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All That New Shale Oil May Not Be Enough as Big Discoveries Drop


Three years after causing an oil-price crash, the shale boom may not be enough to meet rising global demand because the industry has cut back so sharply on higher-risk mega-projects.

Discoveries of new reserves this year were the fewest on record and replaced just 11 percent of what was produced, according to a Dec. 21 report by consultant Rystad Energy. While shale wells are creating a glut now, without more investment in bigger, conventional supply, the world may see output deficits as soon as 2019, according to Canadian producer Suncor Energy Inc.

“Tight rock is not going to solve the global supply-demand issue,” said Adam Waterous, chief executive officer at the Calgary-based Waterous Energy Fund, which invests as much as C$400 million ($265 million). “Its going to take a long time for those mega-projects to come back on.”

Spending Slump

Capital expenditures still well below levels before the price crash

Source: Bloomberg Intelligence

* Consensus estimates

Hydraulic-fracturing technology made it possible to squeeze crude from tight-rock formations and turned the U.S. into the world’s top producer. But it also sent the global benchmark for oil tumbling from $115 a barrel in 2014 to less than $55 in October. That’s eroded the incentive for companies to invest billions of dollars on new reserves that take years to develop but can produce for decades.

Oil prices would need to climb to $80 and remain at that level for two years to justify the costly deep-water projects off the coasts of West Africa or Brazil, Waterous said. And even then, it could take a decade before crude from those investments would arrive on the market, he said. Prices topped $66 this week.

For now, producers have set their sights on smaller, less-risky reserves. In 2013, when investment was peaking and prices were comfortably above $90, the industry was starting new projects that typically targeted reserves of 1.1 billion barrels and cost $9 billion each, according to a January report by consultant Wood Mackenzie Ltd. By 2017, projects on average were expected to shrink to 500 million barrels each and cost $3 billion.

The shale revolution “made people much more cognizant of not tying up capital for as long a period of time as in the past,” said John England, head of energy resources at consultant Deloitte LLP in Houston. “The lower-for-longer mentality is evident throughout the industry.”

For some charts examining the outlook for oil in 2018, click here.

That’s primarily because fracking of North American shale formations in places like Texas and North Dakota has transformed the industry.

Companies like Royal Dutch Shell Plc and Exxon Mobil Corp. historically invested tens of billions of dollars over many years to develop huge reserves in isolated areas like northern Alberta, Kazakhstan or in the middle of the ocean. Shale is different. A tight-oil well could be drilled within a year for a few million dollars. As prices fell, more companies jumped in with more investment.

Now, shale regions that were barely a blip on world markets a decade ago are expected to pump 7.5 million barrels a day in four years, and output probably won’t peak until after 2025, according to the Organization of Petroleum Exporting Countries. The impact was so significant that the cartel was forced to cut its own supplies to halt the slide in prices.

But as robust as U.S. shale oil has been and will continue to be, those reserves alone face a “daunting task” keeping pace with growing global demand if approvals of conventional projects don’t pick up, the IEA said in a report in September. Earlier this year, researchers at the Massachusetts Institute of Technology said the U.S. government may be overstating future growth in shale output because of flawed assumptions about oil technology.

More Expansions

Of the 10 oil projects sanctioned by companies in 2017 that targeted at least 50 million barrels of reserves, only two — Repsol SA’s Ca Rong Do Block 07/03 in Vietnam and Exxon’s Liza Phase 1 off Guyana — were classified as new fields that would produce for the first time, according to data provided by Wood Mackenzie.

Instead, companies said they would try to squeeze more out of the reserves they already have. In Canada, Imperial Oil Ltd. is investing $550 million to expand the capacity of its Kearl oil-sands mine by 9 percent. Chevron Corp. will add 20,000 barrels a day with four wells at its Tahiti platform in the Gulf of Mexico. Off the coast of Norway, Statoil ASA plans to develop the Bauge oil field, using new “plug-and-play” machinery on the seabed and connecting the well to a platform that’s been in operation for 20 years.

To be sure, things could change in 2018. After more than a year of production limits by OPEC, prices have begun to recover, touching an 30-month high of more than $66 this week, compared with $44 in June. Wood Mackenzie said in a Dec. 15 report that almost 80 percent of projects discussed for 2018 are new ones. The gains are encouraging oil producers to boost capital expenditures by about 4.5 percent in 2018 to $261.6 billion, according to forecasts compiled by Bloomberg Intelligence.

Still, that level of investment is well below the peak of $495.9 billion in 2013. And plenty of other producers are standing pat. Pioneer Natural Resources Co., Parsley Energy Inc. and Newfield Exploration Co., among the largest independent drillers, have said they won’t increase activity, even if crude rises.

“The era of mega-projects is kind of coming to a bit of a halt,” Bob Fryklund,
chief strategist for the upstream energy group at industry consultant IHS
Markit, said by telephone from Englewood, Colorado.


68 Comments on "All That New Shale Oil May Not Be Enough as Big Discoveries Drop"

  1. GregT on Wed, 27th Dec 2017 3:28 pm 

    “I tend to favor fast collapse because it would alleviate environmental stress from humans for several generations as they rebuilt their societies based on lower energy inputs.”


  2. MASTERMIND on Wed, 27th Dec 2017 3:53 pm 

    Shale has a significant history, and one that clearly demonstrate the material realities on which it rests. Indeed, encouraging shale production was one response to the oil price shocks of the 1970s. Wanting to reduce American dependence on foreign oil, the Carter administration initiated a programme to develop ‘synfuels’ that focused first and foremost on shale.

