Register

Peak Oil is You


Donate Bitcoins ;-) or Paypal :-)


Page added on January 31, 2018

Bookmark and Share

MIT Researchers: US Oil Production Estimates May Be Flawed

Consumption

There’s something odd about the U.S. oil production boom.

Yes, the U.S. is now a player on the world energy stage, producing enough to strike fear into the hearts of OPEC‘s member states. Crude oil production in the U.S. has practically doubled in just 10 years and is now approaching the production levels of OPEC’s leader, Saudi Arabia.

US Crude Oil Production Chart

US Crude Oil Production data by YCharts.

That the shale revolution changed the very fabric of the American oil industry is an understatement. Until the ability to frack rock and drill horizontally came along, U.S. oil production had been on a slow, downward slog from its peak in the early 1970s. Now, the sky is the limit — with the president of the United States calling for U.S. energy independence.

But according to researchers at the Massachusetts Institute of Technology (MIT), there is something very wrong with these calls for ever-expanding U.S. production. In fact, the party may be over far sooner than anyone can imagine.

What happens when you assume

Oil producers and investors have lots of data sources. Geologic data, core samples, and estimates put together by experts are all on the table in the search for crude. One of the primary data sources for all stakeholders is a government agency: The U.S. Energy Information Administration (EIA).

The EIA is the entity that puts out weekly oil supply and demand data, as well as the all-important oil and petroleum inventory statistics. The agency also puts out longer-term projections for oil production in the U.S. At present, the EIA’s forecasts for long-term U.S. oil production growth are pretty bullish:

Naturally, something as big as the shale revolution calls for some research.

Two MIT researchers, Francis O’Sullivan and Justin Montgomery, dove into the data behind the EIA’s long-term estimates. What they found when they analyzed the EIA’s data left them scratching their heads.

They noticed that the administration was being aggressive in its assumptions of well productivity. The shale revolution is, at its base, built on bringing advanced technologies to an old business. In its reports, the EIA assumes the average productivity of individual wells will continue unabated.

As the well-known investing caveat goes, past performance is not indicative of future results. And yet that’s precisely what the EIA is banking on.

Oil rigs at sunset.

Could the sun be setting on the shale revolution? Image Source: Getty Images.

As detailed in a recent article by Bloomberg, Montgomery and O’Sullivan dug into the data on ground zero of the shale revolution: North Dakota’s Bakken deposit. North Dakota has been one of the significant beneficiaries of the shale revolution. Oil that was once thought to be impossible to produce burst forth.

But by tweaking the EIA’s assumptions using well data from the Bakken, the two researchers found that total production from new wells could undershoot the EIA’s estimates by a wide margin — as much as 10%. How soon? By 2020, just three years from now.

All the more interesting, the EIA couldn’t dispute the researchers’ questions. When queried via email by Bloomberg, an EIA scientist in charge of oil, gas, and biofuels exploration and production analysis, Margaret Coleman, granted that MIT’s study “raises valid points.”

So are we back to importing most of our oil?

In the EIA’s defense, when dealing with something so complicated, some underlying assumptions are inevitable. In her response, Coleman pointed out to Bloomberg that few oil fields have the detailed well data that MIT used to question the EIA’s estimates. This raises a fair question: What should the EIA do in the absence of detailed data?

The other criticism of the MIT researchers’ report has, no doubt already occurred to you: Don’t bet against technology. Technological advances often come out of nowhere to change the world. Who’s to say that profit-seeking oil companies won’t wrench ever-increasing amounts of oil out of the ground?

Yet Montgomery and O’Sullivan point out that many shale drillers have increased productivity over the past three years by focusing on “sweet spots” — not true efficiency gains. This is an intriguing idea and suggests that investors might want to focus on the shale drillers that truly have an edge up on the competition.

Foolish takeaway

Despite the valid points brought up by the M.I.T. researchers, there just isn’t enough hard-data to truly make actionable decisions from their findings. Yes, future oil production estimates are based on assumptions. But to truly know whether or not we should be worried about future oil production falling short, we would have to have high-quality data on the countless wells in the shale patch — no easy thing. It’s why the EIA has to make estimates in the first place.

