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The Shocking Data Proving Shale Oil Is Massively Over-hyped
Submitted by Adam Taggart via Peak Prosperity,
Hooray, oil is suddenly much cheaper than it used to be. That's great news, right?
Not so fast. For certain it's not good news for those counting on a continued rise in US oil production from the "shale miracle". Many drillers were challenged to operate profitably when oil was above $70 per barrel. Very few will remain solvent with oil in the $50s (as it is as of this writing).
So, expect US oil production to suffer from these lower prices if they persist. But even if oil prices rise and rise soon, there's new data that indicates the total amount of extractable oil from America's shale plays is less -- much less -- than what we're being told (or better put, "sold").
On today's podcast, Chris talks with oil analyst David Hughes, who has complied several recent studies based on a massive database of production results on a play-by-play basis of America's shale basins. The data show that declines tend to be hyperbolic in all shale fields. The average first-year decline is 70%; down to 85% by year three. And we're drilling the best plays first: meaning future ones will yield less even under the best results.
We're pinning our hopes of "oil independence" on faulty data. Worse, we're using it to dismiss the Peak Oil theme at exactly the time we should be using this extra oil to construct the infrastructure for our next energy age (whatever that may look like), while we still have the net energy available to us:
Let’s just take a play like the Bakken.: 45% fuel decline, sweet spots are getting to be drilled out. We know that they need to drill 1,500 wells a year just to keep production flat. But as you go into lower quality rock, the well quality in most of the plays is only about half of what it is in the sweet spot. If you have to rely on the lower quality price of the play you need 3,000 wells per year instead of 1,500 to offset the fuel decline. But the wells aren’t any cheaper. They cost the same amount to drill. To be profitable for producers, it's going to take a lot higher prices in order to make that happen. And you can go through play after play and see the same thing. We are drilling the best parts of the plays now and it is just going to get worse down the road. We are going to need higher and higher prices.
The EIA has not only made what I consider really optimistic estimates on production, they have also made optimistic estimates on price. A lot of the infrastructure that is being built on the assumption of cheap prices for the foreseeable future. That is not in the cards. With these recent cheap prices we are going to see production go down a lot faster than my estimates. My estimates are best case: I assume that the capital will always be there to drill the wells and that there will be no environmental concerns that restrict access to drilling locations. So in that way I am the best case. But even if you take my best case, that would be rather disturbing to me if I were a petrochemical company.
Sadly, corporations tend to think about the next couple of quarters. Politicians may think about the next election, but this is an energy plan an energy sustainability plan has to have a vision of decades we certainly don’t see that in all the hype read every day. If you look at the mainstream media, I don’t think there is a lot of original research that is done there. I think people tend to repeat what other people said and it kind of takes on a momentum of its own, which is why I was so interested in trying to lay out as much of that as I could. It's dangerous.
I mean, if you look at the infrastructure going forward in an era of declining oil and gas the number one way to promote energy sustainability in my view is figuring out ways to use less. And some of the infrastructure needs to be built in order to give people an alternative to high energy throughput lifestyles. It takes a lot of oil and gas to build. And you know, this short term bounty that we are looking at should in fact be used to do that not to maintain business as usual to the bitter end and then face the consequences.
Click the play button below to listen to Chris' interview with David Hughes (47m:24s)
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When the tide goes out, we really find out who is naked. I'll bet there are lots of exposed traders, pork hanging for all to see, getting their teeth kicked in.
But...but...I was told that technology would save us all from ever having to experience anything but perpetual exponential growth.
Dude, where's my miracle?
/P.S. I *love* data
//Hughes has lots of data
teacher, i did not read the assignment. someone told me there were no quotes from the earth first society nor nature magazine to back claims of a complete collapse of the oil industry and all investment pertaining to oil. teacher i am confused, six months ago when we were at $100 barrel oil we were running out....now at $56 oil we got tooo much? teacher with climate change are we going to freeze to death or are we going to bake to death? teacher....peak what??????
p.s. side add says "oil boom"....should i or shouldn't i
Listen (to quote a ghost of India past)
The demand for petrol and thus oil is collapsing because of electric cars.
The wealth of free oil being extracted from the Bakken (aka Bukkake) has got Putin and OPEC by the balls screaming bloody murder for their very survival.
A few more weeks of this and the World will be Free of the Rooskie Commie Plague and the Sand Bunnies Malevolent Godless Rape and Pillaging (not to mention polluting of the pristine desert)
'Nuff said.
And if you don't believe me, ask Steve Liesman. Or read about it all on Bloomberg.
I got the real scoop, knucks.
Cramer told me they were teaching the smart cars to fly, and they would run on unicorn farts and fairy dust.
Now if we can just dodge those silly drones...