    This shale project attracted significant investment from oil companies, and production began in the late 1970s in the Green River Formation, which straddles Colorado, Wyoming and Utah and contains the largest shale oil deposits in the world. But when the price of oil crashed in 1982 at a time of relatively high interest rates these projects were rendered unviable. (Hirsch et al. 2005) (Yergin 2012)

    -Thompson, Helen. Oil and the Western Economic Crisis

  3. MASTERMIND on Wed, 27th Dec 2017 4:17 pm 


    You are so deluded you want a fast collapse so others will die because you think you will be able to survive. That is called the “Survivalist fallacy”..No matter where you are someone will find you. And they will be armed and without any compassion. We are going from a super high tech society to a super low tech society. I understand that you left the ship of fools along time ago to become a prepper. But that doesn’t mean your strategy will work out. I mean how will you even cook the food you hunt or fish? Are you going to make fires by hand? I doubt it..And once the goons see smoke coming from your prepper chimney they will know you most likely have food, water, and woman..And they will want all three….You will stroke out most likely while they breed your wife! It will be the only pleasure left…

  4. GregT on Wed, 27th Dec 2017 4:25 pm 

    You can keep repeating the same old nonsense for as long as you like MM. You have already made your mind up as to how this all plays out. Talking about deluded.

    You stick with your plan, and I’ll stick with mine.

    Good luck.

  5. MASTERMIND on Wed, 27th Dec 2017 5:34 pm 

    The MSM has done an excellent job calming the cattle before they are slaughtered.

  6. Go Speed Racer on Wed, 27th Dec 2017 6:26 pm 

    We can’t run out of oil,
    I am planning a big road trip.

    Driving my 50 foot motor home
    westwards to Vegas. Needs to
    stay below $3 per gallon.
    Otherwise we can’t afford
    hamburgers along the way.

  7. Makati1 on Wed, 27th Dec 2017 6:29 pm 

    “Violence is the last refuge of the incompetent.” = Isaac Asimov*

    *Isaac Asimov: January 2, 1920 – April 6, 1992, was an American writer and professor of biochemistry at Boston University…. he completed his Master of Arts degree in chemistry in 1941 and earned a Doctor of Philosophy degree in biochemistry in 1948….Asimov was a prolific writer, and wrote or edited more than 500 books and an estimated 90,000 letters and postcards. His books have been published in 9 of the 10 major categories of the Dewey Decimal Classification.” WIKI

  8. MASTERMIND on Wed, 27th Dec 2017 7:46 pm 

    It is fairly clear that a major purpose of the climate change discussion is to hide the very real problems we are facing with resource depletion. Once a person becomes fixated on the climate change story, then it becomes hard to see where we really are.

  9. Cloggie on Thu, 28th Dec 2017 2:37 am 

    I’ll take my chances with Barbarism. I’ve always enjoyed a good challenge.


  10. GregT on Thu, 28th Dec 2017 3:02 am 

    Thanks for the imagery Cloggie, but in reality I don’t wear a loin cloth, or carry a spear. Us barbarians have progressed a little bit throughout the centuries.

  11. pointer on Thu, 28th Dec 2017 12:56 pm 

    “I tend to favor fast collapse”

    Reality does not care what anyone favors. Most likely, however, the decline will be sufficiently gradual that no one does anything about it. So far, that’s been the pattern.

  12. Bloomer on Fri, 29th Dec 2017 12:05 am 

    The more I research climate change the less concern I become of depleted resources mastermind. We are so fixated on tax cuts and pussy grabbing issues that we failed to notice that the climate shit show has already begun. Drill baby drill it no longer makes a difference.

  13. Denial on Fri, 29th Dec 2017 11:40 am 

    Yes I am coming to the same conclusion bloomer. People like Makati and Greg have this glorious image of them being these masterminds that will be the last man standing but in the end they will be washed out to sea like a sand castle. It kinda reminds me of the Maginot line that the French had….the Germans just went around it…..same thing will happen to all these preppers…..might as well enjoy the ride…

  14. Anonymous on Sat, 30th Dec 2017 8:14 am 

    “U.S. crude oil production in October rose to the highest in more than 46 years, while natural gas production leaped to a new record, U.S. Energy Information Administration data showed on Friday.” -Reuters

  15. Anonymous on Sat, 30th Dec 2017 8:16 am 

    “Rystad Energy: U.S. crude oil production capacity to reach 10 MMbpd”

  16. Davy on Sat, 30th Dec 2017 8:18 am 

    Nony, quit posting this stuff. If you keep this up the anti-Americans will need a safe space to avoid being overwhelmed with reality based feelings.

  17. Anonymous on Sat, 30th Dec 2017 9:31 am 

    The peak oil analyst crowd has got some major denial butthurt going on:

    “And the bitching starts vigorously with EIA 914 and Texas RRC data”


    They loved the 914 when it ran lower than weeklies in the summer. Now they hate it. Nothing like data that doesn’t go your way!

  18. Don Zenga on Sat, 30th Dec 2017 3:16 pm 

    There are big plans to replace Oil with cleaner Methane/Methanol first in the non transport applications. This will soon leave Oil only for transport where the alternative still seems to be expensive.

    Finally in next 4 – 6 years the plugin vehicles will become cheaper and will compete with Oil.

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