/* Added by TWP, 10/12/2012 */ /* End of addition */

One of the live oaks that bless my home

Wednesday, March 16, 2016

Is U.S. Shale Oil & Gas Production Peaking? Part II: Oil Production

In Part I of this post, I discussed production of gas from the four largest shale plays in the U.S. Ordered by production levels, these are the Marcellus, Barnett, Haynesville and Fayetteville shales. In my mind it is quite unlikely that much new drilling will occur in Fayetteville and Haynesville.  There will be some drilling in the Barnett and plenty in Marcellus, but significantly less than to date.
Based on my calculations, I concluded that these plays may deliver between 3 and 7 years of U.S. gas consumption in 2015, a far cry from the 100-year gas supply postulated by many experts.  Consistently with this view, for at least three years I have argued that the large-scale oil and gas exports from the U.S. may not be good.

Here I consider the two largest oil plays in the U.S.: the Eagle Ford and Bakken shales.  Eagle Ford is also a significant gas and condensate producer.  At their respective production peaks, these two shales together produced about 3 million barrels of oil per day and destabilized global oil markets on the expectation that both would continue to produce at this high level for several years.

As I show below, oil production from the Eagle Ford and Bakken might have already peaked, and their ultimate production might be 8 billion barrels of oil and 23 Tcf of natural gas.  Both may eliminate 3 years of oil imports into America and satisfy 10 months of natural gas consumption.  While these volumes are quite significant, they are a far cry from the 15 billion barrels of proven recoverable oil reserves "predicted" by the industry experts for the Bakken shale alone.

The plot below shows global production of crude oil and lease condensate in the world in red and the U.S.A. in blue, both relative to the production at the end of 2004.  Notice that between 1982 and 2005, global production of crude oil increased by 20 million barrels of oil per day (20 MBOPD). During the same time period, the U.S. crude oil production decreased by about 4 million barrels of oil per day (4 MOPD).  Therefore, the new field projects outside of the U.S. generated an incremental 24 MOPD.
The rate of crude oil and lease condensate production in the world's and U.S.a in millions of barrels per day.  Both curves were shifted by subtracting the respective production rates in December 31, 2004, so that the zero level of production corresponds to to this date.
Since 2005, the increase of global production has been numerically equal to the increase of U.S. oil production, which in turn has been dominated by oil production from the Eagle Ford and Bakken.  This means that the output of all petroleum projects outside of U.S. has stagnated; production growth in some projects has been exactly cancelled by declines of other projects. In other words, we are near the peak of crude oil and lease condensate production in the world. And this 10-year stagnation of global production happened despite the record investment in upstream E&P of up to $700 billion per year before the last oil price collapse.

If net increase of global petroleum production is almost equal to U.S. shale oil production, it follows that sales of the Eagle Ford and Bakken crudes controlled to a large extent the global petroleum markets.  Expecting that U.S. oil production would continue increasing, Saudi Arabia refused to cut its production and price of oil collapsed around the world.  It is therefore important to estimate ultimate oil and gas production in both Eagle Ford and Bakken, and possible production declines in both of these plays.  Such an analysis has strong geopolitical implications and here I will tread lightly.

Let me start from showing you the overall energy production from both plays in EJ/year and EJ. 1 EJ = 0.81 trillion standard cubic feet (Tcf) of natural gas or 163 million barrels of (equivalent) oil. In 2015, U.S. produced 3.44 billion barrels of oil and imported 2.68 billion barrels.  The U.S. also consumed 27.4 Tcf on natural gas.

Supposing that ultimate total production from the Eagle Ford will be 50% higher than the ultimates reported in the two charts below, 2.7*1.5 = 4 billion barrels of oil and 12 Tcf*1.5 = 18 Tcf will be produced.  Therefore, in total, the Eagle Ford shale might eliminate 1.5 years of U.S. crude oil imports, and satisfy 8 months of consumption of natural gas.
Please click on the image to see it in full resolution.  Rate of total production of oil and gas in the Eagle Ford formation. In EJ/year. The 6 EJ/year at the peak of production is equivalent to 1.6 MBOPD and 6 billion standard cubic feet of gas per day.
Cumulative total (oil+gas) production from the Eagle Ford shale. The ultimate 29 EJ produced is equivalent to 4.7 billion barrels of oil equivalent or 2.7 billion barrels of oil and 12 Tcf of natural gas.
Also supposing that ultimate total production from the Bakken will be 50% higher than the ultimates reported in the two charts below, 2.6*1.5 = 3.9 billion barrels of oil and 3.3 Tcf*1.5 = 5 Tcf will be produced.  Therefore, in total, the Bakken shale might eliminate 1.5 years of U.S. crude oil imports, and satisfy 2 months of consumption of natural gas.
Rate of total production of oil and gas in the Bakken formation. In EJ/year. The 3.2 EJ/year at the peak of production is equivalent to 1.2 MBOPD and 1.6 billion standard cubic feet of gas per day.  The Bakken is less rich in gas than Eagle Ford

