Peak Oil is You
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Page added on October 12, 2015
The Peak Oil Crisis: When?
For those following the world oil production situation, it has been clear for some time that the only factor keeping global crude output from moving lower is the continuing increase in U.S. shale oil production mostly from Texas and North Dakota. Needless to say once the fabled “peak” comes, oil and gasoline prices are certain to move higher triggering a series of economic events – most of which will not be good for the global economy.
Thus the key question is just how many more months or years will production of U.S. shale oil (more accurately call light tight oil) continue to grow. Many have answers to this question ranging from the “next year or so” on out the middle or end of the next decade. Some forecasts as to time remaining until the “peak” arrives are politically tinged. No politician, business manager, or even investor wants to hear that serious economic problems affecting their lives may be only a few years away. Fortunately for these folks, there are many forecasters available to spin stories about how “technology” will enable US shale oil production to continue on into the dim future of the 2020’s – which most of us really can’t comprehend or plan for.
Usually missing from optimistic estimates for future U.S. shale oil production is any discussion of just how fast production from fracked wells declines. Most fracked wells are adequate or at least economic producers for three years or so, after which their production is so small that they need to be replaced or reworked to keep a meaningful amount of production going. As shale oil production grows larger and larger, more and more wells will have to be drilled and fracked just to keep production level. At some point there will be a cross over between new wells coming on stream and old wells going out of production so output will start to slip. The EIA recently noted that for North Dakota to increase its oil production by 20,000 barrels a day (b/d) next month, it must bring 94,000 b/d of new production online. At Texas’s Eagle Ford basin, it will take 152,000 b/d of new production next month to increase net production by 31,000 b/d.
There is no doubt that the shale oil drilling industry has made many significant technological advances in recent years. Multiple wells are now being drilled from a single drilling pad – foregoing the need to move drilling rigs and setting up all the expensive infrastructure needed to frack shale wells. For a while shale oil drillers were drilling and fracking longer wells which reduced the cost per barrel. Now we hear that drillers are increasing production per well by pumping more fracking materials down each well and some are saying this will be enough to offset any decline in prices.
Currently US shale oil production is about 3 million b/d and in June output increased by about 100,000 b/d. About half of US shale oil production comes from North Dakota where winter conditions are so harsh that production has been falling during the winter months.
The two major forecasting agencies, Washington’s EIA and Paris’ IEA, are both more pessimistic than is generally known for they both foresee US shale oil production leveling off as soon as 2016. The reason for this is that drillers will simply run out of new places to drill and frack new wells. While new techniques of extracting more oil from a well are possible, there is need to look closely at the costs of these techniques vs. the potential payoff.
The shale oil situation in Texas is somewhat different than in North Dakota for there you have much better weather and two separate shale oil deposits. The recent growth in Texas’s shale oil production has been much smoother than in storm-prone North Dakota and has been increasing at about 44,000 b/d each month. So far as can be seen from the outside of the industry, production in both states will continue to grow for at least another year or two – but then we will be at 2016.
The government has never gotten around to publishing the assumptions that go into the forecast that U.S. shale oil production will stop growing circa 2016. The biggest difference between EIA/IEA and independent analysts is the government forecasters do not see a precipitous drop in shale oil production following the peak. Instead they see a period of flat production followed by a gentle decline stretching well into the next decade. Such a gentle end to the shale oil “bubble” can only assuage fears of a calamity. This projection on a gentle end to U.S. shale oil is at variance with outside forecasters who note that shale oil wells are pretty well gone in three years and simply do not see where the oil to maintain production levels will be coming from for another 10 or 15 years after the peak.
Independent analyses of U.S. shale oil generally come to the same conclusion that production will peak in the 2016-2017 timeframe, but as noted above see a much faster decline than does the government.
There are however, other factors that could become the primary cause of world oil production peaking in the next few years. The first is the turmoil in the Middle East. A lot of oil production in the region has dropped off line in recent years for political reasons and Iraqi production is endangered. The spread of militant Islam could eventually threaten other major producers in the region as could the Arab-Israeli standoff.
