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Page added on December 15, 2016

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David Hughes: 2016 Tight Oil Reality Check

Production

Every year, the U.S. Department of Energy’s Energy Information Administration (EIA), publishes its Annual Energy Outlook (AEO) in which U.S. energy supply is forecast through 2040. The EIA’s yearly AEO has enormous influence with policymakers, the media, and through them the general public. The AEO influences government policy and industry investment.

In 2014, Earth Scientist David Hughes took a hard look at the EIA’s existing forecasts in a groundbreaking report, Drilling Deeper, and found that its projections for future production and prices suffered from a troubling degree of optimism. He followed this analysis the next year with 2015 Tight Oil Reality Check and 2015 Shale Gas Reality Check, with the same trends in highly overstated forecasts from the EIA continuing.

In September 2016, the EIA released its Annual Energy Outlook 2016. We were very interested in how lower prices and declining production influenced the EIA’s projections. David Hughes applied the same scrutiny to AEO2016 as he has in the past to assess the AEO2016 against both Drilling Deeper and up-to-date production data from key tight oil plays.

Key Conclusions

  • The EIA assumes that tight oil production will begin to grow strongly in 2017, despite a 37% decline in drilling rate from peak levels in 2014. This seems highly improbable, considering that all tight oil plays have peaked except in the Permian Basin.
  • Tight oil production has declined by 13% (as of June 2016)) since peaking in March 2015, or more than one million barrels per day, according to the EIA’s Drilling Productivity report (Table 3). Only the Permian Basin has not peaked.
  • The volatility between successive forecasts and the increase in overall production cannot be attributed to changes in future oil price assumptions, given that prices for WTI are at or lower in AEO2016 than AEO2015 through 2030 and are $6.56/barrel lower in 2040.
  • Prolific tight oil plays are not ubiquitous, as some would have us believe. The Permian, Bakken and Eagle Ford make up 88.2% of November 2016 production.
  • Technological efficiency is not making wells/fields much more productive – at a constant drilling rate, better technology will exhaust a play more quickly at a lower cost – but will not substantially increase ultimate recovery.

Questions for the EIA

After closely reviewing the AEO2016, David Hughes raises some important questions about EIA’s U.S. tight oil forecasts, such as:

  • What justifies the unprecedented growth in forecasted tight oil production, given that drilling rates are projected to remain below 2014 levels through 2040, with only a modest increase in oil price?
  • What is the reason for the substantial variation in AEO2015 and AEO2016 projections?
  • How can overall tight oil production increase by 19% in AEO2016 compared to AEO2015 while assuming oil prices are the same or lower over the 2015-2040 period?

Hughes’ recent findings point to not only increasingly overstated forecasts by the EIA, but also increasingly volatile assessments – both of which are highly troubling. As the pro-fracking Trump Administration sets its domestic energy policy, addressing the serious doubt this discovery raises now is critical. It’s more important than ever to have an independent Energy Information Administration that is providing grounded, realistic, and transparent analysis.


Download Report Read Shale Gas Reality Check

Oil well image via shutterstock. Reproduced on Resilience.org with permission.

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14 Comments on "David Hughes: 2016 Tight Oil Reality Check"

  1. joe on Thu, 15th Dec 2016 2:49 pm 

    Yeah, I mean its logic, the EIA are the rating agencies of oil (ie have no idea). They seem to supply lots of data and conclude nothing of value. Besides its YOUR job to guess the markets right, not theirs. Its obvious as before that tight oil is about cash flow. The high price prompts investments if there is a ready market and easy sources of investment capital such as money and land. If conditions are right, tight oil will boom, otherwise it wont. But as with the OPEC/Russia deal which deals with supply, the problem has been low demand, not supply per se. Peak oil was met with oil price spikes and a great recession because developed economies have literally hundreds gotten old and slowed down. Those fundamentals CANT change. Its somthing people are forgetting about again. Along with interest rates hikes, tight oil shouldn’t grow very fast, but it will grow enough to meet Opec cuts, and should help kill off oversupply by keeping a lid on prices. Saudi princes better start learning to ride camels not Bentleys.

  2. shortonoil on Thu, 15th Dec 2016 5:05 pm 

    OPEC cuts?

    http://www.zerohedge.com/news/2016-12-15/what-opec-cut-iraq-boosting-its-january-oil-exports-7

    Not likely!

  3. brent on Thu, 15th Dec 2016 6:03 pm 

    I wonder how much debt will be doled out to tight oil companies now that the federal reserve has raised interest rates?

  4. Nony on Thu, 15th Dec 2016 6:10 pm 

    David Hughes completely missed the massive increase in shale gas. Here he is in 2006 predicting shortages that LNG imports would not be able to cover and drops of 1+BCF/d/year.

    https://www.youtube.com/watch?v=poRAEL7M9Ds

    Instead we had the shale gale and 40% increase in US production.

    Based on the above, I would not listen to the guy on shale oil. He’s just a biased peaker. Not a real analyst.

  5. Boat on Thu, 15th Dec 2016 6:58 pm 

    Joe,

    There you go promoting the idea of low demand again. Try to prove that with facts and links please. Do you even know how to google?

