Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on November 10, 2014
Sapping the sweet spots: How long will US energy boom last?
In his 2012 State of the Union address, President Barack Obama said that the U.S. had a supply of natural gas “that can last America nearly 100 years.”
But that unbridled optimism, shared by the natural gas industry as well as politicians who want to see the U.S. become more energy independent, is worrying a growing group of activists and analysts who say U.S. oil and gas production may start declining in a matter of years as drillers run out of sweet spots in U.S. shale reserves and are forced to explore less productive — and less lucrative — regions.
“Most of the wells right now are going into sweet spots,” said David Hughes, who authored a report released this week on the future of oil and gas production from the Post Carbon Institute, a green energy think tank. “You’re going to have to go into other parts of the reservoir eventually.”
He says more pessimistic observations have for years been swept under the rug, as the recent flood of untapped oil and gas made accessible by newly popularized technologies like hydraulic fracturing has buoyed the spirits of fossil fuel optimists. These optimists believe the U.S. oil and gas boom could create hundreds of thousands more jobs, cut dependence on foreign oil and even use U.S. energy sources to leverage power in diplomatic battles — as long as the country manages to keep producing gas and oil at the current rate for decades to come.
Their claims have been bolstered by the U.S. Energy Information Administration (EIA), a part of the Department of Energy tasked with analyzing and predicting energy trends. Most of the EIA’s reports see a bright future for oil and gas, especially shale gas and shale oil, otherwise known as tight oil. The agency predicts U.S. reserves will last for decades more.
Those rosy predictions have the potential to seriously affect U.S. policy and economics. In recent years, there has been a push to end the United States’ oil export ban so producers can sell domestic oil to Europe and Asia. Furthermore, companies have spent billions building out a network of pipelines and gas export plants that makes financial sense only if the natural gas boom continues, and the Obama administration has centered its energy policy on the idea that natural gas will remain cheap and abundant for years.
But the relentless upbeat nature of the U.S. government’s predictions may mask a more complicated truth about oil and gas development. No one knows exactly how much oil and gas will be accessible in the future, and some people say it’s a lot less than what the government and industry think.
The Post Carbon Institute report suggests that while the U.S. does have a lot of shale oil and gas, the majority of it may be too deep and too expensive to drill.
The report is based on an analysis of the productivity of thousands of wells in the most productive U.S. shale regions. Shale is a kind of rock that can hold oil and gas and can broken up through a variety of methods. One of the most popular, hydraulic fracturing (also known as fracking), involves blasting a mixture of sand, water and chemicals thousands of feet into the ground to break up the rock and force the oil and gas in it to the surface. Shale oil and gas is responsible for ushering a new era of energy development in the U.S., catapulting the country to becoming the world’s biggest oil and gas producer in just a matter of years.
But Hughes says that revolution could come to a grinding halt.
Bill Powers
energy analyst
According to his report, oil development in tight oil plays, which includes the Bakken formation — the shale field that brought about an economic boom in North Dakota — will go into terminal decline before 2020.
From 2013 to 2040 (the furthest EIA estimates go), the report predicts, oil production will be 28 percent lower than EIA estimates. In the most productive regions — the Bakken in North Dakota and Montana and the Eagle Ford in Texas — oil production could be a tenth of what the EIA estimates by 2040.
In gas-producing regions, like the Marcellus in Pennsylvania and Ohio, production could be an average of 39 percent lower than the EIA estimates from 2013 to 2040 and a third of what the agency estimates in 2040.
The wildly differing predictions are due not to how much oil and gas is in the ground but to how much is economically feasible to extract. Hughes makes more pessimistic assumptions about the expense and technological difficulty of accessing gas and oil in the outskirts of the shale regions, where oil and gas producers will likely start exploring once the sweet spots have dried up.
“The industry, the government and academia have all promoted the idea that shale gas and oil will be abundant and cheap forever,” said Bill Powers, an energy analyst who works for oil and gas companies. “But there are just certain laws of physics that you aren’t going to overcome.”
He said that even if technologies are invented to access the deeper and less productive shale, they would likely be prohibitively expensive, given that the price of oil is falling rapidly, recently dipping below $90 a barrel.
“When you go out into the fringe areas, it’s not going to be worth it to drill unless oil is $130 a barrel,” he said.
The EIA would not return multiple calls for comment for this story. The industry and its supporters say EIA estimates are more accurate than Hughes’ and Powers’.
“Aside from [Hughes’] activist orientation … his assumptions are just flat out not true,” said Steve Everley, a spokesman for Energy in Depth, a pro–oil and gas publication run by the Independent Petroleum Association of America, an industry trade group.