A more recent development having serious long-term implications for the oil industry is the growing disparity between the cost of producing a new barrel of oil from the Canadian oil sands or deep below the ocean and the selling price of that oil. A recent study points out that many planned oil production projects are simply not economical at today’s oil prices which have been relatively stable for the past five years as costs continued to soar. Oil companies are already cutting back on new drilling projects which will have little impact on current production, but will be very significant five years or so from now.
66 Comments on "The Peak Oil Crisis: When?"
rockman on Tue, 13th Oct 2015 5:56 pm
Greg – Just a small quible: condensate has always been counted as oil. And that includes billions of bbls of condensate that have been produced globally for the last hundred years. Condensate production is certainly not new factor. When Inwas developing offshore GOM conventional NG firlds 40 years most of yhe liquid hydocarbons were in the condensate range. Look up the offshore federal lease production stats and all the liquid hydrocarbons were counted as “oil”
As far as “tite oil” that catrgory still confuses me. In 40 years I’ve never heard a single oil patch use that term. “Tite reservoirs”…yes…very common. But that included tite reservoirs that produced lower gravity oils.
OTOH NGL were always natural gas liquids were not countered as oil. OTOOH if a 100% synthetic that can be refined the same as a “natural oil” then why not count it as oil? But in doing so it should not be put into the stats of production from wells. That would give a false impression of the reserves being developed…or not being developed.
rockman on Tue, 13th Oct 2015 6:23 pm
A – Same quible as I had with Greg. Conventional and unconventional oil do not exist got the oil patch. Never have…never will. We have conventional and unconventional RESERVOIRS. I’ve produced millions of bbls of CONDESATE (what some might call “tite oil”) from conventional reservoirs and very heavy oil from uncconventional reservoirs. I’ve see 18 API oil produced from a shale: is that tite oil or conventional oil? It certainly isn’t lite oil but is it tite oil because it came from a tite reservoir which also happened to be an unconventional reservoir? But if I produced the same 18 API oil from a conventional reservoir that I frac’d would that make it tite oil?
And just last week I frac’d a tite conventional NG reservoir that will also produce 32 API oil: how do I classify it? And want it more confusing: as I began producing the Texas Rail Road Commision will classify the liquid production as condensate but one day the reservoir pressure will drop to a level that the TTRC will start counting it as oil. Yes: the gravity of the liquid does not determine that status as oil vs condensate in the eyes of the TRRC: it’s a complex computation based upon the reservoir conditions.
GregT on Tue, 13th Oct 2015 6:27 pm
Thanks Rock,
Your input is always appreciated. Some of these stats are difficult to find if one does not know where to look.
I maintain that we need a different metric when it comes to ‘oil’. Barrels of oil, or oil equivalent, are not really what matters to us. It is not the volume, but the energy available to our economies from that ‘oil’, the products that can be produced from it, and the costs that matter.
shortonoil on Tue, 13th Oct 2015 7:03 pm
“Greg – Just a small quible: condensate has always been counted as oil. And that includes billions of bbls of condensate that have been produced globally for the last hundred years.”
Condensate has always been a byproduct of conventional production. It was retrieved from the associated gas. According to the Oklahoma Geological Department it has historically run about 3% of total production. In 2013 it accounted for about 15% of total US production. Condensate is a feedstock, and its lighter fractions (93% pentane, and lighter, with an API of 93.5), contribute nothing to the production of fuels.
http://www.nrcan.gc.ca/sites/www.nrcan.gc.ca/files/energy/images/eneene/sources/petpet/images/refraf1-lrgr-eng.png
Being a non energy provider, including it into the American energy independence proclamation, has been a complete falsehood.
http://www.thehillsgroup.org/
Apneaman on Tue, 13th Oct 2015 7:25 pm
“It is not the volume, but the energy available to our economies from that ‘oil’, the products that can be produced from it, and the costs that matter.”