Cumulative total (oil+gas) production from the Bakken shale. The ultimate 21 EJ produced is equivalent to 3.4 billion barrels of oil equivalent or 2.6 billion barrels of oil and 3.3 Tcf of natural gas.

I end with this excerpt from an exceptional book, The Captive Mind, by the famous Polish poet, Czeslaw Milosz, a fellow faculty at Berkeley some years ago, and a winner of Nobel Prize in literature:
An old Jew in Galicia once made an observation: "When someone is honestly 55% right, that's very good and there's no use wrangling. And if someone is 60% right, it's wonderful, it's great luck, and let them thank God. But what's to be said about 75% right? Wise people say this is suspicious. Well, and what about 100% right? Whoever says he's 100% right is a fanatic, a thug, and the worst kind of rascal."
Call me a 60%-right kind of a guy. The number of Americans, who believe that there may be a critical shortage of energy supply in the next 5 years is at an all time low.

Friday, March 11, 2016

Is U.S. Shale Oil & Gas Production Peaking? Part I: Gas Production

Part I of this post shows my calculations of ultimate gas recovery from the Barnett, Fayetteville, Haynesville and Marcellus shales.  They might deliver 6-7 years of natural gas consumption in the U.S. in 2015, or might deliver only 3 years worth of U.S. gas consumption.  In Part II, I will show my calculations of ultimate recovery of oil and gas in the Eagle Ford and Bakken shales that ultimately might deliver 6-12 months of additional gas consumption.  I will also discuss the physical reasons for the negative impact oil production from these two shales has had on global oil prices.

As Asjylyn Loder and others at Bloomberg have noted, another 19 billion dollars of debt of shale oil and gas producers is going into default as of the second week of March, 2016:
Since the start of 2015, 48 oil and gas producers have gone bankrupt owing more than $17 billion, according to law firm Haynes and Boone. Fitch Ratings Ltd. predicts $70 billion of energy, metal and mining defaults this year, and notes that $77 billion of energy bonds are bid below 50 cents, according to a note Thursday (3/09/2016)
Asjylyn Loder, just like Mason Inman, is one of the few thoughtful reporters informed on the subjects of shale oil and gas production, and their economics.

In December 2014, Mason wrote a controversial article published by Nature, one of the most influential scientific journals:
"Natural gas: The fracking fallacy: The United States is banking on decades of abundant natural gas to power its economic resurgence. That may be wishful thinking."
In his Nature article, Mason included this quote from me:
The results are “bad news”, says Tad Patzek, head of the University of Texas at Austin's department of petroleum and geosystems engineering, and a member of the team that is conducting the in-depth analyses. With companies trying to extract shale gas as fast as possible and export significant quantities, he argues, “we're setting ourselves up for a major fiasco”.
This particular quote reverberated in the media around the world and caused a storm of ad hominem attacks on me.  Here is the letter signed by Mr. Howard Gruenspecht, Deputy Administrator of the U.S. Energy Information Administration.  In that letter I was called a relatively minor player in the definitive UT BEG Shale Study and, much worse, President of ASPO, the Association for the Study of Peak Oil.

Ouch, that hurts! Of course there were other letters and more howling.

Never mind that the BEG study used this model of shale gas production in all of their calculations.  Our model was published in the Proceedings of the U.S. National Academy of Sciences (NAS) and was awarded by NAS the 2013 Cozzarelli Prize for best paper in engineering.  And never mind that in early 2011, I made an accurate prediction of gas production from the Barnett shale, based on the model originally proposed by Dr. M. King Hubbert, who was the original pre-ASPO researcher.  Of course, early on, in 1956, Hubbert was called a lunatic and idiot. But I wrote on this subject many times, see here and here and several other posts, and do not want to repeat myself.