See, privileged guys like you get all the access to the true intelligentsia of the investment world.
Schmucks like me need to beg Liesman to comment about stuff on the air so I get the info long before the rest of the world since the rest of the world don't watch CNBS anymore.
What insights!
Hi, I'd like to talk to shale oil investors for a minute. There is an ugly rumor going around that the "guys who hand out free money" told their colleagues not to put the free money into oil. And that this is the reason that the bottom fell out of oil.
Well the truth is that shale oil is a complete illusion. You invested in an illusion. You screwed yourself, OK?
Don't go bothering any bankers, because that wouldn't be right, OK?
The banksters will now swoop down on the residential housing prices in N. Dakota and shortly start scooping up cheap deals...
The vultures are pulling out their eating utensils and napkins and getting ready to start feasting on one of the last stores of value for those "Middle-classers" in the country...
Probably get a North Dakota hooker REAL cheap pretty soon.
Movie "Fargo" come to mind
not good
forget the prostitute
Better cold places on earth to look for lady.
Viedoklis? Is that you?
You needs potato?
Wrong guy, Volkodav is cool.
I am also thinking this.
Tonight Volkodav is having accent of Latvian.
Russia is one of those countries...
Fine ladies...
Isn't "North Dakota hooker" a mutually exclusive oxymoron?
Serfs up ...
Hughes data is already so wildly inaccurate, it should be an embarrassment to refer to his 'Drilling Deeper' as source material (you DID read it, I suppose).
He dismisses the Niobrara and Permian as having already been drilled for decades while completely overlooking the source rock that is only now being targeted.
He projects the Marcellus' output peaking in 2018 at 15bcfd when it is ALREADY over 16bcfd.
He projects Bakken well density at 4/sq mile when operators are ALREADY drilling or permitting 12 /16 per sq mile.
He starts off his report by referencing a non existent report from the EIA regarding the Monterey shale.
He overlooks the Utica dry shale formation which is not only larger than the Marcellus, it has recently produced a series of monster wells over 400 miles apart, with a few throwing off over 40 million cu ft/day.
Mr. Hughes' work is a travesty.
But phaedrus, the article is about shale oil and most of your rebuttal is about shale gas.
No one is concerned about the availability of shale gas, as far as I know.
Shale oil are the the hen's teeth here.
the oil patch has always been boom bust
Indeed it has. I remember a bust where Texas was littered with unused drill rigs, and the oil economy was in deep depression. It has always been boom and then bust.
That was middle to end of the eighties ?
https://www.youtube.com/watch?v=02F-3l1EKsA
And by the way, if there is a myth we should get out of regarding oil history it is :
"first oil shock (73) = Yom Kippur/Arab embargo= geopolitical story= nothing to do with geologic constraints"
When the real story was :
- end 1970 : US production peak, the energy crisis starts from there, with some heating fuel shortages for instance (some articles can be found on NYT archive on that), or :
http://upload.wikimedia.org/wikipedia/commons/c/c5/US_Oil_Production_and_Imports_1920_to_2005.png
- Nixon name James Akins to go check what is going on.
- Akins goes around all US producers, saying this won't be communicated to the media, but needs to be known, national security question
- The results are bad : no additional capacity at all, production will only go down, the results are also presented to the OECD
- The reserves of Alaska, North Sea, Gulf of Mexico, are known at that time, but to be developed the barrel price needs to be higher
- In parallel this is also the period of "rebalance" between oil majors and countries on each barrel revenues (Ghadaffi being the first to push 55/50 for instance), and creation of national oil companies.
- there is also the dropping of B Woods in 71 and associated $ devaluation, also putting a "bullish" pressure on oil price.
- So to be able to start Alaska, GOM, North Sea, and have some "outside OPEC" market share, the barrel price needs to go up (always good for oil majors anyway) and this is also US diplomacy strategy
- For instance Akins, then US ambassador in Saudi Arabia, is the one talking about $4 or $5 a barrel in an OAPEC meeting in Algiers in 1972
- Yom Kippur starts during an OPEC meeting in Vienna, which was about barrel revenus percentages, and barrel price rise.
- The declaration of the embargo pushes the barrel up on the spots markets (that just have been set up)
- But the embargo remains quite limited (not from Iran, not from Iraq, only towards a few countries)
- It remains fictive from Saudi Arabia towards the US : tankers kept on going from KSA, through Bahrain to make it more discrete, towards the US Army in Vietnam in particular.
- Akins is very clear about that in below documentary interviews (which unfortunately only exists in French and German to my knowledge, and interviews are voiced over) :
http://www.youtube.com/watch?feature=player_embedded&v=fQJ-0jAr3LQ
For instance after 24:10, where he says that two senators were starting having rather "strong voices" about "doing something", he asked the permission to tell them what was going on, got it, told them, they shat up and there was never any leak. The first oil shock "episode" starts at 18:00
The "embargo story" was in fact very "practical", both for the US to "cover up" US peak towards US public opinion or western one in general, but also for major Arab producers to show "the Arab street" that they were doing something for the Palestinians.
