But what if the boom is just a bubble?
The Reality is that the government’s long-term forecasts—the ones everyone is relying on to guide our energy policy and planning—are overly optimistic. In fact, the Energy Information Administration has grown more and more bullish over time: It’s Annual Energy Outlook (AEO) 2016 is has increased its estimate of tight oil production through 2040 by 19% compared to AEO2015 and by 37% over AEO2014. Likewise, AEO2016’s projection for shale gas production through 2040 has increased by 31% compared to AEO2015. This despite the fact that both tight oil and shale gas production are already below their peaks.
Shale plays suffer from high decline rates and declining well quality as the “sweet spots” run out, meaning that ever more wells will have to be drilled just to keep production flat—until even that is no longer achievable. Continued drilling requires massive amounts of capital, which can only be supported by high levels of debt or higher prices.
High productivity shale plays are not ubiquitous and wells suffer from very high rates of depletion.
Because depletion rates are so high and drilling locations increasingly unproductive, industry must drill ever more wells just to offset declines.
To continue drilling rates, industry will need prices to rise substantially or have to take on more debt, which may not be sustainable.
If the long-term future of U.S. oil and natural gas production depends on resources in the country’s deep shale deposits, as the Energy Department contends, we are in for a big disappointment.