America’s shale boom got the world accustomed to soaring production. Now growth has slowed, and a cloud has formed over the industry.
Hydraulic fracturing pushed the U.S. closer to its long-sought goal of energy independence at a time of unprecedented geopolitical risk. Wells from Texas’s Permian Basin to the Bakken in North Dakota turned farmers and ranchers into overnight millionaires. Drivers enjoyed cheap gasoline, decent-paying jobs sprung up in small towns and new technology attracted investment from all corners of the world, keeping drillers busy.
It’s true that the end of the boom has been foretold before. For years, the good times came with the warning that a litany of financial and engineering issues would doom the revolution. Such naysaying was proven wrong again and again by the industry’s resilience. Producers were able to borrow cheaply, fine-tune operations and trim costs along their supply chains.
But the tea leaves look different this year. Money isn’t as plentiful for an industry that in the past decade burned through nearly $200 billion. Investors are restless. Returns haven’t matched rocketing production, with the S&P 500 Oil & Gas Exploration Index losing 21 percent in the past 10 years, compared with a 177 percent rise in the wider market.
“I don’t think the call for the end of shale is stronger this year,” said Ed Morse, global head of commodities research at Citigroup Global Markets Inc. “But it’s more detailed.”
Expressing Doubts
Production growth has run at a pace of roughly 3 percent this year after gaining nearly 21 percent from 2017 to 2018, according to numbers from the U.S. Energy Information Administration. Estimates for 2020 vary, but even the most optimistic forecaster has the percentage change nowhere near like it was in the glory days, causing even the cowboy-booted wildcatters who ignited the revolution to express doubts.
“You’re going to see a significant fall back in Permian growth,” Scott Sheffield, chief executive officer of Pioneer Natural Resources Co., told analysts in an August call. “You’ll probably move toward no growth for most people.”
Since the oil-price bust of 2014, unpredictability has been the theme music of U.S. shale. But through all the down moments — a wave of bankruptcies and a drop in the number of drilling rigs among them — production has proven durable. It grew by more than 2 million barrels per day last year, for example.
But 2019 has played a different tune. Even with prices holding steady above $52 a barrel, oil output was virtually unchanged at 12 million barrels a day in the first seven months, according to the EIA. In weekly data available since July, production has hovered at about 12.4 million barrels per day.
Some traders and analysts remain upbeat, suggesting that the slowdown is a result of events like bad weather. They said new pipelines ramping up will expand takeaway capacity and help drive output gains in 2020. Two of the biggest U.S. oil companies are expanding in the shale patch.
But investors have had enough. They’re demanding companies spend less and pay more dividends. Activists are forcing companies to put themselves up for sale. Bank funding is getting tighter, too, according to a Federal Reserve Bank of Dallas survey.
Access to capital is especially vital to shale drillers because of the wells’ rapid decline rates. Hydraulic fracturing production falls as much as 70 percent in the first year, compared with as little as 5 percent from conventional vertical drilling, meaning new wells are constantly needed. Once the cash for drilling dries up, production quickly follows.
Parent-Child Wells
A more existential issue is also at play. Producers in the Permian, the largest U.S. shale patch, are packing oil wells closer together because they’re running out of space. That creates a loss of well pressure, a phenomenon known as the parent-child effect. It could lead to a loss of 15 percent to 20 percent of recoverable crude, according to Houston-based investment bank Tudor, Pickering, Holt & Co., and an overall production decline of 1 million barrels per day, Sanford C. Bernstein analyst Bob Brackett said in a note.
In July, Concho Resources Inc. revealed disastrous results of a Permian spacing test. The stock dropped 22 percent in one day. That was followed by indications from Apache Corp. and Whiting Petroleum Corp. that they were also experiencing delays that hurt production.
At the moment, forecasters see different outcomes for 2020, but they’re united that growth will be sluggish. The EIA predicted that next year’s production will expand by nearly 1 million barrels a day — half of 2018 growth.
Pioneer said oil output will grow at about 600,000 to 700,000 barrels per day on average over the next few years.
Investor Mindset
It’s all to do with “the change in investor mindset,” CEO Sheffield said at a recent conference. “That’s probably taken off about 300,000 barrels of oil a day off the marketplace going forward.”
S&P Global Platts Analytics said that 2020 production is likely to expand at 1.1 million barrels, while Wood Mackenzie estimates growth at roughly half that level.
Cloggie on Sun, 20th Oct 2019 1:38 pm
The construction of the world’s largest offshore wind farm Borssele, of the coast of the Dutch Zeeland province, has begun:
https://www.offshorewind.biz/2019/10/18/aeolus-comes-for-first-borssele-iii-iv-monopiles/
Its size will be 1.5 GW and surpass the current largest UK wind farm Walney Extension, 659 MW, Irish Sea.