He pointed to an Energy in Depth article that says production is rising across the U.S. and predicts technological advances will make it easier to access pockets of oil and gas.
“Saying [oil and gas] is there but we’re not going to get it out — that’s utter bullshit,” said Philip Verleger, an energy analyst. “As technological progress moves forward, shale that’s not accessible now will become accessible in the future.”
But this wouldn’t be the first time the EIA’s projections have been off by wide margins. Earlier this year, the agency cut its estimates about the amount of recoverable oil in California’s Monterey shale by 96 percent. And in 2012, research from the U.S. Geological Survey forced the EIA to cut its estimates of how much shale was accessible in Poland by 99 percent.
Meanwhile, falling oil prices have even the oil cartel OPEC questioning the future of shale development in the U.S. “If prices stay at $85, we will see a lot of investment, a lot of oil, going out of the market,” OPEC Secretary General Abdalla el-Badri said recently.
The implications of a sharp decline in oil and gas are wide-ranging. Economies reliant on oil and gas production could falter, national and international policy would have to shift, and infrastructure would likely go unused, straining pipeline and other oil and gas companies.
But at least for now, some are saying the panic isn’t worth it. Industry projections and the EIA’s data may be overly positive, but Hughes and others’ analyses rest on a set of pessimistic assumptions. The truth likely lies somewhere in between.
“[Shale development] is good and has a stimulative effect on the economy,” said Shashank Mohan, an analyst at the Rhodium Group, an economic consultancy. “But the people saying this will fundamentally change the way people live — I don’t think that’s correct. It’s just not as crazy as people say.”
15 Comments on "Sapping the sweet spots: How long will US energy boom last?"
rockman on Mon, 10th Nov 2014 12:14 pm
“[Shale development] is good and has a stimulative effect on the economy,” said Shashank Mohan, an analyst at the Rhodium Group, an economic consultancy. “But the people saying this will fundamentally change the way people live — I don’t think that’s correct. It’s just not as crazy as people say.” I would have to disagree on a couple of aspects.
Shale drilling has certainly stimulated the economy of the energy industry. But increasing the price of oil 300% in about a decade will do that. LOL. For the rest of the US economy increasing what it pays for oil from $225 BILLION/yr to well over $600 BILLION/yr could hardly be called stimulating. One can debate exactly what “fundamentally change the way people live” equates to. But diverting half a $TRILLION per year from all the other aspects of peoples’ lives has brought about changes. And, unfortunately, not the good kind.
Once again a writer who has trouble distinguishing cause and effect: the shale plays have not reduced the price of oil. Higher oil prices have brought about the boom in the shale plays.
Plantagenet on Mon, 10th Nov 2014 12:16 pm
So far obama’s projections of abundant natural gas supplies seem to holding true—his judgement has been questionable in many areas, but when it comes to NG abundance he may well be right—- the jury is still out.
eugene on Mon, 10th Nov 2014 1:43 pm
Amusing. 2-3 yrs of boom and we’re on the forever happy street again. Don’t think the jury is still out. Think reality has taken a leave of absence. Reminds me of my first marriage. Euphoria for a bit then yrs of pain before common sense/realty finally sunk in.
Much of what I read makes me think of religion ie full of unbridled faith in one thing or another.
shortonoil on Mon, 10th Nov 2014 5:12 pm
“Once again a writer who has trouble distinguishing cause and effect: the shale plays have not reduced the price of oil. Higher oil prices have brought about the boom in the shale plays.”
Honestly Rock, the whole shale mythology should be called the “cart before the horse” drama. You see it articles, web posts, and ordinary conversation. Who screwed the world’s head on backwards. God didn’t do it, if he had our eyes would be on the back of our heads!
Dave Thompson on Mon, 10th Nov 2014 5:30 pm
I would not worry a bit, the TPTB pulling the strings are trying to boost our perception of the holidaze, and abundance. Soon the prices of crude will go back up, sometime over winter and then spring. Playing a silly balancing act of economic deception is all that is left. Play along and go buy more crap for the system to grind up, I hear the next big thing in TV is a 3d system of cyberspace interaction.
jjhman on Mon, 10th Nov 2014 6:48 pm
“In recent years, there has been a push to end the United States’ oil export ban so producers can sell domestic oil to Europe and Asia.”
