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A reality check on U.S. Government forecasts for a lasting tight oil & shale gas boom

A reality check on U.S. Government forecasts for a lasting tight oil & shale gas boom thumbnail

Drilling Deeper reviews the twelve shale plays that account for 82% of the tight oil production and 88% of the shale gas production in the U.S. Department of Energy’s Energy Information Administration (EIA) reference case forecasts through 2040. It utilizes all available production data for the plays analyzed, and assesses historical production, well- and field-decline rates, available drilling locations, and well-quality trends for each play, as well as counties within plays. Projections of future production rates are then made based on forecast drilling rates (and, by implication, capital expenditures). Tight oil (shale oil) and shale gas production is found to be unsustainable in the medium- and longer-term at the rates forecast by the EIA, which are extremely optimistic.

This report finds that tight oil production from major plays will peak before 2020. Barring major new discoveries on the scale of the Bakken or Eagle Ford, production will be far below the EIA’s forecast by 2040. Tight oil production from the two top plays, the Bakken and Eagle Ford, will underperform the EIA’s reference case oil recovery by 28% from 2013 to 2040, and more of this production will be front-loaded than the EIA estimates. By 2040, production rates from the Bakken and Eagle Ford will be less than a tenth of that projected by the EIA. Tight oil production forecast by the EIA from plays other than the Bakken and Eagle Ford is in most cases highly optimistic and unlikely to be realized at the medium- and long-term rates projected.

Shale gas production from the top seven plays will also likely peak before 2020. Barring major new discoveries on the scale of the Marcellus, production will be far below the EIA’s forecast by 2040. Shale gas production from the top seven plays will underperform the EIA’s reference case forecast by 39% from 2014 to 2040, and more of this production will be front-loaded than the EIA estimates. By 2040, production rates from these plays will be about one-third that of the EIA forecast. Production from shale gas plays other than the top seven will need to be four times that estimated by the EIA in order to meet its reference case forecast.

Over the short term, U.S. production of both shale gas and tight oil is projected to be robust-but a thorough review of production data from the major plays indicates that this will not be sustainable in the long term. These findings have clear implications for medium and long term supply, and hence current domestic and foreign policy discussions, which generally assume decades of U.S. oil and gas abundance.

Post Carbon



26 Comments on "A reality check on U.S. Government forecasts for a lasting tight oil & shale gas boom"

  1. nemteck on Thu, 30th Oct 2014 10:31 am 

    Here you have all you need to know. Congratulations Post Carbon Institute. The executive summary is enough to understand the problem with the EIA handling of forecasts but if you want to drill deeper than read all 300+ pages.

    In the exec summary, past botched EIA forecasts are mentioned but that one of 2004 was left out:

    EIA Oil price & supply forecasts are consistently and heavily biased in the optimistic side:
    http://www.worldoil.com/August-2007-Systematic-bias-in-EIA-oil-price-forecasts-Concerns-and-consequences.html

    “Crude oil price is projected to be $23.61 per barrel in 2010 and $26.72 per barrel in 2025”. Note, the extreme accuracy down to the last Cent.

  2. shortonoil on Thu, 30th Oct 2014 12:08 pm 

    Our model projects that the 2015 price of crude will be in the $76 to $66 /barrel range. Drilling in shale at those price levels will certainly slow. With 70% per year decline rates, shale production which accounts for less than 4% of world production, will decline rapidly. World production will not fall as significantly because producers of legacy fields will generally just defer immediately unnecessary costs. Expenditures in E&D will be reduced to a fraction of their present levels, and maintenance will be limited to only the most important developments.

    Future projections of OOIP, and URR will become irrelevant under this continually declining price scenario.

    http://www.thehillsgroup.org/

  3. Plantagenet on Thu, 30th Oct 2014 12:35 pm 

    Why should anyone be surprised if the data and predictions coming out of the US government with regard to oil are wrong? Its hard to think of much of anything they’ve been able to get right in the last few years.

  4. nemteck on Thu, 30th Oct 2014 1:26 pm 

    shortonoil: It does not matter whether US shale oil production is less 4% of the wold production.

    1. In a loss of shale oil, the US would have to import 5Mb/d and since oil production and demand is pretty balanced, where can the US find this amount of oil? Prices would have to go up considerably over $100/b. Alone by this, it is unlikely that crude will be $66/b in 2015.

