Today’s Contemplation: Collapse Cometh CXCIV–US Peak Shale Oil & Gas: When the Walls Come Tumblin’ Down.
Tulum, Mexico (1986). Photo by author.
This Contemplation has been prompted by a publication (see summary below) focused upon the apparent peaking of shale oil and gas production within the United States. The commentary on US shale extraction by the natural resources investment firm of Goehring & Rozencwajg began making the rounds within some of the Facebook Group circles I frequent upon its publishing on December 19th.
Here are a few thoughts I have had as I’ve read through the G&R analysis and taken some time to digest its implications and some of the accompanying commentary by others.
It’s quite possible that the peaking of extraction from US shale deposits could usher in a speeding up of some trends (especially geopolitical and economic) as we travel ever-forward towards global, societal collapse–especially given the consequences this will have for the global hegemon that is the United States since shale deposits decline very rapidly. And as much as some in the US like to believe that it is energy ‘independent’, it is not. Not even close. Despite the ‘shale miracle’, the US continues to import just under 10 million barrels of oil per day–it needs to import heavy and sour oil since most of its extraction is of the light type and its heavy oil production has been in decline since 1970.
I say ‘possible’ regarding the impact of this eventuality since the following thoughts are not absolute. It is my perception and interpretation of evidence based upon my years of reading and writing about societal collapse and related topics–particularly the peaking of our master resource, oil. But as with virtually everything, observations (even of agreed upon ‘facts’) are interpreted through the eyes of the beholder and can result in different conclusions, even diametrically-opposed ones.
In addition, no one can predict the future with much if any certainty so any assertions that I make must be kept in perspective. It could be these thoughts of mine are all sound and fury signifying nothing, or it could be a fairly accurate Nostradamus-like prediction–only time will tell. The evidence that supports a story of inevitable and impending societal collapse due very much to the also inevitable and impending end of the oil age is very compelling.
And this is not even our most dire predicament since resource depletion is but one of several symptom predicaments of our far more significant predicament of ecological overshoot–a predicament that has been expedited very much by our leveraging of a one-time, finite cache of photosynthetically-derived and ‘stored’ hydrocarbon energy.
Putting all that net surplus energy into the opposable-thumbed hands of a story-telling ape with significant anxiety and highly-complex brains was probably not the best of evolutionary ‘decisions’. Especially since the species was already on the path towards overshoot once it began experimenting with large, complex societies. Again, time will tell.
I have emphasised previously that energy is everything. Without it there is no life. Without the tremendous amounts of net surplus energy afforded humanity via hydrocarbons, the vast array of societal complexities (i.e., political, economic, cultural) and technologies that our modern societies currently have, depend upon, and take for granted would not likely exist. The human-contrived world would be a much simpler and smaller version of itself, and without much in the way of what we would define as modernity. It might resemble, if we were lucky, the eighteenth or early nineteenth century–just prior to the discovery of oil in the United States (and followed closely in other areas around the globe).
There certainly would not be 8+ billion of us, communities would depend upon their local resource base for the most part, and much (all?) of the energy-powered technologies we have would not exist. This is provided Nature was keeping our population growth in check and we hadn’t denuded our environments of its plant and wildlife, as seems to be our way as we continue our seemingly ever-present expansion. We would likely still be in overshoot in such a world, but certainly not to the extent we currently are. Our speed towards a much smaller cliff would be considerably slower. Hydrocarbons have afforded us the ability to speed up the journey tremendously and produce a cliff that is much, much higher than it would be otherwise.
So, it’s beginning to look like Peak Oil might be raising its ugly head again for an increasing number of people–not that it ever disappeared for some small number of us. Even when the shale ‘revolution’ began to pump up the volume about it being vanquished, some adherents drowned out that noise holding on to the geologic inevitability of a decline in production. The more dire consequences of Peak Oil had just been delayed, not avoided. You cannot forever ignore the increasing drawdown of a finite resource that becomes more and more difficult and expensive to retrieve–diminishing returns can be most unforgiving. But I have to say, a lot of people have tried and are still trying to deny biogeophysical reality, mostly by way of magical thinking–and I expect this to get even more prevalent as reality bites us ‘wise’ apes in the ass.
Peak Oil, in fact, arrived quite a number of years ago depending on what type of oil you are discussing; i.e., conventional vs. unconventional. Unconventional extractions (primarily deep sea drilling, bitumen mining, and hydraulic fracturing of shale deposits) have helped to kick-the-can-down-the-road for humanity (along with expansion of the Ponzi scheme that is our credit-/debt-based financial/monetary systems) but the time is quickly approaching (actually, it’s past time) when it’s going to have to face a major reconciliation with hard, physical limits.
