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US Oil Production Will Collapse Just As Quickly As It Increased

US Oil Production Will Collapse Just As Quickly As It Increased thumbnail

While U.S. oil production reached a new peak of 10.25 million barrels per day, the higher it goes, the more breathtaking will be the inevitable collapse. Thus, as the mainstream media touts the glorious new record in U.S. production that has both surpassed its previous peak in 1970 and Saudi Arabia’s current oil production, it’s a bittersweet victory.

Why? There are two critical reasons the current record level of U.S. oil production won’t last and is also, a house of cards. First of all, oil production profiles tend to be somewhat symmetrical. They rise and fall in the same manner. While this doesn’t happen in every country or every oil field, we do see similar patterns. For example, this similar trend is taking place in both Argentina and Norway:

Oil Production

Oil Production

Here we can see that oil production increased, peaked and declined in a similar pattern in both Argentina and Norway. However, many countries had their domestic oil industries impacted by wars, geopolitical events, and or enhanced oil recovery techniques that have resulted in altered production profiles. Regardless, the United States experienced a symmetrical oil production profile from 1930 to 2007:

US Oil Production & Estimated Future Trend

US Oil Production & Estimated Future Trend

As we can see in the chart, U.S. oil production from 1930 to 2007 increased and then declined in the same fashion. On the other hand, the new Shale Oil Production trend is much different. What took 23 years for U.S. oil production to double from 5 million barrels per day (mbd) in 1947 to a peak of nearly 10 mbd in 1970, was accomplished in less than a decade with the new shale oil industry. Total U.S. oil production doubled from 5 mbd in 2009 to over 10 mbd currently.

For those Americans or delusional individuals who believe the U.S. oil industry will be able to continue producing a record amount of oil for the next several decades, you have no idea about the financial carnage taking place in the U.S. shale oil industry. This leads me to the second reason. The U.S. Shale Industry hasn’t made any money producing oil since the industry took off in 2008. And it’s even worse than that. Not only have they not made any money, but they have also spent a lot of investor money (most that will never be returned) and added a massive amount of debt to their balance sheets.

According to the Financial Times article, In Charts: Has The US Shale Drilling Revolution Peaked?, they provided the following chart on the negative free cash flow in the U.S. Exploration and Production Industry:

US Exploration and Production

US Exploration and Production

Because the U.S. Shale Oil Industry was a Ponzi Scheme from day one, the shale oil companies had to design clever investor relations presentations to bamboozle, hoodwink, swindle and hornswoggle investors from their money. And boy did it work. Even though two-thirds of the U.S. shale energy companies are still losing money, investors continue to flood the energy sector with gobs of Dollars and Pennies from Heaven. Without these much-needed funds, the U.S. Shale oil industry would go belly-up.

Now, there’s another downside to the U.S. Shale Oil Industry that I haven’t yet mentioned. Because shale energy industry is producing a grade of oil that has a very high API gravity (very light oil), we have to export more and more of it as our refiners can’t use it all. The notion that the U.S. decided to start export oil because we have become a leading oil producer is pure BOLLOCKS. The real reason the U.S. Government allowed the exporting of oil in 2015 was that our refining industry couldn’t use it all…LOL.

If you have your thinking cap on, why would we have to export oil if we could use it ourselves?? Well, again… the answer is that we cannot use all of our “light tight” shale oil. Here is a chart from one of the members of the PeakOilBarrel.com site:

US Liquid Production And API Grades

US Liquid Production And API Grades

According to the U.S. Energy Information Agency (EIA), the majority of growth in U.S. oil production is in the very light API gravity oils above 40. Unfortunately, there is a glut of high API Gravity oils (light oil) in the United States and the world. In the Petroleum Economist article, U.S. Tight Oil: Too Light, Too Sweet, stated the following:

While the US runs on light products, with gasoline making up nearly 48% of the de­mand barrel, the rest of the world has a stron­ger taste for middle distillates. The global de­mand barrel is 36% middle distillates and only 32% gasoline. European and Eurasian mid­dle-distillate demand is an enormous 49.3% of the barrel, according to the latest BP Statistical Review. Middle-distillate demand is widely ex­pected to grow as worldwide trucking volumes increase and maritime fuels begin a major shift to marine gasoil from heavy fuel oil so they comply with new sulphur-emissions limits. Product consumption patterns outside the US argue for processing middle-gravity crudes such as Arab Light, Iranian Light and Russian Urals, rather than extra-light barrels such as 48°API gravity Eagle Ford.