The best thing for oil & gas investors to do in a world of uncertainty is to focus on oil stocks with high-quality management, overseeing businesses that are not solely reliant on continued production and efficiency gains to reward shareholders over the long term.

 

fool.com



79 Comments on "MIT Researchers: US Oil Production Estimates May Be Flawed"

  1. MASTERMIND on Thu, 1st Feb 2018 6:41 pm 

    Annoymouse

    Here are a couple peer reviewed scientific papers! My specialty!

    The End of Peak Oil? Why this topic is still relevant despite recent denials (Chapman, 2014)
    http://www.sciencedirect.com/science/article/pii/S030142151300342X

    Projection of World Fossil Fuels by Country (Mohr, 2015)
    http://www.sciencedirect.com/science/article/pii/S0016236114010254

  2. Boat on Thu, 1st Feb 2018 7:55 pm 

    Mak,

    Fracking allows oil to be extracted that in 1950 couldn’t happen. Why does that bother you so much. The Permian for example has been drilled since 1920. In 2014 the average well produced 60 barrels per day. Today the avg well is over 620 barrels per day. So even though it takes more equipment and raises costs around 60% overall the wells are successful because of the increased production.

  3. Mad Kat on Thu, 1st Feb 2018 8:05 pm 

    Boat, nothing about oil “bothers” me at all. I don’t give a damn if they all collapse tomorrow. I do hope it waits until the end of the month when I will be out of the city for good.

    At the farm, it will not matter. It is easy to design a house and system that does not rely on FF or even solar. Where it never gets colder than about 60F and it rains almost every day. Gravity feed for the water system. Properly sized windows to catch the breeze, which is constant as we are ~5 miles from the Pacific on a hill top. A secure abode for the future.

    Fraking is a losing idea that is an act of desperation, not sucess. ALL of the frakers are deep in debt and will collapse when the US financial system goes BOOM! But, you are too greedy and will not get out of the Casino before it burns down.

  4. Anonymouse1 on Thu, 1st Feb 2018 8:06 pm 

    No one cares boatietard. Go park your retard in front of the TV. The 700 club is probably running a special on Noah’s ark or something equally equally stupid. You don’t want to miss something like that now do you?

  5. Boat on Thu, 1st Feb 2018 8:23 pm 

    Mak,

    Your right about that casino. I have been kicking ass. Good thing I ignored you and greggiet years ago. When I read all the vulgar commenters and crazy commentary my bank account affirms my response. Good luck with your breeze and gravity fed water. I will stick with ac, well stocked grocery store, car, manicured yard and sports on tv.

  6. Mad Kat on Thu, 1st Feb 2018 8:45 pm 

    Yep Boat. Greed will take you down. I suggest you watch this video about the days before the 29′ crash.

    https://www.youtube.com/watch?v=7EPTCm9RVRM

    It was produced before the propaganda mill became the “news”. There were many others then who, like you , thought they were smarter than the rest. Greed put them on the street selling apples. Well deserved.

  7. MASTERMIND on Thu, 1st Feb 2018 8:52 pm 

    Madkat

    Dont be so foolish! Boat doesn’t own any stocks! he is a paranoid right winger from the south! He most likely lives in a trailer with his mom! He needs to take his nonsense to the peakoilbarrel blog with that idiot Dennis!

  8. Cloggie on Sat, 3rd Feb 2018 7:24 am 

    Shale oil is only scratching the surface, pun intended.

    Total oil consumption throughout human history: 0.135 trillion ton.

    Now over to the North Sea, the most drilled and explored area in the world:

    http://www.resilience.org/stories/2005-12-28/3000-billion-tons-coal-norways-coastline/

    Norway, certified by The Donald of being not a shithole country, this Norway has 3 trillion ton of coal in its continental shelf, courtesy Statoil. Or a factor of 20 more reserves than all oil consumed in history.

