The Peak Oil Crisis: When?

For those following the world oil production situation, it has been clear for some time that the only factor keeping global crude output from moving lower is the continuing increase in U.S. shale oil production mostly from Texas and North Dakota. Needless to say once the fabled “peak” comes, oil and gasoline prices are certain to move higher triggering a series of economic events – most of which will not be good for the global economy.

Thus the key question is just how many more months or years will production of U.S. shale oil (more accurately call light tight oil) continue to grow. Many have answers to this question ranging from the “next year or so” on out the middle or end of the next decade. Some forecasts as to time remaining until the “peak” arrives are politically tinged. No politician, business manager, or even investor wants to hear that serious economic problems affecting their lives may be only a few years away. Fortunately for these folks, there are many forecasters available to spin stories about how “technology” will enable US shale oil production to continue on into the dim future of the 2020’s – which most of us really can’t comprehend or plan for.

Usually missing from optimistic estimates for future U.S. shale oil production is any discussion of just how fast production from fracked wells declines. Most fracked wells are adequate or at least economic producers for three years or so, after which their production is so small that they need to be replaced or reworked to keep a meaningful amount of production going. As shale oil production grows larger and larger, more and more wells will have to be drilled and fracked just to keep production level. At some point there will be a cross over between new wells coming on stream and old wells going out of production so output will start to slip. The EIA recently noted that for North Dakota to increase its oil production by 20,000 barrels a day (b/d) next month, it must bring 94,000 b/d of new production online. At Texas’s Eagle Ford basin, it will take 152,000 b/d of new production next month to increase net production by 31,000 b/d.

There is no doubt that the shale oil drilling industry has made many significant technological advances in recent years. Multiple wells are now being drilled from a single drilling pad – foregoing the need to move drilling rigs and setting up all the expensive infrastructure needed to frack shale wells. For a while shale oil drillers were drilling and fracking longer wells which reduced the cost per barrel. Now we hear that drillers are increasing production per well by pumping more fracking materials down each well and some are saying this will be enough to offset any decline in prices.
Currently US shale oil production is about 3 million b/d and in June output increased by about 100,000 b/d. About half of US shale oil production comes from North Dakota where winter conditions are so harsh that production has been falling during the winter months.

The two major forecasting agencies, Washington’s EIA and Paris’ IEA, are both more pessimistic than is generally known for they both foresee US shale oil production leveling off as soon as 2016. The reason for this is that drillers will simply run out of new places to drill and frack new wells. While new techniques of extracting more oil from a well are possible, there is need to look closely at the costs of these techniques vs. the potential payoff.

The shale oil situation in Texas is somewhat different than in North Dakota for there you have much better weather and two separate shale oil deposits. The recent growth in Texas’s shale oil production has been much smoother than in storm-prone North Dakota and has been increasing at about 44,000 b/d each month. So far as can be seen from the outside of the industry, production in both states will continue to grow for at least another year or two – but then we will be at 2016.

The government has never gotten around to publishing the assumptions that go into the forecast that U.S. shale oil production will stop growing circa 2016. The biggest difference between EIA/IEA and independent analysts is the government forecasters do not see a precipitous drop in shale oil production following the peak. Instead they see a period of flat production followed by a gentle decline stretching well into the next decade. Such a gentle end to the shale oil “bubble” can only assuage fears of a calamity. This projection on a gentle end to U.S. shale oil is at variance with outside forecasters who note that shale oil wells are pretty well gone in three years and simply do not see where the oil to maintain production levels will be coming from for another 10 or 15 years after the peak.

Independent analyses of U.S. shale oil generally come to the same conclusion that production will peak in the 2016-2017 timeframe, but as noted above see a much faster decline than does the government.

There are however, other factors that could become the primary cause of world oil production peaking in the next few years. The first is the turmoil in the Middle East. A lot of oil production in the region has dropped off line in recent years for political reasons and Iraqi production is endangered. The spread of militant Islam could eventually threaten other major producers in the region as could the Arab-Israeli standoff.

A more recent development having serious long-term implications for the oil industry is the growing disparity between the cost of producing a new barrel of oil from the Canadian oil sands or deep below the ocean and the selling price of that oil. A recent study points out that many planned oil production projects are simply not economical at today’s oil prices which have been relatively stable for the past five years as costs continued to soar. Oil companies are already cutting back on new drilling projects which will have little impact on current production, but will be very significant five years or so from now.