The weighted average API gravity of EU crude imports in 2016 was 35.2°, according to Eurostat. Refinery inputs look similar: the current average API gravity of the crude entering American refin­eries is approximately 32.3°, nearly unchanged for the past 30 years despite the recent rise in light oil output. Worldwide investments into more complex, higher conversion refineries have eroded very light sweet oils’ long-prized light-distillate yield advantage.

As the article states, the rest of the world demands more middle distillate fuels that come from medium grade oil stock. Furthermore, the weighted average API gravity of EU (European Union) crude oil imports in 2016 was 35.2°. However, the majority of U.S. Shale oil API gravity is 40-50°+.

Thus, as the U.S. shale oil industry continues to produce more light oil, exports will likely increase. And we already see this taking place. The U.S. net oil imports have risen from 2 mbd in Oct 2017 to 4.4 mbd currently. It is difficult to tell how much net oil imports will be over the next six months, but it is quite interesting to see the U.S. importing more oil even though we just hit a record of 10.25 mbd.

In conclusion, U.S. oil production in the future will collapse just as fast as it increased. It is hard to forecast when U.S. oil production will finally peak for good because there is so much fraud, leverage, and debt propping up the system. But, when the Greatest Financial Ponzi Scheme finally pops… I believe U.S. oil production will collapse much faster than we realize.

srsroccoreport



29 Comments on "US Oil Production Will Collapse Just As Quickly As It Increased"

  1. JuanP on Thu, 8th Feb 2018 7:47 pm 

    Rockman, What do you think about the idea that US oil production could go back to 5 mbpd in a decade? What type of prices would make this reasonable? I admit that I never saw the increase in production we had in the last decade coming.

  2. MASTERMIND on Thu, 8th Feb 2018 7:49 pm 

    The people who brag about US oil production increasing are like a baker who buys cakes at 100 dollars and sells them for 50. And then brags about how many cakes he has sold..

  3. MASTERMIND on Thu, 8th Feb 2018 7:58 pm 

    The US Shale Business is “not profitable” and can’t fund itself whether oil is at 100 or 50 dollars a barrel
    https://imgur.com/a/t7ulB

    MIT Technology Review: Shale Oil Will Boost U.S. Production, But It Won’t Bring Energy Independence
    https://www.technologyreview.com/s/507446/shale-oil-will-boost-us-production-but-it-wont-bring-energy-independence/

    The world’s largest oil trader Vitol says US oil production will peak in 2018
    https://www.reuters.com/article/us-commodities-summit-vitol/u-s-oil-output-may-be-set-for-last-spike-in-2018-vitol-idUSKBN1CF1MZ?rpc=401&

    Chevron CEO warns US shale oil alone cannot meet the world’s growing demand for crude
    https://www.cnbc.com/2017/05/01/us-shale-cannot-meet-the-worlds-growing-oil-demand-chevron-ceo-warns.html

  4. Boat on Thu, 8th Feb 2018 9:13 pm 

    JuanP

    If production from the rest of the world exceeds demand, storage builds and prices drop. The higher build of inventory the more prices will climb.
    Oil rig counts started to rise in count with oil in the high $30’s and accelerated in the 40’s. The speed of dropping rig counts would depend on the increase of production from the rest of the world.