Or is it? With the narrative management and distractions our ruling elite will employ, combined with the denial and bargaining that will take place amongst the masses, it may be that the notion gets buried in the stories of pending ‘saviours’ and hidden by the proliferation of distractions to keep the hoi polloi in ignorance and compliant.
‘Renewables’ will save us. Look over there, a war. Nuclear Fusion will save us. Look over there, aliens. A new ‘leader’ will save us. Look over there, another pandemic. Artificial Intelligence will save us. Look over there, enemy drones. ‘Free markets’ will save us. Look over there, Taylor Swift is performing again. Technology will save us. Look over there, it’s the first billion dollar contract for a sports player. Space travel will save us. Look over there, ‘democracy’ is at risk from within. Something will save us…because, heaven forbid, we should be open to and considering that maybe we need to be discussing not ‘saving’ industrial civilisation but preparing for the inevitable return to simpler living.
The implications of this analysis by G&R could be immensely monumental for our complex societies. It is a stark reminder of the finiteness of hydrocarbon resources and the increasing difficulty of facing this reality. It is not the first and probably won’t be the last of such reminders but, like previous ones, will be mostly ignored, denied, or rationalised away by those that don’t wish to face what is quickly approaching (or don’t want the masses to be aware).
The peaking of US shale and gas is particularly problematic given that it has been the marginal producer of oil production increases over the past decade or more. Virtually all demand growth has been met by this extraction.
A decline in the overall production of oil/gas hydrocarbons will derail not only utopian dreams of an energy ‘transition’ (since all material extraction, refinement, and manufacturing processes are reliant on these resources; including all non-renewable, renewable energy-harvesting technologies and electrical-based products–including artificial ‘intelligence’), but also ramp up geopolitical maneuvering (including hot wars) over hydrocarbon resource reserves.
In fact, some of the consequences of this disaster-in-waiting have actually been with us and building for decades. Some Peak Oil analysts have argued that our ruling elite have been quite aware of the coming ‘challenges’ and have ‘planned’ accordingly, acting on their knowledge in a variety of ways.
Much of the geopolitical gamesmanship of the past half a century or more, for example, has likely been focused upon controlling hydrocarbon reserves. And as these finite reserves get dearer (both in quantity and price), the geopolitical maneuvering has been increasing in intensity–particularly around and within those regions where the remaining reserves exist. The coming wars (or should I say expansion of current ones) may also come with increasing ‘othering’ of those who reside close to ‘our’ resources.
A reminder of which nation states hold the most oil/gas reserves and where regime change operations/wars have occurred, are occurring, or will soon occur…and it’s not over some completely bullshit justification like ‘bringing democracy’ or ‘freedom’ to a region; it’s about expanding the racket that is war and about resources, especially hydrocarbon ones–our ‘rulers’ want to take it from their ‘rulers’. Keeping the gravy train rolling for the entitled few and ensuring the hoi polloi receive some of the spoils so as not to rise up against their ‘leaders’ are paramount–regardless of the impacts upon the masses or ecosystems of our planet.
Accompanying this has also been a lot of denial and bargaining in the narratives being disseminated about the globe, such as the notion of finite limits being meaningless in light of human ingenuity and technological prowess–especially as it pertains to an energy ‘transition’. Depending upon who’s telling the story, everything will be electrified and powered by carbon-free ‘renewables’ and/or nuclear fission/fusion; or, if you really want to ‘jump the shark’, we’ll simply mine passing asteroids or migrate to another planet. Do you believe in magic?
The repercussions of Peak Oil/Gas and the loss of net surplus energy can only but alter our world in a myriad of ways–some of which can be imagined (simplification and localisation is approaching like a bat out of hell) but some that will be complete Black Swan Events for most.
The world is not going to be the same for A LOT of people once we are well into the consequences of Peak Oil/Gas. Not. Even. Close.
And the stories that will be told by us story-telling apes will be something to behold as things unfold–especially by those dominant apes that hold sway over the masses due to their positions atop our power and wealth structures. Our ‘elite’ wish to continue in those spots to maintain their privilege and prestige for as long as they possibly can by whatever means they have–and can get away with.
It is quite possible that the facade of ‘representative democracy’ will finally melt away as the elite consolidate their control over the wealth-generating/-extracting systems that provide their revenue streams (and thus positions of power and prestige). I expect to see the trend of increasing inequality continue and accelerate, as well as the expansion of narrative management to help justify/rationalise the above.
“None are more hopelessly enslaved than those who falsely believe they are free.”
― Johann von Goethe, 1809
Narrative control is their preferred method as it is less resource intensive and tends to be more effective, but they will not be afraid to use obvious and intentional violence and oppression (framing it in terms that will be more acceptable to those not targeted–at least, for the moment; ponder how some activists/protesters have been vilified and oppressed in recent years). If you think censorship and narrative management is bad now, just wait.
Societies will crumble. Wars will be waged. Billions may perish. It’s not going to be pretty. Not. At. All.