    2. From the 300+ page report of the Post Carbon Institute, it is evident that the oil price has to climb.

    3. Many producers around the world cannot afford for long such a low price your model forecasts. Not even the Saudis that need $93 to pay for all their budget items to keep the population from revolting.

    4. The world-wide legacy fields you refer to steadily decline 5-8% per year and newly found fields cannot compensate. In addition the new field are in difficult places, needing oil prices way above $100.

    5. Finally, world population is increasing and third world countries want the same live-style we are having. And our economy is based on oil.

  5. Aire on Thu, 30th Oct 2014 1:32 pm 

    Woah, Plant didn’t blame solely Obama this time but instead the American government in general. Post Carbon predicting into the year 2040 is a bit much but I’d say the 2020 is more likely to occur.

  6. Laci on Thu, 30th Oct 2014 1:37 pm 

    Good analysis, except it leaves out the financial aspect of it. Here is an article which explains how many of these companies could start to go bust beginning with next year. If that is the case, then the peak in shale oil & gas might actually happen next year already.

    http://seekingalpha.com/article/2545355-lower-oil-prices-could-lead-to-the-shale-debt-bubble-bursting

  7. Northwest Resident on Thu, 30th Oct 2014 1:37 pm 

    nemteck — Just because the oil companies and oil exporting nations need a price of “x” to continue their operations and/or placate their dependent populations doesn’t necessarily mean that the consumers will be able to afford that price. That’s not news to you, just saying… Oil companies/nations can’t charge more than what the collective world consumers can pay. And what the collective world consumers can pay is based to a very large extent on how much excess energy is being produced since excess energy is what drives growth in the world economy. No excess energy = declining ability of consumers to pay for oil = oil companies/nations having to lower their price = oil companies/nations with severe problems.

    It’s a self-reinforcing downward cycle. Or am I wrong?

  8. Davy on Thu, 30th Oct 2014 1:38 pm 

    Nem, maybe unless the economy goes down and I mean down. This would be a down paradigm. Demand destruction destroying production in a spiral downwards.

    It is so hard to visualize this because it is alien to our growth meme we are conditioned by.

    This may be “IT”. We may be done as a global system. I know how many times have we heard that doom but you have to admit we have never been so far out on a limb.

    We have both financial stresses and liquid fuel stresses ready to combine in a perfect storm.

  9. Perk Earl on Thu, 30th Oct 2014 2:10 pm 

    With the stock market going up wildly today in celebration of their juice bar being retracted (end of QE), if that makes sense, I thought well maybe oil is going up also in anticipation of economic expansion.

    http://www.bloomberg.com/energy/

    WTI 81.28 -.92
    Brent 86.46 -.69

    “We have both financial stresses and liquid fuel stresses ready to combine in a perfect storm.”

    Very true, Davy, as the funnel gets pinched ever tighter as affordability slowly descends while capex rises, cutting off much of the future supply many presuppose. Oil price could spike higher in the future, but for how long would it hold before demand destruction cuts it off at the knees? And if it isn’t for very long, then future oil supply is really in a fix because expanding oil exploration works on long time frames.

    The future appears now to be a contracting economy with less affordability coupled with less supply.

    However, if someone can defy the laws of physics and find a way to turn diminishing returns into positive feedback of greater supply along with higher oil price to support increasing capex, please put forth your hypothesis.

  10. Plantagenet on Thu, 30th Oct 2014 2:25 pm 

    Woah Aire: I blame obama for things he is responsible and I blame others when they are responsible. While Obama is ultimately responsible for the activities of the obama administration, the EIA has been so consistently wrong for so many years that there seems to be an innate bias towards assuming BAU will continue in this part of the government.

  11. nemteck on Thu, 30th Oct 2014 3:08 pm 

    Northwest:”Oil companies/nations can’t charge more than what the collective world consumers can pay.” Not quite. Oil companies cannot charge less than cost irrespectably what the consumer demands or they get broke. Then what? Will you use a wooden stick as your tooth brush? And what about all the 1.55 Billion cars, and worse, the cosmetics the women will not give up? There will always be someone who can afford high oil prices as long as the product made from it is of much higher value than the basic ingredients.