  5. MASTERMIND on Thu, 8th Feb 2018 9:33 pm 

    By 2020 it may be clear to everyone that oil decline has begun

    http://energyskeptic.com/2018/by-2020-it-may-be-clear-to-everyone-that-oil-decline-has-begun/

  6. Anonymous on Thu, 8th Feb 2018 10:05 pm 

    I really doubt the next leg down after we re-peak (still going up now) will be symmetrical. There are a lot of reasons why down sides of peaks tend to be slower than up sides. IOW, NOT the Seneca Cliff, not even bell curves symmetry.

    a. Oil wells decline while strong is still MUCH slower than oil well increase (look at an individual well for an extreme example).

    b. As wells get older, their decline lessens. This creates the opposite of the “Red Queen” effect. When you grow fast, you have to do a lot of “running in place” to counter decline from very recent wells. But when you are not growing fast, the overall population of wells ages and you get more of a base of slow decline, old wells. (Stripper wells are an extreme.) At this point, it takes much less new drilling to offset decline, since the field is older and declining slower.

    c. Sunk cost infrastructure factors. If you have already built a pad, installed a gathering line, built a road, etc. those are infrastructure that can be leveraged in the future. Since they are already there, new wells just need to carry the maintenance expense of the infrastructure, not the construction cost. (This is true regardless if installing the infrastructure ever pays for itself–once it is there, might as well use it!)

    d. In addition to hard infrastructure, there are soft factors that can be leveraged in the future (seismic surveys, increased geologic awareness of the area from previous drilling and production logs). Even people to a certain extent. Of course their ongoing salary is not free in future, but some hiring expenses, moves, training, offices, are sunk costs.

    e. In some cases, e.g. Utica gas lines from pads, the size of the pipes is deliberately not built for bringing a whole pad on at once (not worth the money for a few months flush production). This means wells are managed via regulation to slow down initial production or are completed (or even spudded) gradually. This has the tendency of slowing down some development and deferring some flush production to later (gentler field decline).

    f. While sweet spots eventually run out and while downspaced horizontals tend to have lower production (this is what makes a basin peak at all), there are countervailing tendencies of increasing skill at hz drilling and completion (“technology”). Eventually Red Queen wins. But this tendency for technical improvement mitigates the rate of basin decline, making it more gentle.

    g. When activity slows (e.g. because of running out of sweet spots), operators tend to keep the best crews and equipment and let go the worse. In addition, service providers will cut prices because of lower demand for their services (thus making more marginal projects economical). Again, this does not stop a decline. But makes it more gentle.

    —————

    Big picture, it will take a significant sustained price drop (below 50), to get US production growth to turn, now. You may see a sudden drop of up to 1 MM bpd (as we saw in 2015-16!), but after that it will be more moderate decline.

  7. Anonymous on Thu, 8th Feb 2018 10:26 pm 

    EIA, has long term projections for US oil production. See this link, download the PPT and look at slide 31.

    https://www.eia.gov/outlooks/aeo/

    The “reference” case has an undulating plateau of 11-12 MM bpd from 2022 to 2050.

    The “high oil price” case goes up to 15 MM bpd by mid 2020s and then declines to ~12 by 2050.

    The “high resource and technology” case also gets to 15 MM bpd in mid 2020s but then continues to rise slowly, not peaking within the forecast time. (Reaches 19 MM bpd by 2050.)

    The “low oil price” case goes down from now with a slow decline to 8 MM bpd in 2050.

    The “low resource and technology” goes down from now with a slow decline to 7 MM bpd in 2050.

    Note that all of the cases are based on production data out to ~JUL17. Since then we have had some stupendous growth. Last three months reported (SEP-NOV) alone were ~850,000 bpd increase over the AUG value. And indications are DEC and JAN increased strongly also, at least 100,000 bpd/month. This means we are actually already over 10 MM bpd NOW. So all of the curves are too timid in terms of the near term growth.

    But also, there is more near term production that could decline fast with a price crash. Still, this would be coming down from a higher level. So while the first million might drop fast, it would slow after that and still be “high”. Nothing to indicate we get back to 5 MM bpd US level of “The Oil Drum” and “ASPO” mid-2000s peak oil hysteria before the second half of this century.

  8. MASTERMIND on Thu, 8th Feb 2018 10:34 pm 

    I wonder how the EIA is going to obfuscate peak total liquids. Move the goal posts again and bin all fossil fuels together so that natural gas can mask the decline of petroleum?

  9. Boat on Thu, 8th Feb 2018 10:59 pm 

    If oil prices stay at $60 and above for a year or two expect tar sands investment to grow. A great mix with American light oil. And Trump will encourage the pipelines needed. Btw, 200,000 of new production from tar sands coming online 2018. More in 2019. Add that to the US 1 million plus American production. Drum roll……no crash in 2018 from lack of oil.