Since in this post I am talking about oil and gas, I will express their production in the units of energy, instead of barrels of stock tank oil and standard cubic feet of gas.  To obtain numerical answers between 0 and 30, I will use exajoules (EJ). 1 EJ = ten to the power eighteen of joules is an astronomical amount of energy.  1EJ when digested as food, feeds 320 million Americans for one year.  Americans use about 100 EJ per year of primary energy, mostly as fossil fuels, most of them oil and gas. Also, 1EJ equals the high heating value of 1 (0.8 to be exact) trillion standard cubic feet of natural gas (1 Tcf).  Currently, U.S. consumes about 28 Tcf (35 EJ) of natural gas per year.

The plots below have consistent x- and y-scales for all mudrock (shale) plays I consider: the Barnett, Fayetteville, Haynesville, Eagle Ford and Bakken.  I do not have much faith in the Marcellus shale calculation; it is a relatively young development and production data reporting in Pennsylvania is incomplete and awful.  I am very grateful to my friend, Dr. Art Berman, for providing me with the spreadsheets that contain data dumps from the Drillinginfo well production database.

Disclaimer:  The plots below are only for the active producing wells up to date.  To the extent that robust drilling will continue unabated in each play, the three shale gas plays described below might produce another 50 percent more energy.  If the rate of drilling rapidly diminishes, as is the case today, the ultimate production from these three shales may be only 10-20% above the projections in this blog.

Let's do a quick summation: According to my calculations, the Barnett shale will ultimately deliver 9 months of U.S. gas consumption, Fayetteville 4 months, Haynesville 6 months, and Marcellus 14 months.  Suppose now that the Marcellus shale will produce as much as these three plays together, or 19 months of U.S. gas consumption (40% more than my calculation).  Also suppose that the ultimate recovery from all four shales will exceed my current predictions by 50%.  This brings us to (19+19)*1.5 = 5 years of U.S gas consumption (I always round my recovery estimates).  I will add the estimated ultimate gas production from the Eagle Ford (5 months of U.S. consumption) and Bakken (2 months of U.S. consumption) in Part II of this blog, and they will add another 1.5 years of U.S. gas consumption.  So much for the 100 or 200 years of gas supply from shales "predicted" by the robust technologists.

Warning:  When I said in December 2014, that my country is setting herself up for a major fiasco, I was not idly joking nor was I seeking cheap publicity. I merely tried to encourage those who care to listen to refocus their thinking.  Is anyone listening a year and a half later?
Click on the image to see it in full resolution. Production rate of natural gas from the Barnett shale in EJ/year.  1EJ = 0.8 Tscf.  Data source: Drillinginfo and Texas Railroad Commission, accessed January 2016.
Click on the image to see it in full resolution. Cumulative production of natural gas from the Barnett shale in EJ.  1EJ = 0.8 Tscf.  The estimated total gas production from the Barnett is equal to about 9 months of current gas consumption in the U.S.  Data source: Drilling Info and Texas Railroad Commission, accessed January 2016.
Production rate of natural gas from the Fayetteville shale in EJ/year.  1EJ = 0.8 Tscf.  Note that  because of infill drilling and pad drilling two Hubbert curves match the reported production. Data source: Drillinginfo and Texas Railroad Commission, accessed January 2016.
Cumulative production of natural gas from the Fayetteville shale in EJ.  1EJ = 0.8 Tscf.  The estimated total gas production from the Barnett is equal to about 4 months of current gas consumption in the U.S.  Data source: Drillinginfo and Texas Railroad Commission, accessed January 2016.
Production rate of natural gas from the Haynesville shale in EJ/year.  1EJ = 0.8 Tscf.  Likely, because of depletion of the very high initial pressure and new wells that got better with time, two Hubbert curves match the reported production. Data source: Drillinginfo and Texas Railroad Commission, accessed January 2016.
Cumulative production of natural gas from the Haynesville shale in EJ.  1EJ = 0.8 Tscf.  The estimated total gas production from the Barnett is equal to about 6 months of current gas consumption in the U.S.  Data source: Drillinginfo and Texas Railroad Commission, accessed January 2016
Production rate of natural gas from the Marcellus shale in EJ/year.  1EJ = 0.8 Tscf.   The production data from Pennsylvania are listed every 6 months and are of poor quality. Data source: Drillinginfo and other sources, accessed January 2016.
Cumulative production of natural gas from the Marcellus shale in EJ/year.  1EJ = 0.8 Tscf.    The estimated total production from  the Marcellus is equal to about 14 months of U.S. gas consumption. The production data from Pennsylvania are listed every 6 months and are of poor quality. Data source: Drillinginfo and other sources, accessed January 2016.