On the positive side, as some have argued, the decline in hydrocarbon reserves may help to slow–and eventually will halt–some of the detrimental consequences of its use due to our extraction and refinement industries and the industrial production of material goods that leads to significant sink overloading and ecosystem destruction.
A reminder that hydrocarbons–especially oil–is THE master resource that supports the growth and maintenance of our societal complexities through its surplus net energy. The loss of this net energy surplus has huge ramifications for almost all aspects of modern, human existence, let alone the creation, maintenance, and distribution of mostly unnecessaryl consumer goods and services.
The production/procurement and distribution of food, potable water, and regional-shelter material-needs all depend significantly upon hydrocarbons. For so-called ‘advanced’ economies, little of these important needs are produced locally or within the natural environmental carrying capacity of regions. Virtually all the people of these economies are significantly dependent upon hydrocarbons in one way or another, even though most have no idea whatsoever.
“There are these two young fish swimming along and they happen to meet an older fish swimming the other way, who nods at them and says “Morning, boys. How’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes “What the hell is water?” – David Foster Wallace, 2005
Some questions that persist in my mind’s eye as I contemplate the future:
What happens when we no longer have the ability to control/contain/manage those dangerous complexities like the hundreds/thousands of nuclear power plants, chemical production and storage facilities, and biolabs?
What happens when competing polities, who hold thousands of thermonuclear weapons of mass destruction, feel threatened?
What happens when diesel fuels are unavailable or so exorbitantly priced that food production and distribution systems break down for most?
What happens in cold climates during winter when heating by hydrocarbons is unavailable?
As individuals, even relatively well-organized collectives, we have little if any agency in affecting what happens in the future with regard to these potential threats. Even the ruling elite have little were they actually to go against their baser instincts of protecting their personal/familial interests. The wheels are in motion and there’s likely no stopping the slow-moving trainwreck that seems to be our trajectory.
So, grab some popcorn and get ready for all sorts of things to go sideways in a variety of ways in the years ahead. Socioculturally. Sociopolitically. Socioeconomically. We are in for some interesting times for sure.
As I stated at the close of my last Contemplation:
“Only time will tell how this all unfolds but there’s nothing wrong with preparing for the worst by ‘collapsing now to avoid the rush’ and pursuing self-sufficiency. By this I mean removing as many dependencies on the Matrix as is possible and making do, locally. And if one can do this without negative impacts upon our fragile ecosystems or do so while creating more resilient ecosystems, all the better.
Building community (maybe even just household) resilience to as high a level as possible seems prudent given the uncertainties of an unpredictable future. There’s no guarantee it will ensure ‘recovery’ after a significant societal stressor/shock but it should increase the probability of it and that, perhaps, is all we can ‘hope’ for from its pursuit.”
NOTE: Peak Oil was the topic that first grabbed me by the short hairs and pulled me into the rabbit’s hole of societal collapse and ecological overshoot almost 15 years ago. I rented the movie Collapse starring the late Michael Ruppert as my personal pick on a Friday afternoon movie hunt for our weekend family movie night (for me to watch, not the family) at our local Blockbuster back in 2010 and I haven’t viewed the world the same since watching it.
A handful of my most recent Contemplations that have touched upon Peak Oil/Energy:
-Today’s Contemplation: Collapse Cometh CLXXV–Energy and Its Interconnections With Our Financialised Economic System. February 7, 2024.WebsiteMediumSubstack
-Today’s Contemplation: Collapse Cometh CLVII–Overshoot, Hydrocarbon Energy, and Denial: Avoiding the Pain. October 28, 2023. WebsiteMediumSubstack
-Today’s Contemplation: Collapse Cometh CLVI–Peak Oil, Complexity, Psychology, Magical Thinking, and War. October 26, 2023. WebsiteMediumSubstack
–Today’s Contemplation: Collapse Cometh CLV–Planetary Boundaries, Narrative Management, and Technology. October 23, 2023.WebsiteMediumSubstack
–Today’s Contemplation: Collapse Cometh CXLIX–Carbon Tunnel Vision And Resource/Energy & Ecological Blindness, Part 1, September 7, 2023.WebsiteMediumSubstack; Part 2.September 20, 2023.WebsiteMediumSubstack; Part 3. October 6, 2023.WebsiteMediumSubstack
–Today’s Contemplation: Collapse Cometh CXXXV–Collapse Now To Avoid The Rush: Our Long Emergency. June 6, 2023. WebsiteMediumSubstack
–Today’s Contemplation: Collapse Cometh CXXV–Hydrocarbons And The Maximum Power Principle: What Could Possibly Go Wrong? April 22, 2023.WebsiteMediumSubstack
And a handful that have touched upon the consequences of ‘collapse’:
–Today’s Contemplation: Collapse Cometh CLXIX–Fiat Currency Devaluation: A Ruling Elite ‘Solution’ to Growth Limits. December 11, 2023.WebsiteMediumSubstack
–Today’s Contemplation: Collapse Cometh CLXVI-Societal ‘Collapse’: Past is Prologue. November 27, 2023.WebsiteMediumSubstack