    Britain (shithole country?) has 3-30 trillion ton. Holland, Germany, Denmark, the list goes on. And it is very likely that this coal presence is universal, rather than accidentally confined to the tiny North Sea area, just because that area is so much explored.

    All you need to do is drill a hole into the subsea coal beds, inject controlled amounts of oxygen and harvest gases like methane, hydrogen, carbon monoxide and (unfortunately) carbon dioxide:

    https://en.wikipedia.org/wiki/Underground_coal_gasification

    Fossil fuel depletion problem solved for millennia to come. Climate problems not so much. Conclusion: we should use this unexpected resource to avoid collapse of industrial civilization, but meanwhile move into renewable energy as fast as we (economically) can.

    Even Lenin was flirting with the idea of relieving coal miners of their dangerous occupation:

    Russian exile Vladimir Lenin who wrote in the newspaper Pravda an article “Great Victory of Technology” promising to liberate workers from the hazardous work in the mines by underground coal gasification. Between 1928 and 1939, underground tests were conducted in the Soviet Union by the state-owned organization Podzemgaz. The first test using the chamber method started on 3 March 1933 in the Moscow coal basin at Krutova mine. This test and several following tests failed. The first successful test was conducted on 24 April 1934 in Lysychansk, Donetsk Basin by the Donetsk Institute of Coal Chemistry.

    The first pilot-scale process started 8 February 1935 in Horlivka, Donetsk Basin. Production gradually increased, and, in 1937–1938, the local chemical plant began using the produced gas. In 1940, experimental plants were built in Lysychansk and Tula. After World War II, the Soviet activities culminated in the operation of five industrial-scale UCG plants in the early 1960s. However, Soviet activities subsequently declined due to the discovery of extensive natural gas resources. In 1964, the Soviet program was downgraded.

    If it worked in the USSR, it will certainly work in the technologically more advanced West.

  9. Davy on Sat, 3rd Feb 2018 7:33 am 

    Neder, the ocean has more gold than what man has mined in his entire history. It takes an “E”conomy to make a resource a reserve. Eurotards like you are so used to the price distortions of subsidies you don’t even realize the difference. You act like depletion and entropy are irrelevant in the face of techno development. You have been crowing lately but your renewable revolution but it is not living up to your cheerleading.

  10. Cloggie on Sat, 3rd Feb 2018 7:41 am 

    BigWhopper, you can’t discern the difference between gold in the ocean and packed coal beds near the coast?

  11. Davy on Sat, 3rd Feb 2018 8:01 am 

    My point blew right over nederdummy’s small brain. The point neder is a resource must be produced. It takes an economy to make a resource a reserve. Are you Eurotards banking those coal resources as reserves yet?

  12. Cloggie on Sat, 3rd Feb 2018 8:09 am 

    Again, for our American hater, who knows his country and hence economy are indeed going down the drain (immigration-thingy), from the wiki link about UCG:

    In 1940, experimental plants were built in Lysychansk and Tula. After World War II, the Soviet activities culminated in the operation of five industrial-scale UCG plants in the early 1960s.

    If the Soviets could do it, western European countries certainly can.

    Are you Europeans banking those coal resources as reserves yet?

    Eh no. We strive to avoid UCG altogether and get a renewable energy base as soon as possible (#2050).

    Even the British government resisted pressure from the coal lobby to get UCG started:

    https://deepresource.wordpress.com/2017/01/02/uk-government-rejects-ucg/

    Yet.

    But it is nice to know we have reserves, just in case.

  13. Davy on Sat, 3rd Feb 2018 9:17 am 

    Different circumstance neder. That USSR situation was economical but continental shelf coal is likely not. You confuse these things because you live in a fantasy world.

  14. Cloggie on Sat, 3rd Feb 2018 9:42 am 

    That USSR situation was economical but continental shelf coal is likely not.

    Do you have any arguments as why you can get oil and gas from the North Sea but NOT UCG?

    Of course you don’t have these arguments. You just make it up as you go (“likely”), with zero reference to credible sources instead of your ass, because you can’t stand the idea that only the US (v-empire) will Soviet-style collapse but not the rest of the world.