  10. Mad Kat on Thu, 8th Feb 2018 11:30 pm 

    Are YOU brainwashed? Odd are great that YOU are if you live in a Western country, especially the US. This supports my assertion that most Americans do not live in, or even know of, the real world.

    “What you will not be told is that if you happen to live in New York or London, Paris or Sydney, Munich or Madrid, you yourself are most likely in the highest bracket of propaganda consumption in the world; that in fact, you could easily be a true propaganda junkie – hooked on it, fully dependent on it, seeking it, even regularly demanding it, at least subconsciously. …

    …when the same tactics and techniques are used for something absolutely destructive and objectively evil: like colonialism, racism, imperialism or the attempt to control and plunder entire nations and continents. And an even greater problem arises, when it happens with almost unlimited funding, …

    …When such a scenario develops, it is not suddenly anymore about ‘discussion’ and ‘finding the best way forward for our humanity’. It is about total, full control of people’s brains, about the elimination of all alternatives.

    That is brutal, fatal propaganda. And it is exactly the propaganda which has been domesticated in the West, and is rapidly spreading its metastases all over the world.”

    https://journal-neo.org/2018/02/08/propaganda-pardon-me-is-mine-really-bigger-than-yours/

    “If unchecked and unchallenged, such developments may lead to the absolute destruction of humans’ ability to think freely, to compare and to analyze, but it may also eradicate the ability to feel, to dream and to dare.

    This most likely, is the aim of Western neo-colonialism. Its ‘success’ depends on the total, dogmatic cultural and ‘intellectual’ monopoly imposed by Europe and the United States on the rest of the world. Such a monopoly can only be attained through a one-sided interpretation of current affairs as well as world history.

    The main goal is the absolute and unconditional control of the Planet.”

    Worth a read this weekend. It may be eye opening. lol

  11. Go Speed Racer on Thu, 8th Feb 2018 11:35 pm 

    I bet Mr Rockman could enlighten us,
    about whether the bad news in this
    article is accurate….

  12. print baby print on Fri, 9th Feb 2018 12:51 am 

    Why is not happening already boat ,why export? Any expert here is that actually possible what boat mentioned above?

  13. MythBuster on Fri, 9th Feb 2018 1:13 am 

    As long as their is free and easy trillion$ getting pumped into the global markets annually, there will be enough “money” sloshing around to keep shale pumping. That’s the way it’s been. But it won’t stay that way forever, or even for much longer, and in fact it may all be in the process of accelerated termination right now. When, not if, the global economy crashes and equity/bond indexes revert to their mean, the financial devastation will take shale down with it, and a lot of other stuff too. That market collapse could be very abrupt. It could happen tomorrow or next week. It may be happening right now. The economic system we live in is brittle, fragile, deformed and completely unsustainable. The same could be said about shale oil extraction and for that matter pretty much all industries that depend on credit and investment to keep the wheels turning. Everything was built on the notion of infinite growth, and now we have hit the wall of finite reality. I agree with Steve — a day is fast approaching where there will be a phase change — a stunning day or two of realization that the shit is hitting the fan — and the giant sucking sound we’ll hear will be the world as we have known it going down the drain. Panic and chaos will ensue. At that point shale oil production will be toast, although there will be probably thousands or maybe even hundreds of thousands of stripper and other wells still producing — not that you’ll be filling your tank up with any of it. It’s coming guys. Hope you’re ready.

  14. deadly on Fri, 9th Feb 2018 2:59 am 

    In April of 1951 oil was discovered on Henry Bakken’s farm.

    The first year the well produced 26,000 plus a few more hundred barrels of Bakken crude.

    In 2015 the total yearly production for all formations was in the neighborhood of 432,000,000 barrels.

    An increase of some 17,000 times.

    Total production from 20,981 wells over that time period, some have been shut, is 3.7 billion barrels.

    The Bakken Formation has produced 1.99 billion of them.

    2018-1951=67

    It will take 67 years for the increase to collapse 99.999 percent.

    Another 47,000 wells will probably be drilled, bringing total production into the 12 billion barrel range.

