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The EIA Is Grossly Overestimating U.S. Shale

The prevailing wisdom that sees explosive and long-term potential for U.S. shale may rest on some faulty and overly-optimistic assumptions, according to a new report.

Forecasts from the U.S. Energy Information Administration (EIA), along with those from its Paris-based counterpart, the International Energy Agency (IEA), are often cited as the gold standard for energy outlooks. Businesses and governments often refer to these forecasts for long-term investments and policy planning.

In that context, it is important to know if the figures are accurate, to the extent that anyone can accurately forecast precise figures decades into the future. A new report from the Post Carbon Institute asserts that the EIA’s reference case for production forecasts through 2050 “are extremely optimistic for the most part, and therefore highly unlikely to be realized.”

The U.S. has more than doubled oil production over the past decade, and at roughly 12.5 million barrels per day (mb/d), the U.S is the largest producer in the world. That is largely the result of a massive scaling-up of output in places like the Bakken, the Permian and the Eagle Ford. Conventional wisdom suggests the output will steadily rise for years to come.

It is worth reiterating that after an initial burst of production, shale wells decline rapidly, often 75 to 90 percent within just a few years. Growing output requires constant drilling. Also, the quality of shale reserves vary widely, with the “sweet spots” typically comprising only 20 percent or less of an overall shale play, J. David Hughes writes in the Post Carbon Institute report. Related: The Rig Count Collapse Is Far From Over 

After oil prices collapsed in 2014, shale companies rushed to take advantage of the sweet spots. That allowed the industry to focus on the most profitable wells first, cut costs and scale up production. But it also pushed off a problem for another day. “Sweet spots will inevitably become saturated with wells, and drilling outside of sweet spots will require higher rates of drilling and capital investment to maintain production, along with higher commodity prices to justify them,” Hughes says in his PCI report.

In addition, this form of “high-grading” does allow for rapid extraction, but it doesn’t necessarily mean that more oil is ultimately going to be recovered when all is said and done.

The same might be true for all of the highly-touted productivity gains, Hughes says. The industry has boosted productivity by drilling longer laterals, intensifying the use of water and frac sand, as well as increasing the number of fracking stages. These productivity improvements are “undeniable,” Hughes writes.

However, the “limits of technology and exploiting sweet spots are becoming evident, however, as in some plays new wells are exhibiting lower productivities,” Hughes says. “More aggressive technology, coupled with longer horizontal laterals, allows each well to drain more reservoir area, but reduces the number of drilling locations and therefore does not necessarily increase the total recovery from a play—it just allows the resource to be recovered more quickly.”

Already, some shale plays have seen production plateau while others are in decline.

In short, Hughes says that of the 13 major shale plays analyzed in the PCI report, the EIA has “extremely optimistic” outlooks for nine of them. Of the remaining four, three of them are “highly optimistic,” and only one – the Woodford Play in Oklahoma – is ranked as “moderately optimistic.” Related: The Stage Is Set For Oil Price Volatility On November 18th

He notes that in some instances, the EIA’s forecasts are so optimistic that the production volumes exceed the agency’s own estimates for proven reserves plus unproven reserves. The EIA also assumes that every last drop of proven reserves is produced, along with a high percentage of unproven reserves by 2050.

“Although the ‘shale revolution’ has provided a reprieve from what just 15 years ago was thought to be a terminal decline in oil and gas production in the U.S.,” Hughes writes, “this reprieve is temporary, and the U.S. would be well advised to plan for much-reduced shale oil and gas production in the long term.”

Regardless of the geology, climate policy and waning investor interest will likely result in a lot of oil being left in the ground. Hughes says that the EIA’s figures are optimistic, even without considering any mandates to cut greenhouse gas emissions. “If U.S. energy policy actually reflected the need to mitigate climate change…the EIA’s forecasts for tight oil and shale gas production through 2050 make even less sense.”

By Nick Cunningham of Oilprice.com

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Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon.  More

Comments

  • Mamdouh Salameh - 13th Nov 2019 at 3:18am:
    It has been known for quite a while that the US Energy Information Administration (EIA) in cahoots with the International Energy Agency IEA), the Norwegian Consulting Group Rystad Energy and BP Statistical Review of World Energy have been hyping about the US shale oil potential and even telling untruths about breakeven prices, production figures, profitability and well productivity.

