Peak U.S. Shale Could Be Less Than 4 Years Away

Authored by Tsvetana Paraskova via OilPrice.com,

U.S. shale production growth has outperformed even the most bullish forecasts, forcing OPEC and the International Energy Agency (IEA) to revise up American supply growth projections month after month.

The U.S. Energy Information Administration (EIA) also expects shale/tight oil to continue to grow in all possible modeled scenarios for the next four years, according to its Annual Energy Outlook 2018 published this month.

While the EIA is not predicting what will happen, it is modeling possible production scenarios under certain assumptions. Under one of those modeled projections—the Low Oil and Gas Resource and Technology case—the assumptions applied are lower resources and higher costs. In this model, U.S. tight oil production - including the plays Bakken/Three Forks/Sanish, Eagle Ford, Woodford, Austin Chalk, Spraberry, Niobrara, Avalon/Bone Springs, and Monterey - is expected to rise from 4.96 million bpd in 2017 to 5.59 million bpd in 2022, and then to start declining on a steady downward trend by 2050, when tight oil production is expected to be at 4.42 million bpd.

This is one of the side cases in EIA’s models, and one of the most unlikely, because it assumes no technological breakthroughs, lower resources, and higher costs. Under this model, total U.S. crude oil production is pegged at 9.14 million bpd this year, while figures are currently available, showing that production is already above 10 million bpd and likely to average more than 10.5 million bpd this year.

The Reference case scenario shows tight oil production jumping to more than 7 million bpd by 2025 and surpassing 8 million bpd in 2036, before starting to level off some time in the early 2040s. Total U.S. crude oil production in the Reference case is between 11 million bpd and 12 million bpd by 2050, “as tight oil development moves into less productive areas and as well productivity declines,” the EIA says.

Sure, longer-term projections are much more uncertain than shorter-term forecasts, and U.S. oil production will depend on many factors - oil prices, the pace of technological advances, costs, well productivity, and U.S. and global oil demand growth, to name a few.

Moreover, the pace of the booming shale production over the next five years will also be determined by several factors that could limit the supply growth potential, which the EIA has not accounted for in its modeling, energy expert Robert Rapier writes on Forbes. These are midstream infrastructure constraints, the flaring of associated natural gas that has limits imposed, cost inflation, and shortage of fracking service providers that could potentially slow down growth over the next few years and could shift the timing of peak tight oil, Rapier argues.

Everyone agrees that shale will grow in the near term - even OPEC, which admitted in its World Oil Outlook 2017 that U.S. tight oil will grow at least until 2025 as “drillers seek out and aggressively produce barrels from sweet spots in the Permian and other basins.” OPEC sees U.S. tight oil peaking in the latter half of the 2020s.

Still, the shale growth rate will depend on how fast pipeline infrastructure can keep up with increased production.

Midstream companies will continue to pour billions of dollars into takeaway capacity infrastructure in the Permian, with each project worth around US$1 billion, for a total of tens of billions of dollars, Aaron Blomquist, managing director, investment banking with Tudor, Pickering, Holt & Co., told Midland Reporter-Telegram in an interview at the end of 2017.

The question is whether the rise in takeaway capacity will catch up with the surge in production.

U.S. shale growth will also hinge on how fast labor shortages or shortages of frac sand could be overcome.

In addition, growth will depend on whether drillers - who could soon start to test the Permian region’s geological limits - will be able to overcome the geological constraints with tech breakthroughs. If drillers can’t overcome the law of physics with technology, Permian production could peak in 2021, putting more than 1.5 million bpd of future production in question, and potentially significantly influencing oil prices, Wood Mackenzie has warned.

The pace of shale growth will also be determined by the shift in investor sentiment toward drillers that gained momentum in the second half of 2017. Oil tycoon Harold Hamm issued a warning that U.S. producers won’t succeed if they “drill themselves into oblivion”. Now there is a shift from ‘grow at all costs’ to ‘make some profits for a change’, and companies are more focused on cash flow generation.

“Investors really want companies to generate good economics which, for the most part, means living within your means, spending cash flow or below cash flow and using any free cash flow to do something good for the shareholders, whether it’s pay off debt, buy back shares or even pay a dividend,” Robert Watson, chief executive at San Antonio-based Abraxas Petroleum Corporation, told North American Shale magazine’s Patrick C. Miller earlier this month.

