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Page added on August 22, 2014
The Peak Oil Crisis: When?
For those following the world oil production situation, it has been clear for some time that the only factor keeping global crude output from moving lower is the continuing increase in U.S. shale oil production mostly from Texas and North Dakota. Needless to say once the fabled “peak” comes, oil and gasoline prices are certain to move higher triggering a series of economic events – most of which will not be good for the global economy.
Thus the key question is just how many more months or years will production of U.S. shale oil (more accurately call light tight oil) continue to grow. Many have answers to this question ranging from the “next year or so” on out the middle or end of the next decade. Some forecasts as to time remaining until the “peak” arrives are politically tinged. No politician, business manager, or even investor wants to hear that serious economic problems affecting their lives may be only a few years away. Fortunately for these folks, there are many forecasters available to spin stories about how “technology” will enable US shale oil production to continue on into the dim future of the 2020’s – which most of us really can’t comprehend or plan for.
Usually missing from optimistic estimates for future U.S. shale oil production is any discussion of just how fast production from fracked wells declines. Most fracked wells are adequate or at least economic producers for three years or so, after which their production is so small that they need to be replaced or reworked to keep a meaningful amount of production going. As shale oil production grows larger and larger, more and more wells will have to be drilled and fracked just to keep production level. At some point there will be a cross over between new wells coming on stream and old wells going out of production so output will start to slip. The EIA recently noted that for North Dakota to increase its oil production by 20,000 barrels a day (b/d) next month, it must bring 94,000 b/d of new production online. At Texas’s Eagle Ford basin, it will take 152,000 b/d of new production next month to increase net production by 31,000 b/d.
There is no doubt that the shale oil drilling industry has made many significant technological advances in recent years. Multiple wells are now being drilled from a single drilling pad – foregoing the need to move drilling rigs and setting up all the expensive infrastructure needed to frack shale wells. For a while shale oil drillers were drilling and fracking longer wells which reduced the cost per barrel. Now we hear that drillers are increasing production per well by pumping more fracking materials down each well and some are saying this will be enough to offset any decline in prices.
Currently US shale oil production is about 3 million b/d and in June output increased by about 100,000 b/d. About half of US shale oil production comes from North Dakota where winter conditions are so harsh that production has been falling during the winter months.
The two major forecasting agencies, Washington’s EIA and Paris’ IEA, are both more pessimistic than is generally known for they both foresee US shale oil production leveling off as soon as 2016. The reason for this is that drillers will simply run out of new places to drill and frack new wells. While new techniques of extracting more oil from a well are possible, there is need to look closely at the costs of these techniques vs. the potential payoff.
The shale oil situation in Texas is somewhat different than in North Dakota for there you have much better weather and two separate shale oil deposits. The recent growth in Texas’s shale oil production has been much smoother than in storm-prone North Dakota and has been increasing at about 44,000 b/d each month. So far as can be seen from the outside of the industry, production in both states will continue to grow for at least another year or two – but then we will be at 2016.
The government has never gotten around to publishing the assumptions that go into the forecast that U.S. shale oil production will stop growing circa 2016. The biggest difference between EIA/IEA and independent analysts is the government forecasters do not see a precipitous drop in shale oil production following the peak. Instead they see a period of flat production followed by a gentle decline stretching well into the next decade. Such a gentle end to the shale oil “bubble” can only assuage fears of a calamity. This projection on a gentle end to U.S. shale oil is at variance with outside forecasters who note that shale oil wells are pretty well gone in three years and simply do not see where the oil to maintain production levels will be coming from for another 10 or 15 years after the peak.
Independent analyses of U.S. shale oil generally come to the same conclusion that production will peak in the 2016-2017 timeframe, but as noted above see a much faster decline than does the government.
There are however, other factors that could become the primary cause of world oil production peaking in the next few years. The first is the turmoil in the Middle East. A lot of oil production in the region has dropped off line in recent years for political reasons and Iraqi production is endangered. The spread of militant Islam could eventually threaten other major producers in the region as could the Arab-Israeli standoff.