  • Mathew Ittycheria

    While I support recovering whatever shale oil and gas we can get by whatever means necessary, it is an undeniable fact that the world’s fossil energy sources are a finite entity with a finite ending. The argument of whether it is 60 years or a 100 years at today’s world consumption of 90 million barrels per day (mbpd) (or the projected 2016 rate of 105 mbpd) is wasted time. It is a finite number and that is what matters. With our 80% dependence on fossil fuels, the world is certainly between the proverbial rock and a hard place. No clear thinking person should deny that alternate energy sources are an absolute necessity. The clock started ticking decades ago. People need to get their minds focused on the herculean challenge facing the human
    species if it is to survive, and not waste time bickering about the evils of fracking or boasting about potential 4 mbpd shale plays when the world needs 105 mbpd. People need to be aware about the potential looming costs of developing alternate energy. To illustrate the point, here’s what a recent Stanford University study concluded as to what it takes to replace just New York State’s 2,600 trillion BTU (TBTU) annual fossil energy need:

    • 4,020 x onshore 5-megawatt wind turbines
    • 12,770 x offshore 5-megawatt wind turbines
    • 387 x 100-megawatt concentrated solar plants
    • 828 x 50-megawatt photovoltaic power plants
    • 5 million x 5-kilowatt residential rooftop photovoltaic systems
    • 500,000 x 100-kilowatt commercial/government rooftop photovoltaic systems
    • 36 x 100-megawatt geothermal plants
    • 1,910 x 0.75-megawatt wave devices
    • 2,600 x 1-megawatt tidal turbines
    • 7 x 1,300-megawatt hydroelectric power plants

    That is 255,780 watts of installed generating capacity needed to provide the 3,615 TBTU annual need. Total estimated cost is $580 billion, 50% of New York State’s GDP!
    Scaling up, California consuming 5,700 TBTU fossils will need $1,270 billion or 66% of it’s GDP, all of the US consuming 80,000 TBTU fossils will need $17,800B or 121% of US GDP and all the World consuming 410,000 TBTU fossils will need $89,200B or 120% of World GDP!! So let’s stop the bickering and focus on the real challenges facing the survival of the species.

    • Haefen

      I’d sugggest forgetting about what the world needs. The world doesn’t care about you or America. Stick with what America needs
      and try to encourage the world to accept responsiblity if it’s own actions.

      And America needs more energy diversity. It would be a good thing.

      Most of your new energy sources include Wind, Solar and Wave. These cannot be connected to the grid without equivalent conventional sources to back them up. Sure some grids have as much as 20% of such sources but that is pushing the limits of stability. Of course if people would accept regular massive blackouts or loss of grid power then such energy sources can make up a very high percentage of the grid generation.

      Getting people, residential loads, off the grid would help (for alternative sources). They can then handle their own power, at their own costs, and tailor their system to their requirements and ability to pay. This also avoids the problem of having everyone else paying for someone else’s dream.

      If CO2 is a concern then we should include nuclear. That can be done on a neighborhood level (with current technology) but the most cost efficient method is having large plants connected to the grid. The reason we would have to do nuclear is the heavy CO2 costs of the many sources you suggested. Some may never result in less total CO2 while Nuclear very quickly cover it’s CO2 development and construction costs and begins reducing total CO2 emissions the fastest.

      And of course like many of the sources you listed nuclear also promises more for the future including fusion, smaller failsafe reactors and the use of thorium. Not to mention the production of hydrogen from water using heat and other benefits from lower cost power/heat.

      As to the future of the species, I would suggest not being so concerned about what we are doing in the West and look at what is happening in Asia. The real challenges facing the survival of the species will be decided there. They are the largest emitters of CO2, with little concern for over exploitation of resources and an apparent belief that a finite earth has infinite room for people.

      BTW $500 Billion is very doable. Trillions was transfered from the taxpayers to the wealthy and tens of billions of tax dollars a month are still being used to buy their failed investments. Most countries can afford to update their systems, though they might have to stop sending money elsewhere.

  • Mathew Ittycheria

    To quote, this says it all: “No politician, business manager, or even investor wants to hear that serious economic problems affecting their lives may be only a few years away.”

    • Haefen

      even more so when those problem might cost those that finance them.

  • Haefen

    “…simply do not see where the oil to maintain production levels will be coming from for another 10 or 15 years after the peak.”

    They know where some of it will come from, the worlds largest reserve of oil, right here in North America, including the Canadian Oil Sands. Production is about 2Million b/d and is already on track to double in the next 5 to 6 years with the current oil sands political environment.

    This huge reserve is a major strategic reserve for the USA and is why the USA is the #1 funder of the anti-tarsands groups and efforts to prevent the construction of pipelines. It isn’t yet in America’s interest to fully exploit this reserve, when it is many things will occur rapidly.

    Cost of production isn’t the concern it appears. People, again the anti-tarsands lobby, always include the cost of current production of old mines trying to adapt new technology. The costs of known more modern technology uses wells, not mining, and can be very cost effective, particularly if prices go up and political resistence is lowered (ie America stops funding the anti-tarsands lobby). If there was a will wells and pipelines can be built very quickly.

    Of course there is oil outside of Alberta, but that one province alone has known recoverable reserves of about 170,000 million barrels of bitumen and crude. They also have over 30 trillion cubic feet of gas, needed to produce syncrude. America is not running out of oil for many generations to come.

    As for burning all that oil, I would point out that it really doesn’t matter what America does. Asian countries are already the worlds largest total emitters of CO2 and have much less ability to naturally sink CO2. The USA at 35 people per sq/km is already doing better than India at 350 per sq/km, as most of India’s land that could sink CO2 is covered with people. And India, most of Asia for that matter, has made it clear they intend to double, and double again their emissions,and again they are already the highest total emitters.

    North America should follow their lead, if they reduce total emissions then so should we as it is pointless to have minor emitters to do anything when huge emitters are still increasing.