    Collapse will take more time than believed.

    Although, it can all be gone in a heartbeat.

    I won’t stand on one leg or hold my breath.

    When the amount of oil produced is in the ballpark of 1.1 million bpd, it means there are buyers to buy some crude.

    Don’t expect it to collapse overnight. It ain’t gonna happen.

    Not when 13,000 wells are pumping 1.17 million bpd, the oil will be there.

  15. deadly on Fri, 9th Feb 2018 3:24 am 

    Correction: The year was 1953.

  16. Davy on Fri, 9th Feb 2018 4:31 am 

    “I really doubt the next leg down after we re-peak (still going up now) will be symmetrical. There are a lot of reasons why down sides of peaks tend to be slower than up sides. IOW, NOT the Seneca Cliff, not even bell curves symmetry.”

    Nony, I appreciate your fine input. I may be a doomer but I want the real facts not the ones that make me feel right like a lot of extreme doomers trumpet. This civilizational decline is a complex one of growth and decline. It is also time based. It is not a Hollywood script that plays out how we want it too.

  17. Shortend on Fri, 9th Feb 2018 8:18 am 

    What goes up, must come down…

  18. rockman on Fri, 9th Feb 2018 11:50 am 

    Juan – Some good info in his piece as well as a lot of bullshit. First, the potential decline of current US oil production won’t be related to previous decline patterns in any other country…including the US. One more silly apple to orange comparison by folks that like to draw graphs. LOL.

    What will the future US oil production decline look like? You’re free to draw it anyway you like: it all depends on the future profile of oil prices. And not one person has every been CONSISTENTLY correct doing it. Model oil prices dropping low (the 30’s) quickly and holding there for 10 years or so we should see a relatively sharp decline. We all know the rapid initial decline rate of shale reservoirs: without increasing numbers of new wells US decline would rapid.

    OTOH if oil prices increase significantly and hold there for 10+ years the new records down the road.

    And now model the Goldilocks dynamic: oil prices and drilling activity hold in a medium position so that those high decline rate wells are roughly offset by new wells for 10 years or so. And then you have a roughly plateaued US oil production curve.

    Draw any decline rate you want. And while others might disagree with you they can’t PROVE your projection wrong. And again for the same reason: no one can PROVE their oil price projection will be more accurate then the one you would choose.

    And they should really forget the Ponzi scheme bullshit for a number of reason. Mostly because very few individuals invested money into the shale plays. That’s a very different dynamic then folks buying stock in public companies. Folks that bought in early made mucho $billions on those stock investments…if the sold before the oil price collapse. Which is exactly what many did. And those that bought in right before the collapse? Some lost big time if they hung on too long. But not because of shale production but due to the price collapse.

    If you had bought stock in a pubco that had only been buying slow declining conventional oil reserves (when oil was $90+bbl) and then had the price collapse hit you would have also lost you ass. LOL.

    And who just made a shitload of money from buying stock in a company focused on drilling the unconventional plays? Someone who bought EOG stock in Jan 2016 (at $63/share) and then sold it Jan 2018 (for $117/share. Yes: almost doubled their money in 2 years. You aren’t seeing much about the $BILLIONS stock investors have recently made from owning positions in companies focused on shale and other unconventional oil trends, have you?

    Do you wonder why? And just watch someone respond that the stock increase was just due to the increase in oil prices. OK wit

  19. rockman on Fri, 9th Feb 2018 12:10 pm 

    OK with me: then they to use the same explanation for the stock price collapse a couple of years ago: the oil price collapse. IOW it had little to do with shale development per se. Remember that much of the actual loses (as opposed to “paper loses” by shareholders) were the lenders who were typically the bondholders (the capital lenders and not the capital investors). Had someone bought EOG et al near peak prices prior to the oil price collapse and hung on till today they may have lost little to none of their investment in the unconventional oil plays.

    And had they bought more stock “on the dip” (a common investment strategy…of the brave/confident) they would be seeing a rather nice profit margin today. Just like the Rockman did with Chevron. The market commonly overreacts: both on positive and the negative.

