[Graeme]

Two Groundbreaking Reports on Shale Gas & Oil Supplies, Economics

Energy Policy Forum & Post Carbon Institute have released two groundbreaking reports that belie energy industry claims of U.S. energy independence as a result of newly accessible shale gas and shale (tight) oil.

The report findings are based on an unprecedented analysis of over 60,000 U.S. shale oil and gas wells and an investigation of the role of Wall Street investment banks in the explosive growth of fracking for natural gas.

Drill Baby Drill: Can Unconventional Fuels Usher in a New Era of Energy Independence? by J. David Hughes takes a critical look at the prospects for shale gas, shale/tight oil and other unconventional fuels.

Download PDF: http://shalebubble.org/drill-baby-drill

Shale & Wall Street: Was the Decline in Natural Gas Orchestrated? by Deborah Rogers uncovers the role of Wall Street investment banks in inflating the natural gas bubble to their advantage.

Download PDF: http://shalebubble.org/wall-street

Together, the independent reports reassess current common wisdom about the tight oil and shale gas booms that are sweeping America. The reports comprise a thorough and up-to-date analysis of data on U.S. oil and gas wells and a comprehensive review of the financial status of the companies leading the charge.

What emerges from the data:

Overall field decline rates are so steep that 30-50% of shale gas production and 40% of shale oil production must be replaced annually to offset declines.

High productivity shale plays are not ubiquitous. Just six plays account for 88% of shale gas production and two plays account for 80% of shale oil production.

Furthermore the most productive areas constitute relatively small sweet spots within these plays.

Maintaining production requires high rates of high-cost drilling—8,600 new wells annually for shale gas and oil. This will increase as sweet spots are drilled off.

High drilling rates require extremely high rates of investment—$48 billion a year to maintain shale gas and oil production considering drilling costs alone – much more if full cycle costs are included. These costs will increase dramatically as plays age.

Wall Street promoted the shale gas drilling frenzy, which resulted in prices lower than the cost of production and thereby profited [enormously] from mergers & acquisitions and other transactional fees.

Shale gas has become one of the largest profit centers in some investment banks, in direct parallel with the decline of natural gas prices.

Due to extreme levels of debt, stated proved undeveloped reserves (PUDs) may have been out of compliance with SEC rules at some shale companies because of the threat of collateral default for some operators.

Hughes and Rogers suggest the fracking boom may be a costly, risky, short-term “fix” for America’s long-term dependency on depleting oil and gas. Rather than offering the nation a century of cheap energy and economic prosperity, fracking may instead present us with a short-term bubble that comes with exceeding high economic and environmental costs.

commondreams

[Pops]

I shoulda knowed you were on this Graeme, I logged in just to post it. I especially like the charts:
http://shalebubble.org/graphs/

[Plantagenet]

Thanks Graeme.

Dr. Hughes sees only a 10-year-long bubble in oil and NG production in the USA coming from frakking. Hughes predicts a peak in unconventional oil and NG production in 2016, and then decreasing production to a very low level by 2019.

According to Dr. Hughes, the unconventional production will slow and cushion the initial part of the descent in oil production due to global peak oil for only about 3-5 more years.

[Outcast_Searcher]

If nothing else, this certainly seems to be another data point confirming the end of cheap or easy oil, and not the "happy days are here again" stuff that's been being tossed around.

My position as a moderate remains undeterred.

[Graeme]

Thanks for responses. I'm sure we'll get more detailed analyses from others. But I think Plant's comment can be summed up in Figure 80, page 104 of the full report.

[Keith_McClary]

Thanks for responses. I'm sure we'll get more detailed analyses from others. But I think Plant's comment can be summed up in Figure 80, page 104 of the full report.

Page 116 as the PDF is numbered.

[eastbay]

Thank you, Graeme. Excellent find.

The summaries appear to validate earlier concerns regarding rapid depletion.

These reports are next on my reading list.

[Econ101]

These areticles might calm the conservative investor but they are a poor reflection of what is actually going on, seemingly ignorant of developments in the extraction technologies and expansion of the fields. The Bakken is now covering over 200,000 square miiles with a payzone up to 500 feet thick.

The Bakken/Three Forks has a thickness of approximately 500 feet at its thickest.
http://seekingalpha.com/article/1202481-bakken-update-estimated-ultimate-recoveries-in-the-permian-part-3

From the permian basin in TX, similar to the Bakken.

That diagram is showing you what is called down spacing. They are recognizing and developing well designs that are opening up vertically stacked payzones. This allows multiple wells from a single pad. In the above diagram they will have 15. This represents a tremendous savings in dollars as well as a very strong upward adjustment to EUR (extreme ultimate recovery), the industry standard in reserve measurments.

Claims that EURs or other measures of reserves are manipulated or otherwise falsely portrayed seem illogical from a market standpoint. You have to remember these reporting techniques are tightly controlled and monitored. People are no different buying than selling either. An informed investor should have a wide enough scope on information to see what is normal. They dont like to waste their money. If there are dishonest operators taking advantage of the sucker thats born every minute it has no legitimate bearing on actual remaining reserves.