U.S. refiners turn to tanker trucks to avoid ‘dumbbell’ crudes
http://www.reuters.com/article/2015/03/23/us-usa-refiners-trucks-analysis-idUSKBN0MJ09520150323
GregT on Tue, 13th Oct 2015 7:32 pm
I suspect that much of the ‘surplus oil’ these days, is the oil that our economies do not demand. In order to set the record straight, we need a better definition of oil. Of course that would not be beneficial to the oil and gas industries. So people will continue to believe what they are being told, until there are no options left available and modern industrial society fades into black.
MrNoItAll on Tue, 13th Oct 2015 8:28 pm
Obfuscating the meaning of “barrel of oil” plays right into the propaganda themes that get generated for the masses to absorb. I wonder how much longer they can keep the hologram of “all is well” viable? Not much longer would be my guess. Cracks are forming. People in high places are starting to notice. Even Cramer is jumping up and down saying NOW is a good time to “put your cash on the sidelines”. It has been a slow frog boil up to this point, for the most part, but there’s some pretty big shocks headed our way. The suspense is killing me!
HARM on Tue, 13th Oct 2015 9:41 pm
“…Even Cramer is jumping up and down saying NOW is a good time to “put your cash on the sidelines”.”
Wow, with a reliably contrarian indicator like Cramer, I guess I should go ALL IN on stocks right now.
BC on Tue, 13th Oct 2015 9:44 pm
@short: Using a one size fits all approach to world oil production is like using a one size fits all approach to girdles. It leaves your ass hanging out.
😀
BC on Tue, 13th Oct 2015 10:09 pm
HARM, it is clear that your mind is made up in spite of the evidence I present, or as a consequence of you not having access to, or desiring to examine, the evidence for yourself.
I, and others like me, can point to the source, but you have to have the desire, intention, and inquiring mind to go to the source and experience the information for yourself in order to challenge your presuppositions and resulting conclusions to date.
The water is there to partake, but your mind’s horse must submit to be led to the river to drink.
Thus, one is well advised to trade one’s donkey for a thirsty horse. 🙂
BC on Tue, 13th Oct 2015 10:11 pm
Cramer is a well-paid clown (to the demise of The Street.com’s revenues and viability), and he specializes in doing flip-flopping cartwheels at the drop of his floppy clown hat. 🙂
GregT on Tue, 13th Oct 2015 10:37 pm
“Wow, with a reliably contrarian indicator like Cramer, I guess I should go ALL IN on stocks right now.”
Knock your socks off Harm, and dive right in!
MrNoItAll on Wed, 14th Oct 2015 12:20 am
“Cramer is a well-paid clown…”
Ain’t it the truth. Just trying to inject a little humor into an otherwise grim topic.
joe on Wed, 14th Oct 2015 12:23 am
Hey guys, peak oil, when? Here’s the silent nightmares of those in control.
http://www.theguardian.com/environment/2015/oct/13/oil-unlikely-to-ever-be-fully-exploited-because-of-climate-concerns-bp
Sadly the XFactor gets more attention than the truth.
The propaganda is going to blame climate change for big oil stopping fraking and other tight oils from reducing the profitability of the last of easy oil. Tight oil will then show it’s true cost as a totally uneconomical resource. Then the party’s over. Chinas slowing down, US has reached the peak of its society as is the west in general. I wonder who’s winning AmericanIdol…..
rockman on Wed, 14th Oct 2015 8:47 am
Greg – Well put. Most important is the intentionally deceptive use of “bbl of oil equivalent” IMHO. It makes no sense in terms of energy content, utility or monetary value.
tahoe1780 on Wed, 14th Oct 2015 10:38 am
“If you want to corrupt a people, corrupt the language. Once it becomes impossible to say the truth with the language we have, it will ultimately be impossible for us to adapt and survive.” – Kurt Cobb Conflating NGL’s with crude and not acknowledging the changing ratios of condensate to crude would seem to apply.