–Today’s Contemplation: Collapse Cometh CXLVIII–What Do Previous Experiments In Societal Complexity Suggest About ‘Managing’ Our Future. September 1, 2023. WebsiteMediumSubstack
–Today’s Contemplation: Collapse Cometh CXLIII–Ruling Caste Responses to Societal Breakdown/Decline. August 3.WebsiteMediumSubstack
–Today’s Contemplation: Collapse Cometh CXXXI–Sociopolitical Agency, Narrative Control, and Collapse. May 22, 2023. WebsiteMediumSubstack
The Depletion Paradox
Excerpt from Third Quarter Natural Resource Market Commentary
Goehring & Rozencwajg: Natural Resource Investors
-US shale oil and gas production appears to have peaked in November 2023
-G&R models suggest that the decline is set to accelerate
-most view this prediction skeptically, believing higher prices and more drilling will counter declines
-G&R assert that “The primary forces behind the current downturn are neither policy-related nor purely economic—they are geological and inexorable. Depletion, not market dynamics or regulatory overreach, is the central culprit.” (p. 7)
-US conventional crude oil production provides a historical example of what is likely to occur
-crude peaked in 1970 and the OPEC crisis occurred in 1973 prompting the US government to expedite permitting and increase drilling
-despite a significant increase in oil prices and drilling, production declined and history seems to be repeating for the US shale patch
King Hubbert–A History
-in 1956, MK Hubbert (Shell geologist) predicated a peak of US conventional oil extraction to take place in 1970; most were skeptical
-assuming hydrocarbon basins were finite in nature, Hubbert argued that extraction flow would follow a set trajectory–a bell-shaped curve
-Hubbert also developed a method (linearisation) of estimating ultimate recoverable reserve amounts that allowed him to predict a production peak (see Figure 2)
-production stopped growing due to production dynamics and basin depletion
Explaining Hubbert–From Macro to Micro
-Hubbert’s logistic curve has been powerfully predictive but criticised since no one understands why
-it appears that the growth curve results from new wells being added during the early phase of basin extraction with each new well adding to total production
-as time passes, however, mature wells begin to decline in productive capacity and overall growth of production only continues if new well production exceeds older well decline
-eventually, new well production cannot offset the decline of mature wells and extraction plateaus then begins to fall and cannot be reversed by investment in more wells
-“It underscores a fundamental truth: growth is bound not just by resources but by the interplay between new additions and inevitable declines. Higher prices and technological advancements may influence the pace, but they can’t alter the underlying dynamics that eventually lead to a plateau in production.” (p. 12)
-even when production appears robust, depletion is inevitable
More Realistic Examples
-extraction is constrained by two decisions: where and how much to drill
-cautious, slow drilling characterises the early drilling phase in a new basin with activity ramping up once potential is realised
-activity slows once the best spots have been drilled, with subsequent wells being less productive
Conventional US Production–A Case Study
-from 1900 to 1945, US drilling was steady as production soared
-during the 1950s, drilling activity grew (+70%) but productivity did not keep pace (+20%) as depletion rates of mature wells increased
-the 1960s witnessed a drilling focus upon the best basins resulting in a doubling of productivity
-this increase rolled over (peaked) in 1970 as the best regions matured and began declining (falling 75% by the mid-1980s) despite a surge in drilling
Turning to Shales
-shale basins require more drilling due to their extensive layout, with productivity varying widely across a basin
-their production profile begins with high extraction rates followed by a steep decline and prolonged low-rate output tail
-this defies Hubbert linearisation but instead shows a logarithmic relation allowing precise extrapolation of production and peak production timing
Enter Neural Networks
-G&R began developing their own AI in 2019 to help model shale production using well design, subsurface geology, and regional trends (and has been revised over the years to include a larger variety of more precise information)
-predictive curves perfectly match actual production and see peak/rollover around when 28% of recoverable reserves have been extracted; current extraction estimates are at or beyond this point
-“Indeed, total shale oil and gas production likely peaked late last year. Both are already down 1%, and our models predict year-over-year production declines will turn sharply negative within six months.” (p. 21)
Depletion Paradox Redux
-the coming decline in production is occurring at a difficult time given that since 2010, global oil demand has been met almost exclusively by shale extraction, helping to suppress US prices by 80% relative to global prices and grow natural gas-fired electricity production and LNG exports
-inferior geology cannot be remediated
-the 1970s saw production plummet despite higher prices and more drilling, and we are likely going to experience the same for shale
-“In the end, the paradox remains—depletion is an unstoppable force, and it is becoming harder and harder to keep up.” (p. 22)
The more detailed summary notes for this article can be found here.