Depletion simply means there are more reserves yet to be recovered. Well design is advancing very rapidly. These designs are having significant impacts on initial flow rates. This is a very important measure because it tells you how quickly the intitial investment will be recovered.

Well design is also having a dramatic slowing effect on depletion extending well life and total recovery, hence well value.

Costs are also dropping dramatically, 40% and more, for the crucial proppants and water. As costs drop drilling is promoted and production is pushed higher. At the same time recovery is being enhanced geographical limits are also being expanded not only in North Dakota but worldwide.

These articles paint a cautionary picture but are by no means the entire story. To celebrate these reports as the be-all and end-all would be careless thinking. All-things-considered they are certainly overly pessimistic.

[SilentRunning]

These areticles might calm the conservative investor but they are a poor reflection of what is actually going on, seemingly ignorant of developments in the extraction technologies and expansion of the fields. The Bakken is now covering over 200,000 square miiles with a payzone up to 500 feet thick.

Great! Since the oil/gas will NEVER EVER deplete from those (fantasy) wells in your head, there should be absolutely no need to ever drill another fracking well any where in my state of NY. If what you say were true, we should be able to frack an almost limitless amount of oil/gas from North Dakota, and it is should be economic suicide for fracking operators to ever drill any more wells in the USA for the foreseeable future!

Looking forward to the endless supply of North Dakota oil....

[marty]

Recently it was reported that New York delays fracking (foxnews . com/politics/2013/02/20/as-new-york-delays-decision-on-fracking-pennsylvania-sees-economic-boom/) and I think that's good. I live in western part of New York State and we had here some fracking works and now many people are scared because they believe it caused some inconvertible changes underground and now animals from time to time run away like its earthquake is coming. That's terrible. I don't understand Pennsylvania's excitement over fracking because it is more dangerous than they think and consequences might be very destructive. I believe we all should abandon fracking until it's too late because it's too dangerous and unpredictable. Playing with nature is no good.

[Plantagenet]

The global impact of shale oil could revolutionise the world’s energy markets over the next couple of decades, resulting in significantly lower oil prices, higher global GDP, changing geopolitics and shifting business models for oil and gas companies, according to new analysis from PwC, the global accounting and consulting firm.

The potential availability and accessibility of significant resources of shale oil around the globe - and the potential effect of increased shale oil production in limiting growth in global oil prices - has implications that stretch far beyond the oil industry.

Shale oil has the potential to reshape the global economy, increasing energy security, independence and affordability in the long term. However, these benefits need to be squared with broader environmental objectives at both the local and global level.

The effects of a lower oil price resonate along the entire energy value chain, and investment choices based on long-term predictions of a steady increase in real oil prices may need to be reassessed. The potential magnitude of the impact of shale oil makes it a profound force for change in energy markets and the wider global economy. It is therefore critical for companies and policy-makers to consider the strategic implications of these changes now.

Shale Oil production will grow to the point it will lower global oil prices and kick off a global surge in growth and GDP says PwC LLC---pdf of report and charts here

[Loki]

I shoulda knowed you were on this Graeme, I logged in just to post it.

I almost started a thread to ask where you were, Pops. Hope all is OK.

As for the OP, time will tell. The industry seems awfully bubbly to me, but I'm willing to admit I don't know for certain. I take claims of certainty with a grain of salt.

However, it does strike me that shale gas/oil is particularly vulnerable to demand destruction given the constant need to drill new wells and the already negative profitability. The industry is just one financial panic away from shutting down. Not exactly the most reliable bet for a national energy policy.

[Tanada]

I will believe ot when I see it, and not a day before. Too many times we have been told cheap abundant X was right around the corner but somehow the corner never gets turned.

[careinke]

Great, with all the extra cheap oil, we can really cook the planet. Either way, it's game over for civilization as we presently know it. (Hansen has made me overly pessimistic lately)

[Plantagenet]

Its amazing how completely different this prediction of huge growth in future oil production from oil shales is from the very pessimistic predictions of oil shale production in the two other recently released reports.

The huge numbers for future oil shale production in this PwC LLC report are based partly on data from the US Energy Information Agency----the EIA increased their estimate of future production from something like 6 billion barrels in 2008 to 34 billion barrels. This amazing jump in just two years is surprising. Perhaps this reflects political pressure on the USGS and EIA to increase the oil production estimate after administrations changed in 2009, or perhaps the scientific modeling completely changed in just two years. In any case the EIA numbers that from the basis of the PwC LLC predictions are the current official US government numbers----i.e. the US government scenario for future oil production IS the optimistic scenario for shale oil production.

[Econ101]

Econ101, I rather doubt you bothered to link to either report, much less read all 178 pages of the first one?

Yet you feel qualified to spout? You sir, are an endless time-wasting bore. Good day.

Well thought-out and articulate comment!