There is no doubt that U.S. shale production will grow over the next three to four years. But there are many economic, geological, technological, corporate finance, and infrastructure factors that will set the pace for that growth, both in the short term and in the long run.

Comments

83_vf_1100_c Muddy1 Tue, 02/27/2018 - 14:43 Permalink

  When I see the key words 'could, might, should' I skim the article quickly and move on. AU could go to $30k next month. Ivanka might decide to become my fuck buddy. I should be part of the 0.1% club. But probably not. I will remain happy with cheap metal buys, continue banging my ole lady and remain comfortable with my middle class lifestyle.

In reply to by Muddy1

brianshell Muddy1 Tue, 02/27/2018 - 14:44 Permalink

Trump claims to be a smart businessman.

He had better jump on the Thorium bandwagon pronto.

The only thing holding it back now is some metallurgy to build a longer lasting tank wall. They're looking at titanium-carbon or carbon-carbon, maybe graphene alloys? Hastelloy-N was used in the past but it wouldn't last long enough.

It's nothing new. First, the alloy needs to be resistant to salts. Second, it needs to be resistant to neutrinos without swelling. Silicon carbide won't work because the salts dissolve it.

University of Wisconsin and Berkeley is working with it.

We need another manhattan project.

In reply to by Muddy1

Fiscal.Enema directaction Tue, 02/27/2018 - 14:05 Permalink

I'm in the oil patch in ND. we've barely begun to exploit tight oil up here. 

There are multiple pay zones below Bakken and 3-forks that haven't been exploited because of price and frankly... we've got too much oil in a place too far away from the markets. Best place to store oil is in the ground.  Production companies will be "Mums the word" on this. There are elephant pools up here too and haven't been found yet because of salt domes.

Dream on about oil shortages because of peak tight oil plays. 

Any shortage, if does occur, will be political/price in nature.

In reply to by directaction

Sapere aude afronaut Tue, 02/27/2018 - 17:34 Permalink

Completely nuts. I'm sick to death of non oil industry guys and girls telling me about how much oil there is. Yeh so much that if we look back we discarded all sour oil, we didn't have to eek out every drop of oil with enhanced oil recovery nor use Ponzi schemes like shale oil.

Now the majority of world oil is sour oil, even the super giant oilfields are subject to water flooding techniques, a sure sign they are in terminal decline, and then the world of Ponzi shale where they spend $100+ to produce a barrel of oil they sell for $50.

Then of course we are tackling the harshest environment ever in our search for oil, including ultra deep offshore and some of the harshest climates in the world....because there is an oil glut? DON'T THINK SO

In reply to by afronaut

Sapere aude directaction Tue, 02/27/2018 - 17:30 Permalink

Thank God some can see through smoke and mirrors as ZH can't!

How about the article commenting on commercially viable oil? As that would knock out ALL shale.

Any idiot can drill for oil that costs $100bbl and sell it for $50 and its got f all to do with infrastructure, its all about a con trick in producing non viable oil to pretend that there is an oil glut!

If I went to a supermarket tomorrow and bought up goods that cost $30 and then sold them outside at $10, no doubt I would have a queue of customers, but then the reason shale exists is to create FAKE NEWS of an oil glut that isn't.

Shale the loss leader has kept oil prices low by slight of hand, and the Fed providing interest free loans to these companies who by any standard would be considered bankrupt.

We are not talking about small companies we are talking about ALL SHALE OIL COMPANIES.

They have existed on hype, cheap finance and selling off assets and telling shareholders how much profit they can make even at $30, yet their accounts show they keep piling up loss upon loss on every barrel they produce

In reply to by directaction

Cloud9.5 Sapere aude Tue, 02/27/2018 - 17:52 Permalink

Oil production peaked around 2005.  Bitumen and kerogen have picked up the slack.  This fact matters little to the guy filling up his gas tank.  These two light sweet crude substitutes are considerably more difficult to produce than the old gushers we saw back in the first half of the twentieth century.  Therefore they are more energy intensive undertakings and more expensive.  Light sweet crude production has continued its steady decline here in the U.S since the 1970’s.  As more light sweet crude is replaced by bitumen and kerogen, the net energy supply also declines.   Net energy is what keeps this show going.  The trend lines will at some point put us into a zero sum game where the energy required for production will match the net energy produced.  That reality can be hidden by creative bookkeeping for a while. We won’t know we have passed that point until the system collapses.