A more recent development having serious long-term implications for the oil industry is the growing disparity between the cost of producing a new barrel of oil from the Canadian oil sands or deep below the ocean and the selling price of that oil. A recent study points out that many planned oil production projects are simply not economical at today’s oil prices which have been relatively stable for the past five years as costs continued to soar. Oil companies are already cutting back on new drilling projects which will have little impact on current production, but will be very significant five years or so from now.
20 Comments on "The Peak Oil Crisis: When?"
Makati1 on Fri, 22nd Aug 2014 8:07 pm
Oil production costs meet consumer buying limits. That is the real definition of peak oil and we are there.
noobtube on Fri, 22nd Aug 2014 10:28 pm
Not there yet, but getting very close.
As long as ‘Mericans can still buy…
the latest electronic toy, or
the latest fashion, or
the junk passing for food, or
the latest fad on the TV, or
go into debt for…
that new flat screen TV, or
a NEW car, or
a college education, or
a suburban fantasy house, or
still believe they are going to be rich with…
the right job, or
the right degree, or
the right credit score, or
the right lottery number, or
the right dance moves/song/athletic skill…
then there is still enough left to fuel the ‘Mericans oil-filled fantasies.
But, it feels like it is getting close.
Maybe another couple of more years, and a lot of people are not going to want to be here, anymore.
Plantagenet on Fri, 22nd Aug 2014 11:16 pm
There are several more tight oil plays still to go in the USA, and by then one or more of the potential big tight oil plays in Argentina, Russia, Australia, Poland etc. will be coming on line.
Solarity on Sat, 23rd Aug 2014 1:37 am
“Most fracked wells produce for three years or so, after which … they need to be replaced or reworked.”
1)Since fracking has been conducted for many years, there should be copious statistics available to support (or refute) this statement.
2)Do such trends apply to all fields in general or are the trends unique for each?
3)Significant oil fracking in TX and ND has been ongoing for about three years, so will there be a significant drop in production until the early wells are reworked?
Aaron on Sat, 23rd Aug 2014 5:32 am
I think that by 2016 the global economy isn’t going to require any further increases in oil production. Europe is already on its knees. Asset bubbles ready to pop everywhere you care to look in the US and UK. China is looking increasingly unsteady and China was the great white hope for increasing world oil consumption.
trickydick on Sat, 23rd Aug 2014 8:26 am
Well said, noobtube!
Pops on Sat, 23rd Aug 2014 8:55 am
Sol, these news items go away in a few days but the forum threads are forever and you can find lots of info there.
http://peakoil.com/forums/the-fracking-thread-pt-2-merged-t68958-440.html
http://peakoil.com/forums/shale-oil-secondary-recovery-t70130.html
Or really any of the “report” threads …
http://peakoil.com/forums/peak-oil-studies-reports-models-f47.html
rockman on Sat, 23rd Aug 2014 9:03 am
Solarity – That statement is too broad and general. The production/decline characteristics of the shale plays aren’t that trend specific. There are variances within trends that can be greater then between trends. That’s the the nature of fracture production: high initial rates with high decline rates due to the rapid decrease in reservoir pressure. There is no debate: within several years all fractured reservoirs wells experience significant decline rates. But in some trends wells might till produce for 10+ years…but at stripper levels below 10 bopd.
There’s very little potential to “reworking early wells”. They do refrac some Barnet Shale wells but the new production tends to be much less then the original frac.
The dynamic is very simple and undeniable: if tomorrow no more shale wells were drilled the new surge in US oil production would plunge back towards previous levels within several years. Not my opinion or anyone else’s: it’s Mother Earth’s rule.
shortonoil on Sat, 23rd Aug 2014 9:19 am
“Thus the key question is just how many more months or years will production of U.S. shale oil (more accurately call light tight oil) continue to grow.”
