But what if the boom is just a bubble?
The majority of U.S. policymakers and the media have bought into a vision of American “energy dominance” thanks to strong growth in oil and gas production through the widespread use of “fracking” (horizontal drilling and hydraulic fracturing of shale rock formations).
This “shale revolution,” we’re told, will fundamentally change the U.S. energy picture for decades to come—leading to energy independence, a rebirth of U.S. manufacturing, and a surplus supply of both oil and natural gas that can be exported to allies around the world. This promise of oil and natural gas abundance is influencing climate policy, foreign policy, and investments in alternative energy sources.
The primary source for these rosy expectations of future production is the U.S. Department of Energy’s Energy Information Administration (EIA), which publishes every year an Annual Energy Outlook that projects energy production and prices for decades to come.
The Reality is that the government’s long-term forecasts — the ones everyone is relying on to guide our energy policy and planning — are extremely optimistic.
This conclusion is based on ongoing analysis of well production data for all major shale gas and tight oil plays in the U.S., using data from Drillinginfo, a commercial database of well-level production data which is utilized by the EIA and most major oil and gas companies. This analysis of current and historical production (including well counts by county, well- and field-decline rates, distribution of wells in terms of quality, density of wells in sweet spots, and average productivity of wells since 2012) is then compared to the EIA’s Annual Energy Outlook forecasts.
To meet reference case projections in its Annual Energy Outlook 2017 (AEO2017) more than 1 MILLION shale gas and tight oil wells would need to be drilled between 2015-2050 in the top plays, at a cost of $5.7 TRILLION, and require 100% of proven reserves plus 60-73% of unproven resources. (Proven reserves have been demonstrated by drilling to be technically and economically recoverable; unproven resources are thought to be technically recoverable but have not been demonstrated to be economically viable – as such they are much less certain than proven reserves.)
One can only assume that the EIA’s optimism is based on technological improvements made over recent years. Technological advances have included longer horizontal laterals, a tripling of water and proppant injection per well, and more fracking stages. But as the data show, these improvements have only led to a faster depletion of oil and gas reserves, not a growth in the total amount of oil and gas that can be produced. Ultimately, technology can’t overcome core characteristics of shale — steep decline rates (wells decline between 70-90% in the first three years, and field declines without new drilling typically range from 20-40% per year) and variable reservoir quality, with “sweet spots” or “core areas” containing the highest quality reservoir rock typically comprising 20% or less of overall play area.
Tight oil and shale gas producers have focused their efforts and technological improvements on targeting these “sweet spots” and in many plays we are already witnessing the point of diminishing returns. But the EIA is counting on — and asking the American people to bank on — technological miracles overcoming physical limits. A sound energy policy, however, should be based on reality.
TIGHT OIL REALITY CHECK (2016)
SHALE GAS REALITY CHECK (2016)
HAS THE BAKKEN PEAKED? (2015)
EAGLE FORD REALITY CHECK (2015)
2015 Shale Gas Reality Check
2015 Tight Oil Reality Check
Drilling Deeper (2014)
Drilling California (2013)
Drill Baby Drill (2013)
Will Natural Gas Fuel America? (2011)
Webinars & Presentations
Drill, Baby, Drill Map
Shale & Wall Street