In the end, clearly a wake up call that has been missed, especially at a time when we are around global peak and the omerta about it is almost complete.
Note : About Akins, see for instance :
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/26/AR201007...
And his famous foreign affair article :
http://www-personal.umich.edu/~twod/oil-ns/articles/for_aff_aikins_oil_c...
His report to Nixon in 71 or 72 is still classified to my knowledge though, would be interesting to know if it can be declassified now.
And oil peaked in 1971.
And technology peaked in 1972.
And the oil ran out in 1981.
And everyone froze to death in 1989.
And natural gas didn't matter in 2012.
And Ebola subsequently killed everyone else in 2014.
"And Ebola subsequently killed everyone else in 2014."
We will not be so lucky. We are in for a Serf/Master world....
For shame, sir.
Just as M. King Hubbert had predicted in 1956.
And you don't even give him short shrift,
YOU DON'T GIVE HIM ANY SHRIFT WHATSOEVER.
Probably has never heard of Hubert or his bell curve.
But, oil production in this country didn't peak in 1970. Technically it has not peaked yet considering it slowed dramatically then later ramped up again to what it is today. But I suspect the petro dollar agreement had more to do with slowing production than a "peak". This was also the time period that Nixon closed the gold window coinciding with massive debt incurred by the Vietnam War, not to mention the second major international monetary crisis. These factors are likely related. Making the dollar a complete fiat currency would need something to back stop it. Enter the petro dollar agreement. A fiat world reserve currency would also allow the US Fed to inflate keeping debt servicing in control.
Current prod is still well below end 1970 peak.
It remains to be seen if it can go above, I think it will not.
(besides the fact that now plenty of stuff not really being oil are added to the figures)
And setting up the petro dollar was more a consequence of imports shooting up due to US peak (amongst other things) :
http://upload.wikimedia.org/wikipedia/commons/c/c5/US_Oil_Production_and...
And you can also check the number of drilling rigs shooting up right after, if you think this was not considered a serious matter.
Correction
It turns out US production remains below the 1970 bpd mark but not well below. If you factor in proven reserves the US could surpass that. I doubt that will happen as well. Don't you think it's suspect that the Saudi's who fund anti fracking documentaries put this kind of heavy downward pressure on oil this close to production levels of 1970?
And you don't become an indefinite military for hire and only get a boost in exports. That would be a shitty deal. Considering the US is moving away from Saudi interests and we're getting close to 1970's oil production, it's no wonder they are moving the way they are.
I don't think the US is moving away from the "securing oil reserves" job (the main backing of the petro dollar), and I don't think the Saudis "move"(they just did nothing and their prod more decreasing if anything) or "action" really had US tight oil as target.
By the way, don't forget what is US Central command (CENTCOM) area (as well as the clinton doctrine or Reagan corollary), the logo is rather clear :
http://upload.wikimedia.org/wikipedia/commons/thumb/e/e8/Seal_of_the_Uni...
My understanding of Hubbert's peak oil theory is that the region being measured can go into peak oil and, with a jumbo discovery or improved recovery, come out of it, until such time as consumption out paces production again.
We may not be in peak oil now, but we were. And we can easily go back to peak oil again
Yes that's true, cannot fit everything in, and that was more abut historical aspects than technical/scientific.
(I know about Hubbert very well)
Luckily, we have recently discovered that we actually have WAY TOO MUCH oil, so we really don't need any shale oil. Thank God it turned out the Saudi fields are infinite.
Their fields may not be infinate.
But the ruling SA family will do as they are told by the Pentagon, or else lose their heads.
You've had it right all along, Al.
And just wait for the World Economy to be Stimulated by Cheap Oil.
It'll respond just like it has to Endless Cheap 0% Money and the Largest Fiscal Largesse in the History of Man.
Everything is fine. And if you don't believe it, it's off to the re-education no soup for you camp!
This all is like my neighbor jerking off his chihuahua and Chalky half way across the world orgazaming
So, now the financial whos are repeating this information, after it has been put forward for the last entire period of the 'shale boom'? Oops, we modeled on real oil wells, not these shale frackked overnight sensations. Really? Well, I guess when you are desperate for yield you might be excused for not listening to anyone with real world experience. Ponzi does not even begin to approximate what was going on here, much closer to Mass Delusion.
