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Page added on January 6, 2014
When Will U.S. Crude Oil Production Peak?
As recently as the mid-2000s, conventional wisdom held that U.S. crude oil production was in secular decline, while the nation’s demand for oil was expected to keep rising.
But over the past five years, U.S. oil production has surged by more than 50%, while domestic demand has been more or less stagnant. Now, policymakers are less concerned than they were a decade ago about the nation’s reliance on foreign oil and are even debating the prospects of exporting crude oil from the United States.
It’s all thanks to the application of advanced drilling techniques such as horizontal drilling and hydraulic fracturing that have allowed energy companies to tap previously unreachable shale formations in places like Texas and North Dakota. But even though production from these shale formations has surged in recent years, it will eventually peak at some point. The question is when exactly.
Is U.S. crude oil production nearing a peak?
In a recent note, the U.S. Energy Information Administration, or EIA, offered up its prognostications, projecting that U.S. oil production will peak by 2019.
The agency expects U.S. crude oil output to grow by an annual 800,000 barrels per day through 2016, when it will reach 9.5 million barrels per day. After that, production growth will slow substantially, reaching a peak of 9.61 million barrels per day in 2019 — close to an all-time record high of 9.64 million barrels per day achieved in 1970 — the agency said.
Meanwhile, growth in domestic crude oil demand is forecast to remain sluggish, allowing the country to meet an increasing share of its needs through domestic production. Just last month, U.S. oil imports fell to their lowest level since 1998 and are expected to remain in general decline after reaching a peak in 2005. By 2019, the EIA forecasts that domestic production will meet 63% of domestic demand, up from just 38% in 2011.
Key drivers of U.S. production growth
This drastic reversal in U.S. oil imports is thanks to surging production from shale formations, where companies continue to deliver staggering growth, even as they slash operating costs.
Take the Bakken, for instance, where oil production has nearly quadrupled over the past four years, surging from roughly 250,000 barrels a day in late 2009 to roughly 940,000 barrels per day in October. At the same time, the Bakken rig count has actually declined over the past year, as companies use techniques such as multi-well pad drilling and downspacing to cut costs and coax more oil from the play.
Continental Resources , for instance, grew third-quarter net Bakken production by 7% sequentially to 94,500 barrels of oil equivalent per day, while Kodiak Oil & Gas delivered more than a 50% sequential increase in average daily Bakken sales volumes. Meanwhile, Continental’s well costs have plunged from $9.2 million last year to roughly $8 million during the third quarter, while Kodiak’s have fallen from $12 million in 2012 to just under $10 million currently.
Similarly, in the Eagle Ford, ConocoPhillips reported a whopping 66% year-over-year production increase during the third quarter, while Chesapeake Energy said its Eagle Ford production surged 82% from the comparable quarter last year. Like Kodiak and Continental, both firms have also reported meaningful reductions in well costs and drilling times, thanks to pad drilling and other initiatives.
The bottom line
The U.S. shale oil boom made possible by companies like Continental Resources, Kodiak Oil & Gas, ConocoPhillips, and Chesapeake Energy has undoubtedly been one of the most significant global energy developments in recent years. Not only has it radically transformed global energy markets by boosting supply, but it has also helped improve the U.S. trade balance and supported millions of jobs.
However, there remains a great deal of uncertainty over how long the boom will last. Factors such as shale well decline rates, technological improvements that boost recoverable resource estimates, regulatory and tax regime changes for oil producers, and investment in oil storage and transportation infrastructure could all have a meaningful impact on when U.S. oil production will peak.
But most importantly, a sustained decline in crude oil prices could render certain projects uneconomical, resulting in decreased investment and production. All told, there are simply far too many uncertain variables to reliably determine when exactly U.S. crude oil production will peak, though the EIA projections provide a useful reference point.
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12 Comments on "When Will U.S. Crude Oil Production Peak?"
GregT on Mon, 6th Jan 2014 2:17 am
“When Will U.S. Crude Oil Production Peak?”