  6. shortonoil on Thu, 15th Dec 2016 7:32 pm 

    “Joe,
    There you go promoting the idea of low demand again. Try to prove that with facts and links please. Do you even know how to google?”

    Why don’t you try using your CTL-Brains sometimes and skip CTL-GOOGLE; they work for the other guys!

    Or do something really, really radical; like try a book!

  7. GregT on Fri, 16th Dec 2016 12:02 am 

    “There you go promoting the idea of low demand again.”

    Not low demand Boat. Lower rate of growth in demand. One more to add to the long list of simple concepts that you are unable to grasp.

  8. GregT on Fri, 16th Dec 2016 12:07 am 

    “Or do something really, really radical; like try a book!

    Kevin is probably still challenged enough by Cat In The Hat. Try not to give him so much credit short, it just feeds the stupidity.

  9. dave thompson on Fri, 16th Dec 2016 12:42 am 

    Hughes makes a good point, with out new wells being drilled in the shale plays, the current producing wells will/ have peaked out very quickly. Production is going down.

  10. Boat on Fri, 16th Dec 2016 7:06 am 

    Writers of books and energy in general cite the Eia and the Iea for source material. They are the most respected and used source material going. Of course our fellow doomers ignore the obvious. Why would you want to use current information when you can read an outdated book. lol.
    greggiet, show me how 1.4-1.3 Mbpd is slowed demand. For 3 years running you doomers have been saying that. Obviously the facts show different. Once again I suggest a quick google.

  11. joe on Fri, 16th Dec 2016 8:39 am 

    Boat, the OPEC/Russia cut deal should tell you that there wasnt enough buyers for the oil supplied, ie lower than expected demand. The long game by Saudi was to pump like mad, drop the price, kill off shale then cut and own the market. However a decade of cheap money made tight oil more resilient, it remains to be seen how this next phase of the bumpy plateau will pan out, higher prices will drive suppliers to market, so a recovery of some kind in tight oil is probably on the cards. Trump will have say of course, but it remains to be seen if he will favour higher price, certainly the last Big Oil President (Dubya) favoured higher prices, his time ended in economic chaos, if Trump favours the same outcome, he should copy Dubya. But thats not gonna stop the old getting old and the economic growth curve from flattening.

  12. joe on Fri, 16th Dec 2016 8:48 am 

    Also Boat, you might be using US figures, however in a global context the low hanging fruit of emerging market growth is picked and the developed economies are flat.

    https://gailtheactuary.files.wordpress.com/2015/06/oil-consumption-by-part-of-the-world-2014.png

    Emerging markets cant grow forever and there are already allot of participant’s in the oil supply market. Eventually oil will be 20 bucks again and the Saudis will be back to wearing rags and riding camels and no air-Con for the worlds biggest mosque around the Kabba.

  13. rockman on Fri, 16th Dec 2016 9:06 pm 

    “…the last Big Oil President (Dubya) favoured higher prices…” LMFAO!!!.

    It always amazes when the childish rant pops up proclaiming that the fossil fuel industry always does better when we have an R POTUS instead of a D POTUS. Or that a liberal POTUS would automatically oppose the development of fossil fuels:

    US oil prices during President Bush’s 8 years averaged $45/bbl. During President Obama’s 8 years oil prices averaged $80/bbl. During President Bush’s administration US oil production decreased from 5.7 mm bopd to 5.1 mm bopd. During President Obama’s administration US oil production increased from 5.1 mm bopd to 9.6 mm bopd.

    Significantly more of the “dirtiest oil on the planet” (Canadian tar sands) was imported to the US during President Obama’s administration then during President Bush’s.

    President Obama offered more federal land for leasing to the energy industry then any other POTUS in history.

    US refinery exports increased to the highest level in history under President Obama then any other POTUS. The US currently supplies refinery products made from 1+ BILLION BBLS OF OIL per year to foreign consumers.

    US oil exports increased to the highest level in history under President Obama…more then 2X greater then any other POTUS.

    During President Bush’s administration US NG held flat at 20 tcf/yr. During President Obama’s administration NG production increased to 28+ tcf/yr.

    US NG exports increased to the highest level in history under President Obama.

    US coal production and exports increased to the highest level in history under President Obama…higher then under any other POTUS. During President Obama’s administration coal exports to China, the largest producer of GHG, increased by 500%. Thanks to President Obama expediting approval of the coal export terminals: last month coal from western federal leases were exported from Texas for the first time in history.

  14. Boat on Fri, 16th Dec 2016 9:32 pm 

    Joe,

    The recent glut you could easily say came from the US frackers and to a smaller extent Canada. After the price crash Canada has held steady while the US dropped production. The market didn’t balance after that because Iran, Iraq and in the last couple months Nigeria and Lybia have added. During the several years demand growth has been steady at around 1.3 to 1.4 Mbpd. Which was my point. In 1950 oil production was around 10 Mbpd, now around 96 Mbpd. The average is close to 1.3. Just like current demand. Check out those numbers.

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