    Examples abound. Rystad Energy recently claimed that US has more recoverable oil reserves than either Russia or Saudi Arabia. And to add to the falsehood and the absurdity of the claim, both IEA and Rystad Energy claimed a year ago that US shale oil production in 2025 will be bigger that the combined production of both Russia and Saudi Arabia.

    According to the 2019 BP Statistical Review of World Energy, the US ranks 9th in terms of proven reserves behind Venezuela, Saudi Arabia, Canada, Iran, Iraq, Russia, Kuwait, and UAE.

    Their projections of explosive and long-term potential for US shale may rest on some faulty and overly-optimistic assumptions, according to a new report from the Post Carbon Institute. This is not new following in the footsteps of numerous authoritative reports and studies confirming a steep slowdown in US shale production even in the Permian which accounts for 60%-70% of all US shale oil production.

    Baker Hughes rig count is a pivotal indicator of the state of US shale oil production. Rig counts don’t lie. They tell the truth as it is on the ground.

    The fall of rig count in Texas and the fact that Texas is home of the Permian confirm a steep slowdown in US shale oil production and a lot of bankruptcies among US drillers.

    Also the claim by the EIA that US current oil production is 12.5 million barrels a day (mbd) is a simple lie. This figure includes natural gas liquids (NGLs) which come from natural gas wells as well as such gases as ethane, propane, butane and pentanes which may not qualify as crude oil and condensates in its crude oil count. Moreover, there is a difference ranging from 600,000 barrels a day (b/d) and 1 mbd between weekly and monthly EIA production figures. Taking both into consideration would reduce actual US shale oil production to under 10 mbd. This calculation destroys the myth that the US is the world’s largest crude oil producer.

    The US shale oil industry has never been profitable. If judged by the standard commercial criteria by which other companies are normally judged, it would have been declared bankrupt years ago. Still, it will be no more in 5-10 years.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • bob josephs - 13th Nov 2019 at 6:20pm:
    US production was 12.6 Million BPD crude & condensate and 4.679 million BPD of natural gas liquids

    This is what Dr Mamdouh G Salameh said around 15 years ago. This guy is consistently wrong.

    "This paper will argue that the sustained high oil prices since 2002 might be an early
    indication of a serious global supply-demand imbalance brought about by peak oil. It will
    also argue that all the characteristics of peak oil exist today. It will suggest that
    unconventional oil production may not be able to delay the decline in global oil production
    but could only ameliorate it. It will conclude that peak oil is not only a reality but is already
    impacting on oil prices, the world economy and the global energy security. The paper will
    warn that the days of inexpensive, convenient, abundant energy sources are quickly
    drawing to a close. "
  • Seth D - 16th Nov 2019 at 7:21pm:
    It is interesting that my comments are usually deleted by the moderator, while Mamdouh Salameh can pretty much write anything at all.

    Get this...

    It has been known for quite a while that the US Energy Information Administration (EIA) in cahoots with the International Energy Agency IEA), the Norwegian Consulting Group Rystad Energy and BP Statistical Review of World Energy have been hyping about the US shale oil potential and even telling untruths about breakeven prices, production figures, profitability and well productivity.
  • Carlos Evie - 19th Nov 2019 at 5:04pm:
    I spent 15 years in the Basin and was very active in all counties on the commercial side. One issue they are correct, is operators over-estimate their production in the future. Everyone wants to be positive about their business, so this is just an ingrain issue and not done on a basis to over-forecast.

    However the issue, which the author misses and Mr. Salameh does not address is that prior to the shale industry it was widely known that current technology was recovering 15-20% of oil in place. The estimates i have heard is that now with shale technology the industry is now recovering an additional 20% or oil still left in place is 55-65%.

    We have yet to introduce AI or artificial intelligence into the Permian or any other basin. When this occurs and improved other technology becomes available, i believe you will witness what might be the truly last boom that Midland/Odessa might see, but what a boom it will be!!!
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