The IEA Is Grossly Overestimating Shale Growth
This week, the IEA said that U.S. shale would dominate the oil and gas markets over the next decade, rising to “a level 50 percent higher than any other country has ever managed.” With a “remarkable ability to unlock new resources cost-effectively,” U.S. shale will add millions of barrels of new oil supply by 2025.
But some view such heady predictions as fanciful. There are a variety of reasons why U.S. shale could struggle to add several million additional barrels per day over the next few years. But here are just a few.
First, shale suffers from steep decline rates, much steeper than conventional wells. That means drilling is like running on a treadmill—more and more wells need to be drilled just keep production flat. The extraordinary rate of drilling over the past few years means that the industry not only needs to keep going at that frenzied pace, but it needs to expand its rate of drilling to add more barrels.
Just to cite a small example of the challenge the industry faces, the Permian Basin—the most prolific in the U.S.—has a legacy decline rate that has exploded over the past few years.
According to the EIA, the basin will lose 165,000 bpd of production in December, meaning that the industry needs to add that amount in fresh supply to keep output from falling. The agency does see the industry bringing 223,000 bpd of new supply online in December, but that nets out to only an addition of 58,000 bpd after the decline rates are factored in. The Permian hasn’t yet seen its output peak, but it will be very tall task to keep production growing for years to come, especially since the decline rate grows larger and larger.
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