  12. Northwest Resident on Thu, 30th Oct 2014 3:25 pm 

    nemteck — I’m no expert, far from it. But I read all the time. Here’s my understanding. I believe that any given day’s price for oil is dependent on large volumes of that oil being sold. You can’t stop selling oil to 90% of the world population because they can’t afford it and just sell to the 10% who CAN afford it because that breaks the economies of scale — shipment, refining, distribution and more all depend on economies of scale. If the oil companies just sell to the limited few who can afford whatever the asking price is, then those limited few won’t be able to support oil exploration and extraction, not even close. But you made a good point — oil companies can’t charge less than cost (unless it is a fracking company burning though millions of newly accumulated debt with no intention of ever paying it back) or they go broke. Which means, if consumers can’t afford to pay the “cost”, then the oil companies go broke and we end up with no more oil. I never liked cosmetics on my women anyway… and I hear wooden sticks work quite well as toothbrush substitutes — once you’ve lost enough teeth to be able to maneuver that stick around sufficiently.

  13. Davy on Thu, 30th Oct 2014 3:40 pm 

    Nem, not quite. at you. Oil is in a class all its own. I would compare it to food or water and the human body or better yet the blood. Oil is the food, water, or blood of the global economy. As such it has a systematic significance in a macro sense.
    Since oil permeates all aspect of the global economy its aggregate absolute “economic price” has significance as a make or break to the overall economy. Systematically and based on the laws of thermodynamics the energy delivered to society must have first covered the energy used in production.
    Short has gone on and on in this regard. His thesis is we are entering the terminal decline of the oil age because production costs are nearing a point of making oil uneconomic based upon energy delivered to the economy after covering energy used in production. You are well aware of that I know.
    Systematically the economy cannot maintain its complexity unless enough energy is supplied to grow the economy. Complexity must be maintained and must grow in the battle against entropic decay.
    In a mico sense sure oil and its products can be bid up very high per high net worth individuals in the short term. The real issue becomes the goldilocks range needed to maintain supply and cover the producers ROI.

  14. numbersman on Thu, 30th Oct 2014 6:42 pm 

    I believe massive renewable electric generation could possibly be a game changer. The wizards of BAU are some pretty smart fat cats. They have no interest in a long term downward spiral and will fight it with all means available. For the past 5 years, it has been printed money, and it worked surprisingly well to support the $100 price needed to spur cracked oil and gas. It just wouldn’t be that hard to galvanize national effort toward a massive renewable build out, especially as “the solution” during the next economic (read stock market) slump. Solar efficiency steady improvement and cost reduction is one of the few genuine bright spots in the energy scene. Most of the knowledgeable folks on this board (rock, short, etc) would be right about the fundamentals they have shared – oil supply is finite, EROEI is falling. but, if we frack and drill and distribute with electric pumps instead do diesel, and we shift generation to solar and away from ant gas and we shift to gas derived liquids, we will get by with less energy pumped from the ground and more trapped on arrival from the sun. This won’t happen automatically, but can happen with either negative pressure from collapsing BAU or positive pressure from spin Meistersinger talking up a new bubble needed by the BAU masters.

  15. numbersman on Thu, 30th Oct 2014 6:43 pm 

    I’m not drunk, just typing fast on an iPad. Sorry for massive grammar and spelling mess.

  16. Nony on Thu, 30th Oct 2014 9:33 pm 

    Does the Post Carbon Institute have a budget and pay salaries and such? Or is it sort of a bunch of duffers (no offense) like ASPO, just getting together and sounding official and all?

  17. GregT on Thu, 30th Oct 2014 11:10 pm 

    Numbersman,

    Sorry, but there is no such thing as renewable electric generation. Take fossil fuels out of the equation, and we are back to square one, pre-industrial revolution. BAU is completely and totally dependant on fossil fuels, as is modern industrial agriculture (AKA food production), and therefore, population overshoot.

  18. Davy on Fri, 31st Oct 2014 7:19 am 

    NOo, come on dude salaries matter? I find more truth in words that come from those who write because of conviction not a pay check.

    Greg, we can never be too redundant on your point. Green cornucopianism is as dangerous as BAU cornucopianism. The both prevent meaningful plan B policies. If green cornucopians agreed that AltE is FF dependent and dated we could focus on a different application of AltE to the coming descent. BAU cornucopians are preventing meaningful mitigation policies from the top for the descent. Thus both are dangerous in the perpetuation of a status quo that leads to a cliff.

  19. Apneaman on Fri, 31st Oct 2014 4:23 pm 

    Nony

    What’s the difference between being official and sounding official?

    David Hughes is a geoscientist who was with the Geological Survey of Canada for over 30 years. Now he is with The PCI.
    Does former official status still count as official? Your lame attempts to discredit The PCI because they are not “official” are fucking pathetic. Only a gullible fool or boot licker would trust or promote anything official these days.