To say that world oil production is growing because of LTO is like saying; “pork production is up because there are more cows”. LTO is a totally different substance than conventional crude. Their only similarity is that they are both some type of hydrocarbon. They have different densities, different chemical makeups, different energy delivery capabilities, and different markets.
LTO has an API greater than 45 deg, conventional 30 – 45. 90% of LTO consists of hydrocarbons less than C7; 90% of conventional consists of hydrocarbons greater than C7. It takes 2.8 barrels of LTO to deliver the same amount of energy as one barrel of conventional. Most of conventional is used to produce fuels, most of LTO is used as a feedstock for other processes.
US LTO production has grown because it had a market; as a diluent for the Canadian tar sands. Once that market is saturated production will fall. Western Canadian condensate production will undoubtedly take most of that market over the few years. On the world market, US LTO can not compete with other high permeability condensate fields like what is found in Qatar and Russia. US LTO also has the disadvantage that it is very inconsistent, making processing more expensive.
US LTO production will not start to decline because of a lack of drilling opportunities, lack of funds (the FED has their back), or because of high well decline rates. It will decline when it runs out of buyers for it. That will happen in the next couple of years.
http://www.thehillsgroup.org/
baptised on Sat, 23rd Aug 2014 11:03 am
Thanks shortonoil that is an informative piece.
Porlock on Sat, 23rd Aug 2014 1:21 pm
shortonoil: Very interesting comment of yours there, but that’s the first time I’ve seen such a negative stat on LTO (I mean your comment that it takes 2.8 barrels of LTO to deliver the same amount of energy as 1 barrel of conventional crude). I thought that the energy content per barrel would be more like that of NGLs, so less than conventional crude for sure, but more like 70% of the energy value of conventional crude than the 35% the number you cite gives. And if the energy content per barrel of LTO is really that low, why doesn’t it trade at a much bigger discount to WTI? Apologies if I am I missing something very obvious here and thanks for any further elucidation you can provide.
shortonoil on Sat, 23rd Aug 2014 3:31 pm
“Very interesting comment of yours there, but that’s the first time I’ve seen such a negative stat on LTO (I mean your comment that it takes 2.8 barrels of LTO to “deliver” the same amount of energy as 1 barrel of conventional crude).”
“Deliver” is an oversight on my part. It should say “useable energy delivered”. Usually when the energy content (exergy), which is defined as the maximum amount of work that can be extracted from a hydrocarbon, is stated it is the gross energy content that is used. It is what the EIA quotes. That quantity of energy is directly proportional to the API of the hydrocarbon.
Graph #20 at our site plots that quantity.
Exergy vs API
http://www.thehillsgroup.org/depletion2_011.htm
Those points were derived from the solution of a set of thermodynamic equations. They agree with the EIA’s determination to a very small percentage (rounding error). The EIA uses an empirical approach (a lab does it for them).
From the graph it can be seen that the lightest of the liquid hydrocarbons at standard temperature/ pressure (pentane C5H12, API 93.5) has an energy content of 107,300 BTU/gal. Conventional crude (API 37.5) 140,000 BTU/gal. Pentane has an energy content of 77% of conventional crude.
But, that is only part of the answer. When a hydrocarbon is burned (how we extract energy from it) part of the energy released is lost to the environment. That is called “waste heat”. The minimum amount of energy that will be lost is also a calculable value, and directly proportional to the API. Conventional crude will loose a minimum of 29% of its energy in the process. Pentane losses 43% of its energy.
Since there is no “standard” for LTO (it varies all over the place) we used the average API of the Bakken (30% condensate) and the Eagle Ford (60 – 70% condensate). The ball park estimate above of 2.8 barrels equivalent takes into account the values stated above to give “useable delivered energy” to the end consumer.
http://www.thehillsgroup.org/
Joe Clarkson on Sat, 23rd Aug 2014 6:24 pm
shortonoil,
Your comment, “That is called “waste heat”. The minimum amount of energy that will be lost is also a calculable value, and directly proportional to the API.”
