect favorably on like-minded people who refer to this work as factual.
theultravixens on Mon, 15th Dec 2014 12:34 pm
coffee
If you go and compare his figures with those of the EIA in, say, their drilling reports, then he’s consistently below the eia figures. For example they have the Haynesville’s peak at around 10mcf/day, Hughes has it at around 7.5. Presumably this is because they’re either using a different measurement or a different definition (raw gas vs dry gas, perhaps).
Northwest Resident on Mon, 15th Dec 2014 1:11 pm
coffeeguyzz — Even if all the points you make about Mr. Hughes’ report end up being 100% correct, it doesn’t change anything. Shale and unconventional is a dying business. Focus on the financial side, see where shale and unconventional extraction projects are headed, and you’ll have a better idea of what I mean when I say “it doesn’t change anything.” The “big picture” is much more relevant than trying to drill down into the details of shale play dynamics.
coffeeguyzz on Mon, 15th Dec 2014 1:19 pm
Quick PS … Range Resources just announced a Utica well with a 24hr IP of 59 million cubic feet a day.
The Red Queen will be able to drive her Escalade outta town if’n she needs to move her fat ass toot sweet.
Roughneck 83 on Mon, 15th Dec 2014 1:53 pm
I would add that the Bakken decline in this article is understated. There is a real model for Bakken already: Montana was first new Bakken exploitation. One can see their decline after exploitation stopped. All resources plays become unsustainable once the good rocks fall off.
Perk Earl on Mon, 15th Dec 2014 5:48 pm
“If all governments agree to the Climate change doctrine, then we will know peak oil is here.”
It’s an interesting angle, Keith, however the US is currently shifting politically towards the R’s (with the House and Senate now in Republican Majority’s) and they don’t ‘believe’ in AGW (most of them for religious reasons – i.e. God would never do anything to harm us – as stupid as that is). They don’t really even need the presidency now or in 2016 to control what happens regarding CO2 emissions. As long as the R’s control things nothing will happen to try and reduce CO2 emissions, and the other G8 countries are not going to do much if the US isn’t.
keith on Mon, 15th Dec 2014 10:34 pm
Reply to Perk Earl
Exactly, if the Republicans side with Climate change doctrine then the game is up. Know body in goverment wants mass panic, you need a tool, which is also real, to explain away the changes (i.e. slide) in the majority’s status quo standards. No government would choose degrowth, they must only have a small limited choice left to choose this path. Think of it as a game of Chess, each player makes moves and counter moves changing the puzzle but also gradually stepping closer to a small limited number of moves left to them. This is called end game. A good player will have placed themselves in an advantageous position by the end game. Leading to a win or at worst a draw, but not a loss. Humans could never win this game against Mother nature, but we could obtain a draw which we’d call sustainability. The question, Perk Earl, is have we played well enough to get that draw? Humanity has been doing everything to postpone the end game, but it still approaches. Our short lifespans give us this arrogance that we are the Grand master on the board, but on a multiple generation span, the true Master emerges. One day that Master will smash our defense and kill the king.
Nony on Mon, 15th Dec 2014 10:45 pm
I think Hughes was right about EIA being under in the short term. [Except with price, now that changes.] I think he’s incorrect though on assuming the exhaustion model that he does. Pretty much all the oil history of the world has shown that with long term developments, we usually find some ways to squeeze the lemon at the end and then moderate the decline a bit on the down slope (versus initial predictions). Also, these plays are very new in terms of techniques (evolution has happened even in last few years). So it’s not some kind of crazy belief in technology, but a pretty rational expectation.
Also, the shale gas futures market sure doesn’t believe we’re running out of shale gas soon like he and UT do.
Also, there’s a pretty long history of peakers underpredicting the shale plays (Rune, Picollo, Berman, etc.)
Also…”post carbon” sounds biased.
keith on Mon, 15th Dec 2014 10:45 pm
The climate doctrine agreed upon will have nothing to do with reducing global CO2 emissions but it will be an excuse for the great western living standard slide. People ask questions, your experts need answers to those questions. Thus, the majority of the sheeple will remain benign and harmonious. Peak oil was publicized a decade age when they could still slam it and disprove it to the sheeple. Peak oil will not be mentioned this time unless you’re prepared to be labeled a conspiracy theorist. They have managed to place Peak oil on the shelf along side UFO’s, Atlantis, and Big foot. It was deliberate. Most people scoff a the Peak oil discussion today. The human mind is a funny thing, it tries to ignore pessimistic realities.
Davy on Tue, 16th Dec 2014 7:00 am
Kieth the great western living standard decrease will lead to the great Asian growth decease. IMA the west is in decline so the west has taken the first steps to adjustment by force. Asia is heading for a growth shock in a condition of MASSIVE overshoot. This will be catastrophic because of population and consumption levels.
The bumpy descent paradigm shift is occurring under our feet as we speak. There are new fundamentals just as the growth period and the bumpy plateau had economic and social fundamentals. One of the new and essential fundamentals is carrying capacity not growth. Carrying capacity of an aggregate population is the new norm for survival not growth.
Another fundamental that is less visible is exactly when, where, and how AGW is going to strike. The effects are baked into the human epoch we are in. If our current problems were not bad enough throw in climate instability as a trump card. There are also black swans that are known and not yet known. Where these black swans strike will be important. NUK war is a black swan end game for example.
Growth is over so the whole AGW debate is mute. The debate should be on adjustment and mitigation of the bumpy descent. Pain, suffering, and death will have an automatic time value. WTF does most of the population care about 20 years down the road if PSD is upon us now. The shift is now and the results will be apparent as soon as oil supply is damaged and the resulting supply shock affects the systematic issues of food and transport.
Vast distribution, production, and financial networks of BAU are going to be rendered randomly and pervasively dysfunctional. Managed degrowth efforts are too little too late. Mitigation and adjustment actions are needed. Paradoxically these good actions are bad actions for BAU. They will in effect be abandonment efforts instead of managed degrowth. Economic abandonment will introduce economic chaos and the randomness with feedbacks and converging predicaments.
Another paradox is growth is needed to manage degrowth. There is a time space value to degrowth. IOW we should have started these efforts 30 years ago with ample resources, proper attitudes, and proper lifestyles. Instead we pursed progress, growth, and an entropic orgy of malinvestments and ecological degradation. This malinvestment is pervasive across society, the globe, and our vital systems. We are fucking doomed let’s face reality and get on with the surgery.
Kenz300 on Tue, 16th Dec 2014 8:51 am
The fossil fuel industry has over-hyped their capabilities…………….
OH NO say it isn’t so…….
The fossil fuel industry with their paid for Climate denying reports and sham think tanks……… spin out new infomercials every day promoting fossil fuels and bashing their competition..
They will do anything to protect their profits and slow the competition……..