A collection of graphs, charts, and text screenshots of interest. The data shows the significant increase in U.S. shale oil and gas production since the 1990s.
The rollover/peak of this production has huge implications for not just the US but the entire globe as most production increases over the past two decades have come as a result of US shale extraction. The notion that production can continue to meet increasing demand via investment, increased drilling, and/or new technologies is increasingly being questioned–especially by this G&R commentary.
The world is not prepared for a decline/fall in oil and gas production. It has been lulled into complacency, denial, and bargaining via mass marketing of a faulty narrative. The piper has finished playing and must now be paid. Humanity must now sit down at the banquet of consequences that have accumulated over the past two centuries…
If you’ve made it to the end of this contemplation and have got something out of my writing, please consider ordering the trilogy of my ‘fictional’ novel series, Olduvai (PDF files; only $9.99 Canadian), via my website or the link below — the ‘profits’ of which help me to keep my internet presence alive and first book available in print (and is available via various online retailers).
Attempting a new payment system as I am contemplating shutting down my site in the future (given the ever-increasing costs to keep it running).
If you are interested in purchasing any of the 3 books individually or the trilogy, please try the link below indicating which book(s) you are purchasing.
Costs (Canadian dollars):
Book 1: $2.99
Book 2: $3.89
Book 3: $3.89
Trilogy: $9.99
Feel free to throw in a ‘tip’ on top of the base cost if you wish; perhaps by paying in U.S. dollars instead of Canadian. Every few cents/dollars helps…
If you do not hear from me within 48 hours or you are having trouble with the system, please email me: olduvaitrilogy@gmail.com.
You can also find a variety of resources, particularly my summary notes for a handful of texts, especially Catton’s Overshoot and Tainter’s Collapse: see here.
Released September 30, 2024
It Bears Repeating: Best Of…Volume 2
A compilation of writers focused on the nexus of limits to growth, energy, and ecological overshoot.
With a Foreword by Erik Michaels and Afterword by Dr. Guy McPherson, authors include: Dr. Peter A Victor, George Tsakraklides, Charles Hugh Smith, Dr. Tony Povilitis, Jordan Perry, Matt Orsagh, Justin McAffee, Jack Lowe, The Honest Sorcerer, Fast Eddy, Will Falk, Dr. Ugo Bardi, and Steve Bull.
The document is not a guided narrative towards a singular or overarching message; except, perhaps, that we are in a predicament of our own making with a far more chaotic future ahead of us than most imagine–and most certainly than what mainstream media/politics would have us believe.
Click here to access the document as a PDF file, free to download.
Exxon Mobil Corp. is buying Pioneer Natural Resources in an all-stock transaction valued at $59.5 billion, or $253 per share, based on ExxonMobil’s closing stock price on Oct. 5. The supermajor’s largest takeover in more than two decades will make it a dominant producer of shale oil – as well as being extraordinary transformational for the US energy sector that might unleash another shale revolution.
As part of the agreement, Pioneer shareholders will receive 2.3234 shares of ExxonMobil for each Pioneer share at closing. The deal (implied total enterprise value of the transaction, including net debt, is approximately $64.5 billion), the largest since Exxon’s corporate takeover of Mobil Corp. in 1999, is also the world’s largest corporate takeover announced this year and will close in the first half of 2024.
ExxonMobil’s Permian production volume would double to 1.3 million barrels of oil equivalent per day (MOEBD), based on 2023 volumes, and could exceed 2 MOEBD in 2027. “ExxonMobil believes the transaction represents an opportunity for even greater US energy security by bringing the best technologies, operational excellence, and financial capability to an important source of domestic supply, benefitting the American economy and its consumers,” the company said.
When the deal is finalized, Exxon will be crowned ‘king shale’ in the Permian Basin of Texas and New Mexico and increase the company’s daily production to nearly 4.5 million barrels per day – more than 50% than the next largest supermajor.
Source: Bloomberg
“Pioneer is a clear leader in the Permian with a unique asset base and people with deep industry knowledge. The combined capabilities of our two companies will provide long-term value creation well in excess of what either company is capable of doing on a standalone basis,” said ExxonMobil Chairman and CEO Darren Woods.
U.S. shale drillers are looking to boost production in the short term
Industry data suggests that well depletion is advancing
Drillers remain upbeat about the short term forecast for shale oil production
During the last shale oil boom when producers were racing to see who could pump the most the fastest, some experts warned that shale oil had a flaw that would come to haunt these producers: wells were quick to start producing but also quick to deplete. Now, industry data suggests that the depletion is advancing. The Wall Street Journal’s Colin Eaton cited reserve inventory data from the shale patch in a recent analysis that pointed to a stable decline that may be irreversible. Eaton also quoted industry executives as making plans for such an irreversible development.