This is incorrect. The amount of heat lost as waste depends on the Carnot parameters of the heat engine used (the high and low temperatures of the process) and the efficiencies of the various heat exchangers and engines involved.
API (density) does have an effect on the volumetric heat content of a fuel but almost none on the efficiency of use. If anything, more dense fuels are more inefficient, since it is a tiny bit harder to get the fuel-air mixture right with heavier fuels. They don’t atomize as easily and tend to have larger droplet sizes, hence lower droplet surface area exposed to the oxygen in air.
You say that when burning “Conventional crude (it) will loose a minimum of 29% of its energy in the process. Pentane losses 43% of its energy.” This comment is nonsense.
marmico on Sat, 23rd Aug 2014 6:35 pm
The U.S. API Gravity (Weighted Average) of Crude Oil Input to Refineries (Degree) since the advent of U.S. LTO production is essentially unchanged.
shortonoil on Sun, 24th Aug 2014 8:37 am
“This is incorrect. The amount of heat lost as waste depends on the Carnot parameters of the heat engine used (the high and low temperatures of the process) and the efficiencies of the various heat exchangers and engines involved.”
What was quoted above was the “maximum Second Law theoretical thermal efficiency”. It is the maximum amount of work that can be extracted from a system. It is a system without irreversibilities, and is totally dependent on the temperature of the source, and the sink.
It was calculated from E=Ap/Af: where E= Second Law efficiency; Ap = rate at which exergy enters with the fuel; Af=rate exergy exits with the combustion products.
Your approach would only make sense if one was attempting to calculate the efficiency of a particular engine. We are calculating the difference in efficiencies for various fractions of hydrocarbons. The maximum efficiency attainable by any engine burning a hydrocarbon for fuel is a function the hydrocarbon being used. Two entirely different problems.
http://www.thehillsgroup.org/
shortonoil on Sun, 24th Aug 2014 8:52 am
“The U.S. API Gravity (Weighted Average) of Crude Oil Input to Refineries (Degree) since the advent of U.S. LTO production is essentially unchanged.”
That is the result of using “dumb bell” crude from the tar sands. It is heavy on both ends, and light in the middle. Over the last 20 years refinery efficiency has fallen from about 96% to 86%. To see the impact of lower grade hydrocarbon usage it would be necessary to look at the percentage of distillates produced over the years.
Nony on Sun, 24th Aug 2014 10:50 am
Bakken oil is almost the same as WTI (even slightly more valuable $-wise, delivered at the refinery). EF % condensate has dramatically dropped over the last couple years (they are targeting the oily window).
IF the condensate sells for 20 less than Brent, big deal. That’s a similar offset as heavy sour crude versus Brent.
The whole thing is funny, since NONE of the peakers predicted the shale gale. And they all complained the oil would be too heavy!
marmico on Sun, 24th Aug 2014 11:33 am
The U.S. Refinery Yield of Distillate Fuel Oil (Percent) has been rising before the advent of U.S. LTO production. The distillate crack has changed to higher distillate yields with lower residual fuel oil and lower asphalt road oil yields.
Northwest Resident on Sun, 24th Aug 2014 12:17 pm
If you asked me, I’d say the peak oil crisis is NOW. Sure, we have fractured tight oil flooding the market and appearing to compensate for the decline of conventional crude. But at what cost to the global economy and to the environment? That cost is enormous, and is driving the world deeper and deeper into debt and ever further into the global warming doomsday scenario. It is important to keep in mind that if it weren’t for peak and decline of conventional crude, oil/energy companies wouldn’t be wasting their time with fracking, for the most part. The fact that oil/energy companies have been reduced to the NEED to frack just to keep production numbers up, with the corresponding trillion$ in debt and sliming of the biosphere we all live in, should be enough to convince anybody that peak oil crisis is right now, and only getting worse.
MAD MAX on Tue, 5th Jan 2016 12:07 am
Good I hope we do run out of oil so there is a road warrior apocalypse on our hands and then all the dumb shits in society will die