Well, according to this ridiculous article, it already has. In 1970.
“production growth will slow substantially, reaching a peak of 9.61 million barrels per day in 2019 — close to an all-time record high of 9.64 million barrels per day achieved in 1970 — the agency said.”
Thanks, Fool.com.!
rollin on Mon, 6th Jan 2014 4:01 am
Beside the price vs. drilling problem, the US is still very dependent upon imports. If imports fall off at the same time as domestic production peaks again, that will cause a double whammy.
Can’t say we were not warned.
Jimmy on Mon, 6th Jan 2014 4:37 am
2019 is very optimistic for the ‘second peak’. I’m well read on the matter and my hunch is 2016. It’s pretty much all downhill from here. Get ready to live on a lot less in the near future.
mo on Mon, 6th Jan 2014 5:54 am
Oh come on. Another mottly fool commercial
Arthur on Mon, 6th Jan 2014 8:33 am
Twin Peaks.
Who would have thought only two years ago that possibly the US could top it’s previous record of 1970? No wonder peak oil is dead for ordinary folks or (in the short term) even for the Casanova’s of TOD, who understood they could not… uhmm… hold it that long.
stuart thrupp on Mon, 6th Jan 2014 10:05 am
What about the rest of the world.
Meld on Mon, 6th Jan 2014 1:17 pm
How ironic that peak oil is dead for the ordinary folk just as it starts to really bite them. Do you mean the “Cassandras” of TOD Arthur? Also “Casanova’s” doesn’t have an apostrophe in it, just for future reference.
steveo on Mon, 6th Jan 2014 1:21 pm
Wow! I want a job like theirs. Parrot EIA propaganda will sounding happy and goofy and make a 6 figure salary. Best yet, no one fires you when you are consistently wrong.
rockman on Mon, 6th Jan 2014 2:27 pm
FYI: By their definition US oil production has now peaked 7 times: 1971, 1973, 1985, 1991, 1997, 2001 and now today on to a new peak. Production during the first 4 peaks matched or exceeded the current peak.
Arthur – PO dead? I suppose it depends on how one measures life. Given that oil consumers are spending about $5 TRILLION more for oil today then they were just 10 years ago I would the effects of PO are alive and doing rather well, thank you.
shortonoil on Mon, 6th Jan 2014 3:08 pm
Over the last five years the Bakken has displayed, on average, a 35% annual depletion rate per well. That means that during the second year, of that five year period, 35% of the wells drilled on year one had to be replaced by new wells during year two to keep production constant. Year three is 35% of 35%; the number of new wells that must be drilled each year must increase to compensate for declines in older wells. Obviously, there is a point where the number of new wells drilled can not increase further.
The constraints are locations for new wells (assuming they are all equally productive, which they aren’t), available capital to finance the new wells, and availability of man power. At a 35% annual compounded increase, in fifteen years the US would run out of money, run out of land, and run out of people.
To believe that this will continue for much longer is purely, simply delusional.
Northwest Resident on Mon, 6th Jan 2014 3:43 pm
Kunstler has a few words on this topic from his latest article:
Now, a number of stories have been employed lately to keep all these (financial) rackets going — or, at least, to keep up the morale of the swindled masses. They issue from the corporations, government agencies, and a lazy, wishful media. Their purpose is to prop up the lie that the dying economy of yesteryear is alive and well, and can continue “normal” operation indefinitely. Here are the favorites of the past year:
•Shale oil and gas amount to an “energy renaissance” that will keep supplies of affordable fossil fuels flowing indefinitely, will make us “energy independent,” and will make us “a bigger producer than Saudi Arabia.” This is all mendacious bullshit with a wishful thinking cherry on top.
http://kunstler.com/clusterfuck-nation/forecast-2014-burning-down-the-house/
criticalmass on Mon, 6th Jan 2014 9:00 pm
I love making predictions, so I’ll throw mine in: August 2017 sees domestic shale oil decline/ the US peak.
Conventional oil has still been in plateau since ’05. Yikes!
(I hope someone remembers.)