  15. Davy on Sat, 3rd Feb 2018 9:57 am 

    “Do you have any arguments as why you can get oil and gas from the North Sea but NOT UCG?”

    Do you have the numbers that UGC under the continental shelf is economical? Oil and gas are a different animal from UGC and you call yourself and energy engineer cough cough. Of course you don’t. You just made it up as you go in your fantasy nederworld, no references to credible sources instead of your ass, because you are an extremist anti-American Eurotard empire wannabee. DISGUSTING

  16. Antius on Sat, 3rd Feb 2018 10:50 am 

    “Norway, certified by The Donald of being not a shithole country, this Norway has 3 trillion ton of coal in its continental shelf, courtesy Statoil. Or a factor of 20 more reserves than all oil consumed in history.

    Britain (shithole country?) has 3-30 trillion ton. Holland, Germany, Denmark, the list goes on. And it is very likely that this coal presence is universal, rather than accidentally confined to the tiny North Sea area, just because that area is so much explored.”

    This coal is only accessible by underground gassification. That is something that may be difficult to achieve if the coal seams are waterlogged and under the sea. You must then find a way of retrieving the low energy density ‘producer gas’ (which will consist of a mixture of hydrogen, carbon monoxide, carbon dioxide and nitrogen) and pumping it back to the surface. As the coal seams will close as the burning front advances, you will need fresh wells to extract the gas and inject air/oxygen at regular intervals.

    In short, the raw tonnage numbers are likely to be misleading. This is a low EROI energy source.

  17. Cloggie on Sat, 3rd Feb 2018 11:15 am 

    Apparently it worked in the USSR of former fame. Water at first sight might complicate things, but do you have any reference to a study of why it is a “low EROI energy source”? (perhaps it is, but a line in an anonymous forum post saying so is not good enough).

    The UK government has rejected UCG on environmental grounds, not EROI or lack of potential:

    https://tinyurl.com/y7vk7nm9

    I didn’t read the report, but did notice that the UK government rejects your (unsubstantiated) “low EROI” claim in saying on page 2…

    “However, to produce a gas of high caloric value (CV) and avoid a high dilution in nitrogen, it is necessary to use oxygen instead of air which requires an air separation unit. Such a gas is needed for both achieving high efficiencies in power
    generation
    using combined cycle gas turbines (CCGT) and to consider the production of fuels and chemicals.”

    …implicitly rejecting your claim.

    Look, I am NOT a fan of UCG, but neither am I a fan of “collapse of industrial civilization”, if you don’t mind. I my view we can sin a little further, if we seriously put our effort in setting up a renewable energy base.

  18. Cloggie on Sat, 3rd Feb 2018 11:32 am 

    Green view from Scotland regarding UCG:

    https://tinyurl.com/y9ecnljl

    “How mining for undersea coal gas could cause fires, quakes, explosions and pollution, according to Scottish government’s green watchdog”

    I think the good Scots can’t tell an earth quake from a sea quake.

    Interestingly, nobody claims that UCG efforts would be superfluous because of low calories.

  19. Cloggie on Sat, 3rd Feb 2018 11:41 am 

    Here is a book about the subject, for $140,- a bargain really:

    https://www.amazon.com/Underground-Gasification-Combustion-Woodhead-Publishing/dp/0081003137/ref=sr_1_1?

    There has been done research in the US as well.

    Where is rockman when you need him?

    One chapter deals with Antius’ water concerns:

    https://www.sciencedirect.com/science/article/pii/B9780081003138000098

    $31,-

    State of the discussion in the UK:

    https://uk.reuters.com/article/coal-britain-syngas/britain-seen-putting-off-subsea-coal-gasification-projects-idUKL5N0HL2PT20131001

    (UCG promoter Cluff thinks that nothing will happen in the coming FEW years)

    Here an upbeat article involving gentlemen with glasses and a serious frown:

    https://www.offshore-technology.com/features/featureunlocking-the-uks-offshore-coal-4378702/

    Although they admit coal has an image problem. Not as much as nuclear, but it comes close.

    Not a peep about EROI.