Borssele will be operational in 2021.
https://nl.wikipedia.org/wiki/Windpark_Borssele
Soon larger wind farms will be built, like the UK Dogger Bank project.
https://www.theguardian.com/environment/2019/oct/01/worlds-largest-wind-turbines-to-be-built-off-yorkshire-coast
Dutch plans: 2 x 7 GW and 1 x 30 GW:
https://deepresource.wordpress.com/2018/04/28/dutch-company-tennet-plans-30-gw-offshore-wind-park/
https://deepresource.wordpress.com/2019/08/17/worlds-largest-wind-tower-arrives-in-rotterdam/
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supremacist muzzies butt on Sun, 20th Oct 2019 4:39 pm
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Zeke Putnam on Tue, 22nd Oct 2019 3:57 pm
The age of dreams and schemes.
Sissyfuss on Tue, 22nd Oct 2019 5:25 pm
Entropy never found a better companion than tight oil. But as it happens to all its partners, they fade away. As does most of the conveniences of Industrial Civilization. The roller coaster is cresting the pinnacle and just beginning to gather the speed of an out of control descent.
Cloggie on Wed, 23rd Oct 2019 8:48 am
Winds of change, the return of sails in cargo shipping:
https://www.theguardian.com/world/2019/oct/23/sailing-ships-cleaning-up-sea-transport-oceans
“Winds of change: the sailing ships cleaning up sea transport”
“Ethically minded entrepreneurs are turning back the clock to sweep the scourge of bunker fuel from the oceans”
“A quick online search revealed that a Dutch company was doing exactly that. The owners of Fairtransport were inspired to revive sail cargo after witnessing at first hand the yellow smog caused by commercial vessels. They restored two ships, a 70-year-old minesweeper renamed the Tres Hombres and a wooden ketch called Nordlys that dates back to 1873.”
“Templeman arranged to board the Tres Hombres, sailing from the Azores to the Netherlands. “I was watching the ocean and it came like a ghost ship through the dawn mist. It looked like a pirate vessel. I was so excited.””
“A few weeks ago a French schooner, De Gallant, sailed into Bristol laden with produce from Portugal; the first time a tall ship had brought cargo to the city for decades. It was an emotional moment for Geldenhuys and the climax of years of work.“”
“One of the founders of Fairtransport, Jorne Langelaan, has set up a new venture called EcoClipper to facilitate emission-free shipping worldwide. He is planning for more sailing ships running more routes more frequently.”
Anonymous on Wed, 23rd Oct 2019 2:51 pm
Prices are $10 lower this year than last year. That’s a huge difference, given we are near the balancing point. All you are seeing is less activity because of price. Along with some higher base decline (because of recent growth).
Wells are not deteriorating (see shaleprofile.com). And rig productivity is no deteriorating (see DPR).
FYI: the EIA STEO, usually pretty good, has DEC19 finishing at 13.0 MM bopd. That’s almost 1 MM bopd (0.96 to be exact) up from DEC18.
Yes, less growth than the colossal 2018, where we grew over 2 MM bopd. But still, on the order of things, pretty damned good. Very similar to the average yearly growth during the 2012-2014 boom.
Granted 2020 will be even slower, per EIA.
Also, ALL of this is price dependent. If we get a spike up, oil production will follow. And the opposite if price crashes.
print baby print on Wed, 23rd Oct 2019 3:01 pm
shale oil is dead. Long live shale oil.
George on Wed, 23rd Oct 2019 5:41 pm
Horseflesh
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Cloggie on Thu, 24th Oct 2019 8:39 am
As a reminder, it is still possible to transport 2 people over a distance of 260 miles on one gallon:
https://deepresource.wordpress.com/2019/10/24/its-still-around-the-260-mpg-volkswagen-xl1/
Cloggie on Thu, 24th Oct 2019 3:41 pm
Volkswagen launches ID.3 e-auto:
https://deepresource.wordpress.com/2019/10/24/volksswagen-launches-id-3/
Westexasfanclub on Fri, 25th Oct 2019 6:33 am
Frakking shifted the peak from 2012 to 2022 and thus gave western civilization and the whole wolrd a decade more to prepare for PO.
The big question is: Are we using (or rather, as there are only three years left: DID WE USE) this time properly?
Cloggie on Fri, 25th Oct 2019 2:17 pm
“Wind power could meet entire world’s electricity needs 18 times over, says International Energy Agency”
https://www.independent.co.uk/environment/wind-power-all-world-iea-report-offshore-uk-china-europe-clean-energy-climate-crisis-a9171086.html
And then there is solar.
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