That fossil fuels are finite is no news. It was one of the main arguments in previous renewable energy pushes before emissions became the number-one priority. Technologically, oil and gas resources can be stretched to near infinity as drilling technology advances further and further. Yet this happens at a cost, and it seems that for the time being, the U.S. shale oil industry is not convinced it’s worth paying that cost.
It is this decline in cheaply available oil that is forcing U.S. shale drillers to stay disciplined, the WSJ’s Eaton wrote, despite rising oil prices: West Texas Intermediate is trading at over $90 per barrel for the first time since 2014.
“You just can’t keep growing 15% to 20% a year,” Pioneer Natural Resources Scott Sheffield told Eaton. “You’ll drill up your inventories. Even the good companies.”
Despite this, Chevron and Exxon are planning a substantial boost in the Permian—the most prolific play in the U.S. shale patch and the focus of much industry attention—amid higher prices.
…click on the above link to read the rest of the article…
The financial struggles of the U.S. shale industry are becoming increasingly hard to ignore, but drillers in Appalachia are in particularly bad shape.
The Permian has recently seen job losses, and for the first time since 2016, the hottest shale basin in the world has seen job growth lag the broader Texas economy. The industry is cutting back amid heightened financial scrutiny from investors, as debt-fueled drilling has become increasingly hard to justify.
But E&P companies focused almost exclusively on gas, such as those in the Marcellus and Utica shales, are in even worse shape. An IEEFA analysis found that seven of the largest producers in Appalachia burned through about a half billion dollars in the third quarter.
Gas production continues to rise, but profits remain elusive. “Despite booming gas output, Appalachian oil and gas companies consistently failed to produce positive cash flow over the past five quarters,” the authors of the IEEFA report said.
Of the seven companies analyzed, five had negative cash flow, including Antero Resources, Chesapeake Energy, EQT, Range Resources, and Southwestern Energy. Only Cabot Oil & Gas and Gulfport Energy had positive cash flow in the third quarter.
The sector was weighed down but a sharp drop in natural gas prices, with Henry Hub off by 18 percent compared to a year earlier. But the losses are highly problematic. After all, we are more than a decade into the shale revolution and the industry is still not really able to post positive cash flow. Worse, these are not the laggards; these are the largest producers in the region.
…click on the above link to read the rest of the article…
The Great U.S. Shale Industry Machine is finally running out of steam. What looked very promising for the shale industry in 2018 seems incredibly bleak this year. And, if the situation doesn’t turn around quickly for the shale industry, 2019 might turn out to be the year that production ultimately peaks in the United States.
There several factors that have negatively impacted the U.S. Shale Industry in 2019; the compounded annual decline rate, the massive debt–inability for shale companies to raise money, and the stunning amount of new wells necessary to increase overall production. While shale experts are knowledgeable of the typical 60-70% first-year decline rate of shale wells, not much is mentioned about the “compounded annual decline rate.”
The chart above shows that as overall Shale oil production increases, the decline curve becomes steeper. U.S. shale oil production in the top four fields hasn’t increased all that much because the nearly 6,000 wells brought online so far this year had to offset the stunning 2 million barrel per day decline from the production in 2018.
The next series of charts, from Shaleprofile.com, will show why the U.S. Shale Industry has hit a brick wall. The first chart shows the number of wells added each year in the top four shale fields:
The four top U.S. shale fields are the Bakken, Niobrara, Permian, and Eagle Ford. In 2017, the shale industry added 7,636 wells, 9,953 wells in 2018, and 5,924 wells by August 2019. According to Shaleprofile.com, there are still 82 wells not accounted for yet in 2019. So, the total for the first eight months of 2019 is 6,006.
If we look at the Well Profiles part of the chart, we can clearly see that when the increase in the number of wells in 2015 and 2016 started to taper off, overall production plateaued and declined.
…click on the above link to read the rest of the article…
Estimates of recoverable oil are proving wildly wrong
Art Berman, geological consultant with over 37 years experience in petroleum exploration and production, returns to the podcast this week to debunk much of the hopium currently surrounding America’s shale oil output.
Because the US is pinning huge hopes on its shale oil “revolution”, so much depends on that story being right. Here’s the narrative right now:
The US, is the new Saudi Arabia
It’s the swing producer when it comes to influencing the price of oil
The US will be able to increase oil production for decades to come
New technology is unlocking more oil shale supply all the time
But what if there’s evidence that runs counter to all of that?
We’re going to be taking a little victory lap on this week’s podcast because The Wall Street Journal has finally admitted that shale oil wells are not producing as much as the companies operating them touted they would produce — which is what we’ve been saying for years here at PeakProsperity.com, largely because we closely follow Art’s work:
The Wall Street Journal did some research and they got the general point that the wells are not as good as advertised.