A few of years ago I read a claim that the requirements for selling oil related investment vehicles were lowered from proven reserves to probable reserves as far as what could be used in a prospectus. I can't find a link for it now and I don't remember where I read it, but it was about the time the housing bubble and all the fraudulent schemes for asset backed securities had been exposed. I thought at the time they are lining the next bunch of sheep up for shearing already.
Doesn't really matter because proven reserves have always been routinely over estimated. Simply put, it's money in the ground. The home country gets to approve who can come in and give an accurate accounting of reserves with an ever present pressure to estimate more rather than less. Always been like this, always will.
How do we know that dwindling Saudi oil is also not massively over-hyped?
As long as we continue to leverage human population levels with a finite resource we will have a bubble.
Peak Martenson.
Plenty of hydrocarbons.
Just a question of the cost to get it vs how much you get paid for it.
Your data, measurements, work and analysis???? Seem to be missing here, so better luck next time. Peak Martenson indeed......
CH4 will be here as long as there are living things on earth.
Bacteria farts bitchez.
This will not please some people. I tend to be critical of the shale miracle, for many of the reasons in the above article. I get to see first hand the enormous financial investments needed to feed raw materials into the fracking process. That fact that these are not convestional wells, fracking by nature blows op a limited area of shale and sand is blasted in to hold the new cracks open, physics dictate a very fast draw down from the intitial flow loosened up in the blasting.
Fracking made it's peak performance with zero interest rates by the Fed, very low conventional bond rates and even junk bonds were within reason. That may or may not change, but the bonds were all issued with 100 dollar plus oil, it's half that now. Ask yourself, if oil HAD been at 50 dollars back then, WHO would have bouth bonds from shale play drillers, junk ones especially. I can answer! Nobody. So who would want them now?
The real story is north of this though. My near neighbor Canada has openly staked the next 100 years of Candain properity in the vast tar sands mines. These produce oil at 10 times the cost of Saudi oil production! 10 times! That will get your attention if nothing else. With one barrel of oil burned up getting around 4 in return, that is profitable, but think about it. However much oil they say tar sands harbors, you must subtract 25% of that total to make up for the oil burned up getting the tar out of sand. 25% loss right off the top, water, labor, clean up obligations, chemicals, and the giant processing plants to separate out the tar. Saudi just sips oil from their straws in the ground, that is why they produce oil for 10% the cost of Canadian Tar Sands.
Or as Ayn Rand put it;
"you can ignore reality.......
Looks reality is making a re-appearance, and she isn't any oil painting.
Thanks, Jack.
Here's more:
Tar Sands Facts http://www.desmogblog.com/top-10-facts-canada-alberta-oil-sands-information
Images of total devastation https://www.google.com/search?q=alberta+tar+sands+environmental+impact&t...
Agree with your comments Jack but the picture that Saudi "sips" their oil is a little understated. They actually only have to open a valve and the oil gushes out of the ground, some wells have produced as much as 5000 b/d. Not much effort once the infrastructure is in place. Their advantage is the gas pressure in the formation above the oil that acts to lift the oil out of the ground and outstanding porosity and permeability in the reservoirs. Remember the oil wells that Saddam set on fire as the Iraqis left Kuwait? It wasn't the oil being lost so much as the gas cap pressure that stood to be lost that had everyone in such a panic. Without the gas cap then the formation has to be repressurized or the oil lifted mechanically. That is the Saudi's huge advantage over other producers.
Harold Hamm got pretty fucking rich not listening to folks like this. Much less rich in the past month but still pretty rich.
As long as the bulls are on a stampede, fundamentals can be ignored. Only after they start to fall off a cliff do they remember the signs they passed, like "Caution, Bridge Out Ahead", or "Cliff Ahead".
They're installing a Zero Hedge pump at my local Shell station.
While folks like me pay $2.50/gallon, Zero Hedgers can pay $4.50/gallon.
Somebody break the news to Amerikan Patriot.
"While folks like me pay $2.50/gallon,
There are no other folks like you, AP.
After they made you, they flushed the rusty needle and bent spoon down the terlet.
You got that right!
This longtime ZHer paid 2.09 today.
i guess if you were asleep on May 21, 2014 you missed this story in the LA Times and will be forgiven for buying the shale massive over hype.
In the last nine months, the U.S. has increased oil production by one million barrels per day. The U.S. has increased production by 2.5 million bpd over the last two years, and people are talking about the share miracle ending? About how that production tapers off with shale unlike other fields?
Show me one peak oil nut who got the explosion in U.S. production right. But we should listen to you now right?
Shale oil fields are based on a new technology, every field is different, and no one knows when the production will fall off.
As for the break even price of oil production "in the 50s", where is it written that oil companies can't lose money?
I have read Saudi Arabia was planning on $80 oil so supposedly oil couldn't below that... but it did. Again, why can't Saudi Arabia run a deficit or a larger one?
Long bicycles