Every time I see this in print, and that is digustingly often, I just want to lie on the ground and scream. How can people who are so obviously uninformed get their drivel published?
coffeeguyzz on Mon, 10th Nov 2014 7:46 pm
It is a very telling canard that any writer, any article references a nonexistent EIA report downsizing the TRR of the Monterey shale. Lots of hoopla accompanied reports and interviews with people associated with or employed by the EIA last May, all indicating a formal report would be released imminently.
Since that time, numerous publications have come forth with nary a peep regarding the Monterey.
As for Mr. Hughes’ report, I do not know how many here have read it as this writer has, but it can only be deemed credible by the willfully ignorant.
Nony on Mon, 10th Nov 2014 7:57 pm
1. Rock, I have already said several times that shale drilling requires a high price, but that it mitigates higher price rises. 3 million of added production in a 3 year span is not chicken-feed. Your failure to get is either a smarts issue or sophistry. I’m thinking 75-25.
2. Somehow Hughes says we are running out of sweet spots when production has eclipsed even corny projections and has absolutely thrashed negative peaker projections. Look at the Bakken/EF for the new well productivity (flat to up) and drilling productivity (very srongly up).
3. Hughes says we are running out of sweet spots and then predicts a higher near term rise than EIA, followed by far out faster tailoff. Such a predicition makes no sense when combined with sweet spot running out of. And it’s basically unfalsifiable. (what, if near term grows slower, he’s wrong and sweet spots remain?)
P.s. “post carbon institute” you sense a bias??
Northwest Resident on Mon, 10th Nov 2014 8:29 pm
“3 million of added production in a 3 year span is not chicken-feed”
Either is the global and national debt that was required to suck that extra 3 million added production of oil (and other stuff) out of rock to add to the grand total.
Looks like we’re at $54 trillion global debt and counting. So, no problem? And that’s not even including derivatives and shadow banking.
Nony, admit it. That $3 million added production IS chicken feed compared to the total needed to run the world’s economy. And we paid dearly for it — you, me, our children, their children, everybody. All for a Retirement Party, a one time last shot at “growth”.
Shale and unconventional oil production is a turkey in the oven, and from the smell and look of things, that sucker is just about cooked. Happy Thanksgiving!
Global Debt Growth Kept Oil Prices High And Delayed The Bakken “Red Queen”
http://oilprice.com/Energy/Crude-Oil/Growth-in-Global-Total-Debt-sustained-a-High-Oil-Price-and-delayed-the-Bakken-R.html
Nony on Mon, 10th Nov 2014 8:34 pm
Rune got his butt kicked by the Bakken. He was wrong. And took forever to admit it. And still did so gracelessly.
Prediction: 600-700,000 peak
Current: almost 1.1 million
QED
Northwest Resident on Mon, 10th Nov 2014 8:55 pm
Yeah, Nony, I know. You’ve mentioned that about a few dozen times. It’s the best you’ve got. You can’t deal with the fact that shale is a short term one-shot burst that is within a year or two of going the way of the dodo bird. So you keep reminding everybody on this forum of the times in the past that Peak Oil notables have been wrong. What? Do you keep a list of wrong predictions so you can reference them whenever needed to avoid the main issue(s)?
Nony on Mon, 10th Nov 2014 8:59 pm
Yes.
But you still love me anyways. 😉
Northwest Resident on Mon, 10th Nov 2014 9:08 pm
Nony — True. You’re my favorite corny!
rockman on Mon, 10th Nov 2014 9:29 pm
“3 million of added production in a 3 year span is not chicken-feed.” Neither is the extra $400+ BILLION per year the US had to pay to justify getting that additional oil out of the ground.
Sorry but no matter how hard you try to ignore the facts they don’t go away.
Davy on Tue, 11th Nov 2014 5:41 am
NOo, I love your optimism and caviler bubbliness. I also enjoy your abstract and theoretical economic 101 thought. It has a place in life and we should not forget that. What I really want from my corn friends NOo, Boat, Marm, and some others is to be bitch slapped with real live optimism. You know what being bitch slapped is?
Well, I will tell you a quick story. On my other farm I had in 98-06. It was nestled in the river hills near the MO river. IOW where the hoot owls screw the chickens. There was a deer club that had a rough cabin in the woods battery for lights, woodstove for heat, and whiskey to drink. When I used to drink some nights (weekends only) I would get lit up and venture over to the deer club to play poker. I would always lose but it was fun. One cold clear deer season night I got in an argument with a guy about my property line and where they were hunting. I called the guy a MF’er. Well his son-in-law bitch slapped me. That is when you get punched upside the head and don’t know it is coming. You basically wake up on the floor going “what happened”. He hit me in such a way that I had to eat liquids for a week. Good lesson for you NOo.