But what they missed is just how much farther off many of these reserves are than even the discounted reserves that they’ve reported.
Bottom line: if the understatement is only 10%, that’s a rounding error and it’s not that much of an issue to the average person. But I’ve been trying for a decade to get the number that I independently develop to get anywhere close to the published numbers. In most cases, I can only get near 60% or 70% of them. So, the gap, I think is much more substantial.
…click on the above link to read the rest of the article…
Art Berman, 40-year veteran in the petroleum production industry and respected geological consultant, returns to the podcast this week to talk about oil.
After the price of oil fell from its previous $100+/bbl highs to under $30/bbl in 2015, many declared dead the concerns raised by peak oil theorists. Headlines selling the “shale miracle” have sought to convince us that the US will one day eclipse Saudi Arabia in oil production. In short: cheap, plentiful oil is here to stay.
How likely is this?
Not at all, warns Berman. World demand for oil shows no signs of abating while the outlook for future production looks increasingly scant. And the competition among nations for this “master resource” will be much more intense in future decades than we’ve been used to:
Since the 1980s, we simply have not been replacing reserves with new discoveries. So how does that work? Well, obviously, we’ve got a lot of oil on production and in reserves, so we’re essentially drawing down our savings account if you want to think about it that way. You can do that for a long time if you’ve got a whole lot of money in your savings account, and we as a planet do. But you can’t do it forever.
Eventually, you either have to stop spending as much so you don’t draw down your savings, or you need to put some money back in the account. And it doesn’t seem like we’re doing much of either, and haven’t been doing much of either for a long time. So the concern is tremendous, at least, in my estimation(…)
…click on the above link to read the rest of the article…
The National Energy Board of Canada released a resource assessment today, examining the Duvernay Shale of Alberta.
Deposited during the Devonian Period, the Duvernay Shale is located throughout central Alberta, running from Grande Prairie almost to Calgary. Located near, and in some locations directly below the Montney, the Duvernay is part of the larger Western Canadian petroleum system.
(Click to enlarge)
Source: National Energy Board
The NEB estimates that the Duvernay’s marketable resources are 76.6 Tcf of gas, 6.3 billion barrels of NGLs and 3.4 billion barrels of crude oil. “Marketable resources” represent the total amount of petroleum that can be recovered from the formation, not the actual reserves nor the original hydrocarbon in place.
(Click to enlarge)
Source: National Energy Board
According to Reuters, this makes the Duvernay the largest resource of unconventional crude oil and condensate in Canada. However, the Duvernay’s natural gas reserves are exceeded by two other basins in Canada. The Montney wears the crown with the largest natural gas resource, 449 Tcf recoverable. Following the Montney is the Liard Basin with 216 Tcf, located in British Columbia, the Yukon and the Northwest Territories.
(Click to enlarge)
Source: National Energy Board
Best rock lies in western Duvernay, around Whitecourt, Alberta
In its assessment, the NEB split the Duvernay into two plays, the East Shale Basin and the West Shale Basin. The West Shale Basin is the larger of the two by a significant margin, and holds a much larger area of sufficient quality that it was assessed. Other locations were not assessed because “they were considered unlikely to be developed; such as where the Duvernay Shale is less than 10 m thick, is under pressured, where its mapped in-place gas contents are less than 50 m3 of volume per m2 of area, and where oil contents were more than 2000 barrels per million cubic feet of gas (i.e., there is too little gas in the reservoir to help drive the oil out).”
…click on the above link to read the rest of the article…
The world’s top shale play, the Permian, has shown remarkable resilience amid the lower-for-longer oil prices. Permian production has grown and should continue its rise into the foreseeable future.
Technological advances spurred the rapid rise of the Permian, but as drillers are set to continuously develop the hottest U.S. shale play, they may soon start to test the region’s geological limits.
If E&P companies can’t overcome the geological constraints with tech breakthroughs, Permian production could peak in 2021, putting more than 1.5 million bpd of future production in question, and potentially significantly influencing oil prices, energy consultancy Wood Mackenzie said in an analysis this week.
According to EIA’s September Drilling Productivity Report, the Permian will pump 2.580 million bpd of oil this month. Crude oil output is set to rise by another 55,000-bpd next month, to 2.635 million bpd. The Permian, as usual, contributes the most to the expected production growth out of the top U.S. shale plays.
Wood Mackenzie’s report, “Geology vs. technology: how sustainable is Permian tight oil growth?”, modeled three scenarios for the Permian’s production. Under the reference-case scenario, Permian production is set to rise to more than 5 million bpd in 2025. Peak production could increase by 500,000 bpd over WoodMac’s base case in a modeling scenario where new technology adoption accelerates more aggressively, the consultancy said. However, “downside risks related to tighter well spacing and well-on-well interference could bring peak Permian production forward by 4 years compared to the upside case—putting more than 1.5 million b/d of future production in question,” Wood Mackenzie reports.
