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US Crude Production Exaggerated in Order to Keep Consumption High

By Kurt Cobb | Mon, 04 March 2013 22:50 | 2

The way the oil industry is touting gains in U.S. crude production, you would think that production is soaring to new all-time highs. But the facts say otherwise. Below is a monthly plot of U.S. crude oil production through December 2012.

US Field Production of Crude Oil 1

U.S. production remains well below the peak achieved in 1970 and below a secondary peak in 1985—a lower high, if you will—which resulted from the ramp-up of production in Alaska. But since then production has gone relentlessly downhill until just recently.

It is true that a new form of hydraulic fracturing—high-volume slick-water hydraulic fracturing—has made available sources of oil not previously accessible. But it is also true that the industry’s hyperbole doesn’t square with the evidence. The U.S. Energy Information Administration’s (EIA) latest estimate of technically recoverable oil from so-called tight oil deposits—the ones made accessible by this new type of hydraulic fracturing—is 33 billion barrels (see below). It sounds like a lot. But, in fact, it would only supply the United States for about 6½ years (assuming current net annual consumption of about 5.1 billion barrels). Not bad; but not a world-changing number, especially when you consider that all oil goes onto a world market where 33 billion barrels would last a little over a year. Beyond this, the estimate says little about how much of that oil will ever be economically recoverable. Wherever it isn’t, no one is going to extract it.

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US Technically Recoverable Tight Oil

But there is another column in the EIA table above that is worth focusing on, the one labeled “% of Area Untested.” We don’t yet actually know that much about the potential for the country’s tight oil (often mistakenly referred to as shale oil). In some areas drilling has only just begun, and in others there’s been no drilling at all.

There is reason to believe that things may not go as planned. In the areas already drilled, drillers have focused on a few sweet spots that have proven profitable. That makes perfect sense. But, it suggests that they must now venture beyond those sweet spots to find additional supplies from deposits that will be more refractory and thus more expensive and difficult to exploit. No one is certain how drillers will fare. But logic suggests that production growth will slow and then at some point stop—after which a production decline will begin in earnest.

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The EIA projects that U.S. oil production will peak later in this decade—a little below the previous secondary peak in 1985. That would result in a tertiary peak, or yet another lower high. In the meantime the extra supply promises to lower America’s bill for oil imports. But the modest turnaround in America’s oil fortunes won’t solve the larger problem of worldwide oil depletion which, despite American gains, has kept worldwide oil production on a bumpy plateau since 2005.

We live in a global oil market, and that market remains tight as is evidenced by an oil price hovering around $90 in the United States and $110 in Europe, the latter price being more representative of what most people pay.

For obvious reasons the oil industry doesn’t want us to think about weaning ourselves off oil anytime soon. They believe that if they can convince us that oil is abundant, we won’t even try. But oil prices have been telling us for almost a decade that supplies are much tighter than the industry is acknowledging. And, the facts about U.S. oil production tell us that if there is a revolution going on in American oilfields, it is only a minor one, and one that will soon be reversed.

That doesn’t leave us much time to prepare for a world in which oil supplies are almost certain to dwindle globally as the current plateau in worldwide production turns into a decline. And, that will be a problem for everyone including the United States, a country that remains the planet’s largest importer of crude oil.

By. Kurt Cobb

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  • DJ on March 05 2013 said:
    I hardly know where to start on this article but this has got to be one of the more negative articles on US oil production I have seen in a while.

    A few facts:

    China is now the largest importer of oil, not the US.

    Never in the history of the US has oil production surged so dramatically. Economic analysts, think tanks, brokerage firms, and the vast majority of people within the industry predict that we will exceed the 1985 high in production. This is without any extra drilling in the "government protected" lands both offshore and onshore that the current administration continues to keep off limits.

    Even your own chart shows that production has surged approx 100,000(thousand barrels)in less than 5 years. We are only approx. 70,000 (thousand barrels) away from exceeding the 1985 high.

    Quoting the EIA on just about anything regarding estimated amounts of production within the US is useless. The agency (agenda?) has been consistently below what has actually happened. Even now, they are predicting only 7.3 million bbl/d in 2013 and 7.8 million bbl/d in 2014. In December 2012, in the middle of winter, we produced 7.0 million bbl/d. The industry expects to be close to 8.0 million bbl/d to start 2014 which will average out higher than what they are predicting in 2013 and already exceed the average for 2014.
  • Kurt Cobb on March 05 2013 said:
    It's true that China is now the world's largest exporter, but that news came out after this piece was posted. Still, that makes the U.S. the second largest importer and only by a hair and only for one month so far.

    I'm not disputing that oil production is going up in the United States. My main points are two: First, there are constraints on how far the trend can go. These include ultra high production decline rates for fracked tight oil wells which is where all the growth in the supply is coming--around 40 percent per year for the average well; the industry's grossly exaggerated estimate on the number of possible well placements in the tight oil formations, almost twice what the EIA says is possible; and the assumption that the number of available personnel and rigs can grow geometrically every couple of years for year on end (to make up for the rapid production declines).

    Also, consider who is touting the tight oil boom as the cure to all that ails us: "Economic analysts" who are not specified though this frequently means analysts associated with Wall Street firms who stand to gain from their investment deals with the industry; unspecified "think tanks", perhaps many of the same ones that are paid by the industry to deny climate change; "brokerage firms" which are often affiliated with investment banks, but which in any case are trying to sell you the latest hot investment; and "the vast majority of people within the industry" which means there are doubters in the industry and I can tell you that there are plenty of them. But then what would you expect the oil industry to say to the public? In fact, each of these groups is really just the industry itself speaking through its paid spokesmen cleverly dressed as "analysts" and "think tank" experts.

    The one party that doesn't have a financial interest in this, the EIA, is somehow discounted when it is the mission of the EIA to provide objective advice to policymakers and not tout energy trends for profit.

    We have some interesting predictions here and perhaps they will come true. But the one thing DJ did not address is the one that is not in dispute. Despite the growth of fracking, the rate of worldwide production is stuck on a plateau. And, because U.S. production is growing that means that production in the rest of the world as a whole is DECLINING.

    If U.S. tight oil production is the only thing that's keeping the us from falling off a seven-year plateau in global oil production, then we are all in for a world of hurt when that production can no longer compensate for the decline in the rest of the world.

    I think that day is coming in this decade, and that's why I say we don't have long to prepare.

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