  20. MASTERMIND on Fri, 9th Feb 2018 12:15 pm 

    Hey Juanp since you are to stupid to think for yourself. Here is lesson on history. Companies that make no profits eventually go out of business.

  21. rockman on Fri, 9th Feb 2018 12:37 pm 

    “Companies that make no profits eventually go out of business.” So true. And so far almost none of the companies that became heavily involved in the shale trends have not “gone out of business”. In fact I can recall only one that was liquidated in Chapter 7 and has gone out of business. Of the 85 or so companies that declared Chapter 11 bankruptcy nearly all are in much better financial shape today. Consider Halcon: it shed $BILLIONS of debt and hundreds of $MILLIONS in interest payments. As result it was given a $600 million asset based credit line. It’s currently using its new life to build a large acreage position in the new hot Permian Basin shale play.

  22. deadly on Fri, 9th Feb 2018 12:48 pm 

    MasterShitForBrains, it is ‘too stupid’.

    Never too late to learn something new!

  23. Dredd on Fri, 9th Feb 2018 12:57 pm 

    It is just another lust affair (Antarctica 2.0 – 3).

  24. Anonymouse1 on Fri, 9th Feb 2018 1:48 pm 

    Lets translate narrativemans latest bit of nonsense.

    uS oil corporations never die, and never go ‘out of business’. Ask any amerikan ‘oilman’, or shills even, and they will all tell you, there is no place better to be in the ‘oil business’ than the uNited snakes of oilmerica.

    And the one case that narrativeman knows about personally where one did go belly up,(as if his word, and limited experience is the final word on the matter) doesn’t count, because, well… because narrativeman says oil companies never die. They are just vampires apparently. No matter how many times you a stake through their black hearts, they keep coming from the dead. Neat huh?

    Remember todays narrative kids. uS oil corporations can lose all the money the Jewnited states government and wall st can throw at them and it hardly matters. If you ‘make’ money, thats nice. You get a new General Malfunction pickup truck, an over-priced, clapboard house in the ‘burbs’ and a lifetime pass to Nascar.

    If you lose money, I dont know, you get appointed…secretary of state. Or something.

  25. kim on Fri, 9th Feb 2018 3:30 pm 

    This author sounds like Peak Oil’s Nick Cunningham on steroids! If I walked into the boardroom at Pioneer Natural Resources or even Parsley’s for that matter with this report, they would frog march and laugh me out of the building and on to the street. This is downright silly!

  26. dissident on Fri, 9th Feb 2018 5:48 pm 

    @Anonymous

    There is a massive gap in your theory. The total production curve is not like a single well in any shape or form. It is a superposition of many wells. So the temporal clustering of all the wells has a leading order impact on the shape of the distribution. Even if all the wells have thick tail production curves, the total production curve can still exhibit a cliff behaviour if the rate of well deployment is clustered in the present instead of being more gradual with more wells joining production in the future.

  27. Anonymouse1 on Fri, 9th Feb 2018 6:07 pm 

    You missed the the most massive gap of all. The one between Nony’s, Econ101, marmico, aka ‘Anonymous’, ears. Anyone speaking into one of nonytards ears, will get a treat listening to the sounds it makes as they bounce around the massive, empty gaps in his cranium.

  28. rockman on Fri, 9th Feb 2018 6:08 pm 

    Kim – Pioneer has bounced back from the low of $113/share in Jan 2016 to $188/share in Jan 2018. But still down from its all time high of $232/share in June 2014. But currently well above its average price of $35/share for the 11 year period from 1997 thru 2008.

    Overall the shale plays have been very, very good for Pioneer Resources and its shareholders. And for all the bond holders and banks that loaned it money: they’ve gotten every penny of principle and interest they were due.

    And despite that DOCUMENTED history there are still folks that whine like children that companies like Pioneer have been losing money developing the shales. Makes you wonder what data (if any) they are actually analyzing, eh?

  29. MASTERMIND on Fri, 9th Feb 2018 6:26 pm 

    Rockman

    What the fuck are you talking about Pioneer lost over 500 million dollars last quarter you ignorant lying shill! I knew you were lying because you didn’t post any links! That is always a dead giveaway these days..
    https://finance.yahoo.com/quote/PXD/cash-flow?p=PXD

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