U.S. Shale Oil And Natural Gas, Underestimated Its Whole Life
Jude Clemente Contributor Energy an 13, 2019, 07:06pm
I cover oil, gas, power, LNG markets, linking to human development.
Many years have passed, and the reality is that shale production has surpassed all expectations
They say predictions can never be 100%. History has proven otherwise: the shale naysayers have been wrong every time
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I want to write on a recent piece in The Wall Street Journal, "Fracking’s Secret Problem—Oil Wells Aren’t Producing as Much as Forecast," that speaks of an 'illusory picture’ of prospects for the U.S. shale oil and gas industry. The article is based on the same rhetoric that we have been hearing since the industry's takeoff back in 2008: well decline rates are too fast and recoverable reserves are overstated, so a conveyor belt of drilling must be installed to simply maintain production. If not, output inevitably plummets.
The WSJ story could just as easily been written a number of years ago.
To illustrate, back in 2012, the now defunct peak oil website Oil Drum infamously compared the U.S. shale industry to the Red Queen in Alice in Wonderland, who quipped that "It takes all the running you can do, to keep in the same place."
Back on June 21, 2011, The New York Times ran a now forgotten piece also questioning the viability of shale: "Insiders Sound an Alarm Amid a Natural Gas Rush." Read the article for yourself, but it cited the Federal Reserve Bank of Dallas and a few geologists on their skepticism over the survival of the U.S. shale industry. To them, the bubble was about to burst.
Many years have passed, and the reality is that shale production has surpassed all expectations namely through the constant advance of technologies and improvement of operations.
For example, especially in the wake of the price collapse of 2014-2017, oil and gas companies have been forced to cut their breakeven costs to stay afloat. There were over 100 E&Ps that went belly-up during the period. Now, our shale producers have breakevens of just $50 to $55 per barrel, down from over $80 a few years back.
The efficiency of the U.S. oil and gas business is now the best ever. We are producing more than we ever have, and shale has completely upended the conventional thought that domestic crude oil and gas production peaked in 1970 and 2005, respectively.
Thriving so fast, our production growth for shale oil and gas has proven itself to be systematically underestimated by modeling entities around the world, the big banks included.
Let us use the statistical arm of the U.S. Department of Energy, the Energy Information Administration (EIA), because its stats are publicly available. The Shale Revolution has been rising so quickly that EIA predictions for 5, 10, or 15 years down the road are being surpassed in a single year's time. At 11.7 million b/d of crude oil, we are now at production levels EIA's most recent Annual Energy Outlook (February 2018) predicted we would not see until 2030. An obliteration of a 17 year projection in less than 12 months. And the U.S. Department of the Interior believes that we could reach 14 million b/d by 2020.
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