In reply to by Sapere aude

MK ULTRA Alpha DaiRR Tue, 02/27/2018 - 14:00 Permalink

The US has the largest oil shale reserves in the world. Over 2 trillion barrels of recoverable hydrocarbons.

The scarcity of sand used for fracking slow down brought out the doom and gloom operators. A better reason would have been pipes. Pipe manufacturing companies are running at max trying to meet demand. That's the real bottleneck, once more pipelines are operating, then many regions will be able to produce at a higher capacity.

In reply to by DaiRR

Sapere aude MK ULTRA Alpha Tue, 02/27/2018 - 17:37 Permalink

MK ULTRA. How much do they pay you to post such tripe?

 

Recoverable hydrocarbons, oh yes, you mean like the Marcellus where the reserves were over stated by 800%, or the Eagle ford that was going to last 40 years, or the Bakken, the list goes on and on.

 

2 trillion barrels, but at what cost? I can produce tonnes and tonnes of gold from seawater, but currently it would cost about $6000 an ounce to recover it, and shale oil is no different.

The real bottleneck is nothing you have posted, the real bottleneck is the fact that Shale is a Ponzi scheme and has to contend with Red Queen Syndrome, and if you don't understand that, you should not be commenting on oil related thread.

​​​​​​​

In reply to by MK ULTRA Alpha

MusicIsYou Tue, 02/27/2018 - 13:26 Permalink

No.  Actually peak oil was reached when it stopped pushing itself out of the ground under it's own pressure. And then it started consuming energy to acquire energy.  We reached peak oil years ago. We reached peak oil in the 1970's.

Kprime MusicIsYou Tue, 02/27/2018 - 14:22 Permalink

idiots don't understand cost of acquisition.  you are quite right tho.  Cost of acquisition has never been higher and will never again go lower.  the closer it gets to 1:1 the more worthless the remaining oil becomes.  The sun has more concentrated energy than we can ever use, but how the hell do you put it in a barrel?

In reply to by MusicIsYou

Lt. Frank Drebin Tue, 02/27/2018 - 13:27 Permalink

Starting to look awfully like the right half of a normal distribution curve (speaking from the producion basis). This doesnt necessarilly mean that we are in imminent decline for cheap and readilly available oil (mainly b/c most models leave out the fact the Earth is still creating oil), but I'd wager we are about 2 minutes to 12. 

For those of you not following, do some research of the effects of the exponential function with regards to growth (consumption) on oil, and population for that matter.

abgary1 Tue, 02/27/2018 - 13:31 Permalink

But there are many economic, geological, technological, corporate finance, and infrastructure factors that will set the pace for that growth, both in the short term and in the long run.

There are whole lot of unknown factors.

I am Groot Tue, 02/27/2018 - 13:33 Permalink

Tyler ! You're pissing on me and calling it rain again Boy ! There are areas being found everyday all over the world that have biggly deposits of oil. I call total bullshit on that. Is Al Gore under your desk with a tube of strawberry lube ?

MusicIsYou Tue, 02/27/2018 - 13:33 Permalink

Peak oil was reached after it stopped spewing out oil under it's own pressure. And that's what built up society to what it is today,  so now most people are going to die off. 

Nunyadambizness Tue, 02/27/2018 - 13:40 Permalink

I remember hearing about "Peak Oil" when I was a child.  We were going to run out of oil, we weren't going to be able to transport anything, and everyone was going to starve, blah, blah, blah.  Bullshit.  It was bullshit then, it's still bullshit. 

Principles of Economics 101:  When something popular becomes scarce, the price of said item increases.  When prices increase to a certain level, other items are used that can do the same thing that may not have been considered prior due to their cost.  If prices continue to increase for that something popular, the demand for the item decreases, resulting in a slightly higher demand if the other items have not become so popular as to completely drive the "something popular" out of business entirely.