  20. numbersman on Fri, 31st Oct 2014 8:00 pm 

    GregT,

    I understand that FF are required to buildout renewables. And I understand that a cliff is game over. But FF don’t appear to be going over a cliff. In fact, we probably have enough coal and gas to fry ourself to desert from excessive CO2. But if we can spend 2 or 3 kW of coal to build renewable that can produce 1kw/yr, isn’t this a good idea, or even something that might happen? PS, I’m no cornucopian, just trying to guess how BAU masters might keep things going. which I bet they will do for longer than most imagine.

  21. Davy on Fri, 31st Oct 2014 9:40 pm 

    Numbers, that is the million dollar question “Can” the BAU masters keep it going? Humans have never been in this situation before. This is the pinnacle of industrial man. There is no precedence in human history to compare.

    You are probably right even with a collapsing economy too much CO2 will be released. I am all for any renewables as opposed to a new highway or baseball stadium. I just wish we were doing AltE that is small scale, dispersed, and resilient. Allot of this huge solar and wind build out will be stranded when complexity fails and the grid goes unstable.

  22. numbersman on Sat, 1st Nov 2014 7:17 am 

    Agreed Davy. BAU fought solar for many years. where I see it getting traction is in the mega sites fully controlled (financed, operated, and power sold) by BAU. this is not distributed and resilient, but it is better than belching CO2. an upside is that in a collapse scenario, the panels in a big field can be pretty handy carted off one at a time. But don’t indulge my doomer fantasies. BAU will likely keep this going longer than most imagine. Collapse will most likely be more of what we have seen: A slowly creeping poverty line, inching up the percentile hill point by point over many years.

  23. numbersman on Sat, 1st Nov 2014 7:22 am 

    Here is the bright side: Some of those south of the poverty line will take their lemons and make lemonade: Life without much money can be joyful if you stop jonesing, enjoy hard productive work, and are invigorated by self reliance. give me some 100 year old tools, a few solar panels and 12v appliances, an acre or 10, and a group of like minded neighbors and I could be happier south of the line than north of it. but this thing called herding (current culture) hasn’t yet embraced resilient communities. I hope it does.

  24. Davy on Sat, 1st Nov 2014 8:36 am 

    Numbers, what a great thought of the large solar panel sites being salvaged. I didn’t think of that. Wind will be problematic but it is possible some kind of industry can build up around it to utilize the stranded power. With wind the issue I see is serviceability. I am not sure how bad the maintenance is on these large wind turbines in particular the replacement parts. At least initially there will be the labor and knowledge.

    On the CO2 savings remember there is allot of carbon released in the production of all AltE equipment. Yet, the life cycle cost I imagine to be considerably less than the equivalent coal carbon release.

    Personally I am worried with your idea of a “less with less” or a simpler economy. Often we fail to see the systematic dangers from descent. Much can be lost if the descent duration and degree is too high. Much valuable infrastructure both physical and the complexity fabric could be lost. The biggest issue I see is food supply in a less complex world. Chaos in the form of economic abandonment, systematic dysfunction, and social fabric destruction are serious unknowns possible in descent.

    Your back to simplicity lifestyle mentioned is great and it is exactly what I am prepping for long term. Short term preps are many but the basics food, shelter, power, security, and health are primary. Longer term it is resilience and sustainability of the above items. Can we through community and family support ourselves without complexity and energy intensity?

    The biggest problem I see is the global overshoot of our carrying capacity. This in itself created a serious systematic risk. There is a multitude of dangers from food insecurity to WMD releases to industrial disasters. The list is huge with the danger from the descent down the energy gradient and complexity curve. So much high quality resources have been degraded or depleted. So many ecosystem have been degraded to the point they will not recover in the short term.

  25. JuanP on Sat, 1st Nov 2014 8:58 am 

    Plant, I completely agree with your assesment of the EIA’s forecasts. I find them to be worthless, biased, and systematically inaccurate. Those of us that have been reading them for a few years or more and have a properly working brain in our heads know that they are nothing more than mental masturbation.

    I always look forward to reading their new reports of actual production that always confirm that their previous forecasts were far off. If you reread the older forecasts you can clearly see the trends of declining values for global future oil production.

    The EIA is a good source of info for info on the past, but their forecasts are a real joke.

  26. Davy on Sat, 1st Nov 2014 9:16 am 

    Juan, I believe the EIA is good with data collection or at least there were before the budget cuts of the sequester.

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