The analysis points out that many other shale plays prove that the initial years of development are typically the easiest. In order to keep well performance on par with the initial flows, drillers need more tech breakthroughs “to keep their barrels at the bottom of the cost curve.”
…click on the above link to read the rest of the article…
After years of following developments in extraction of light tight oil (LTO) in the Bakken, the oil price, studying actual well production data from the North Dakota Industrial Commission (NDIC) and the SEC 10-Q/Ks filings for several companies heavily exposed to the Bakken, a quote from Shakespeare’s Macbeth comes to the fore of my mind:
All causes shall give way: I am in blood
Stepp’d in so far that, should I wade no more,
Returning were as tedious as go o’er:
(Macbeth: Act III, Scene IV)
For me the Macbeth quote very much sums up the predicament many Bakken LTO operators now find themselves in.
What this study/update present:
With the decline in the oil price the average well as from the 2012 vintage will struggle to reach payout and become profitable. (The oil price decline reduces the portion of the more recent wells that are on trajectories to reach payout and become profitable.)
The 2015 vintage follows the 2014 vintage closely, suggesting that around 20% of the wells of 2015 vintage are on a trajectory to reach payout and become profitable.
The underlying decline from the legacy wells is strong. The extraction from all the wells started between Jan 2008 and Dec 2014 declined by close to 440 kb (or about 41%) from Dec 2014 to Sep 2015.
Some of the early wells (2008 vintage) have been restimulated (refracked) and the effects are short lived and the economics of this looks questionable, at best.
…click on the above link to read the rest of the article…
For the past several weeks, the drilling industry — hammered by bad financial results — has begun promoting its next big thing: the Utica shale, generating the sort of headlines you might have seen five years ago, when the shale drilling rush was gaining speed. “Utica Shale Holds 20 Times More Gas Than Previous Estimates”, read one headline. “Utica Bigger Than Marcellus”, proclaimed another.
The reason for the excitement was a study, published by West Virginia University, that concluded the Utica contains more shale gas than many estimates for the Marcellus shale, a staggering 782 trillion cubic feet.
“This is a landmark study that demonstrates the vast potential of the Utica as a resource to complement – and go beyond – what the Marcellus has already proven to be,” Brian Anderson, director of West Virginia University’s Energy Institute, told the Associated Press.
But those considering investments based on the Utica’s potential may want to pause and consider the shale industry’s long history of circulating impressive predictions, later quietly downgraded, while spending far more than they earn.
“The industry has not been generating enough money to cover its capital spending and dividends,” Fidelity Investments energy fund manager John Dowd told Barrons.
Indeed, while it is clear that the shale drilling rush has produced large amounts of oil and gas, (alongside wastewater and other environmental impacts), the financial prosperity promised by its backers has not seemed to materialize.
Burning Through Cash
Companies like Chesapeake Energy, the nation’s second largest producer of natural gas and one of the most aggressive advocates of the shale rush nationwide, have been hammered hard by low oil prices and high costs in 2015.
…click on the above link to read the rest of the article…
“Sub-prime” is the term by which became known the debt market segment that served low quality housing in the US. Essentially these were products supporting mortgages to low-middle class families, that in 2006/07, up against the simultaneous rise in interest rates and commodities prices, produced a wave of defaults that lead to the 2008 financial crisis.
The rise in petroleum prices was a key element to the 2008 crisis, but would eventually bring something positive to the US. Petroleum is usually extracted from large underground cavities known as reservoirs. However, it is formed at greater depth, within source rocks, where organic matter is slowly cooked by the internal heat of the planet until it degrades, first into petroleum and finally into gas. Prices persistently above 100 dollars per barrel meant that beyond traditional reservoirs it also became feasible to drill deeper for petroleum, down to source rocks and other rock formations of low permeability.
In 2010 the US Government and media thus embarked in a promotional campaign for source rock drilling, erroneously calling “shales” to these resources to ease the marketing. Vast amounts of money started flowing to the sector, the industry quivered with activity, plenty of new jobs were created and the country soon emerged from economic recession. The end result: in three years petroleum extraction in the US grew by 50%, returning to levels not seen since the 1980s.
…click on the above link to read the rest of the article…
Olduvai IV: Courage
Click on image to read excerpts
![Figure 01: The above chart shows developments by vintage in LTO extraction from the Middle Bakken/ Three Forks/Sanish formations in Bakken (ND) as of January 2008 and of September 2015 [right hand scale]. The color grading shows extraction by month. Development in the oil price (WTI) black line is shown versus the left hand scale.](https://fractionalflow.files.wordpress.com/2015/11/fig-01-bakken-lto-sep-15.png)