  20. Cloggie on Sat, 3rd Feb 2018 11:46 am 

    Royal Dutch Shell has recently sold its coal gasification business to the Chinese, who are known to have slightly lower environmental standards than the Europeans.

    https://www.euro-petrole.com/air-products-to-acquire-shell-s-coal-gasification-technology-business-and-patent-portfolio-for-liquids-residue-gasification-n-i-16069

    I bet that that Shell will prefer to go into the wind business, strongly supported by the European governments.

    Whatever, as long as it pays, you hear Shell thinking.

  21. Cloggie on Sat, 3rd Feb 2018 11:55 am 

    Here a statement regarding efficiency:

    http://www.deltta.biz/environment-energy

    Estimates suggest that UCG could help increase the U.S. recoverable coal reserves by as much as 300%-400% (Accelerating Development of Underground Coal Gasification, Dr. S Julio Friedmann, Lawrence Livermore National Laboratory, 2007). In general, UCG can operate at up to about 80% efficiency—that is, the amount of the syngas energy recovered at the surface is about 80% of the original heating value of the coal feedstock.

    Low EROI?

    LOL

  22. Davy on Sat, 3rd Feb 2018 11:57 am 

    “Look, I am NOT a fan of UCG, but neither am I a fan of “collapse of industrial civilization”, if you don’t mind. I my view we can sin a little further, if we seriously put our effort in setting up a renewable energy base.”

    You are being a fan of deception by saying things are so with dubious empty links that are not supporting of your assertions. IOW you are a FRAUD. We are not fans of “collapse of industrial civilization” We are fans of planning for those variables that could lead to a collapse.

  23. Davy on Sat, 3rd Feb 2018 11:58 am 

    “I think the good Scots can’t tell an earth quake from a sea quake.”

    daaa, both are earthquakes.

  24. Cloggie on Sat, 3rd Feb 2018 12:03 pm 

    You are being a fan of deception by saying things are so with dubious empty links that are not supporting of your assertions.

    Elaborate, not assert.

    Which link is “empty” and does not support which assertion?

    I know that a bumpkin from the Ozarks like you has only one intention, namely to set up an argument in order to launch your tired old all caps “FRAUD” charge.

    But do please put in some effort in actually crafting a serious argument, if you are up to that, which I highly doubt.

    We are fans of planning for those variables that could lead to a collapse.

    What the hell does this mean?! You make it sound as if you are putting an effort in making collapse happen!

  25. Cloggie on Sat, 3rd Feb 2018 12:05 pm 

    daaa, both are earthquakes.

    I prefer a sea quake in the North Sea over an earthquake in my home town in Holland any time of the day.

    Spare me your sophism’s.

  26. Davy on Sat, 3rd Feb 2018 12:07 pm 

    neder, it still comes down to economics. These efforts don’t pass the pencil test or someone would be all over them. We know many of your pet projects can be done. This is the jest of much of what you talk about here. You claim viability of all kinds of technologies but affordability is never an important aspect of your discussions. If affordability is the subject of the numbers then it is deceptive and is not telling the whole picture. You are a typical PR person. You like cheerleading and selling things. The world is full of characters like you.

  27. Davy on Sat, 3rd Feb 2018 12:10 pm 

    “Here a statement regarding efficiency”

    Stay on topic neder. We were talking continental shelf UCG.

  28. Davy on Sat, 3rd Feb 2018 12:13 pm 

    “What the hell does this mean?! You make it sound as if you are putting an effort in making collapse happen!”

    dumbass, it means what it says it means. Wipe your eyes.

  29. Kenz300 on Sat, 3rd Feb 2018 2:16 pm 

    Smart investors invest in the future.
    Not so smart investors invest in the past.
    Look how fast coal companies went bankrupt.
    Wind and solar along with battery storage are the future.

    Two-thirds of world’s new energy capacity in 2016 was renewable: IEA
    http://www.greencarreports.com/news/1113115_two-thirds-of-worlds-new-energy-capacity-in-2016-was-renewable-iea

Leave a Reply

Your email address will not be published. Required fields are marked *