The U.S. could “drown the world in oil” over the next decade, which, according to Global Witness, would “spell disaster” for the world’s attempts to address climate change.
The U.S. is set to account for 61 percent of all new oil and gas production over the next decade. A recent report from this organization says that to avoid the worst effects of climate change, “we can’t afford to drill up any oil and gas from new fields anywhere in the world.” This, of course, would quickly cause a global deficit, as the world continues to consume around 100 million barrels per day (bpd) of oil.
Global Witness notes that the industry is not slowing down in the United States, notwithstanding recent spending cuts by independent and financially-strapped oil and gas firms. If anything, the consolidation in the Permian and other shale basins, increasingly led by the oil majors, ensures that drilling will continue at a steady pace for years to come.
It isn’t as if the rest of the world is slowing down either. The global oil industry is set to greenlight $123 billion worth of new offshore oil projects this year, nearly double the $69 billion that moved forward last year, according to Rystad Energy. In fact, while shale drilling has slowed a bit over the past year amid investor skepticism and poor financial returns, offshore projects have begun to pick up pace.
But that trend might turn out to be just a blip. The U.S. is still expected to account of the bulk of new drilling and the vast majority of new production, with much of that coming from shale. Already, the U.S. is the world’s largest producer of both oil and natural gas. And the pace has accelerated in recent years. In 2018, U.S. oil and gas production increased by 16 and 12 percent, respectively. According to the EIA, the U.S. surpassed Russia in terms of gas production in 2011, claiming the top spot, and it surpassed Saudi Arabia in oil production last year.
Going forward, new production from the U.S. will be eight times larger than the next largest source of growth, which is Canada. In fact, the U.S. will add 1.5 times more oil and gas than the rest of the world combined, according to Global Witness. Related: U.S. Is Now Largest Oil… And Gas Producer In The World
But because so much drilling in the U.S. is concentrated in a few areas, individual U.S. states on their own tower over the rest of the world. If Texas were a country, it would account for the most new oil and gas production in the world. Between 2020 and 2029, Texas could account for 28 percent of all additional output, Global Witness says.
Canada and Pennsylvania tie for second and third with 7 percent each. Then comes New Mexico at 5 percent of the growth and North Dakota at 4 percent. Oklahoma, Brazil, Colorado, Russia and Ohio are all tied at 3 percent a piece.
In other words, 7 out of the top 10 sources of new oil and gas production globally over the next decade are U.S. states.
“If things don’t change, by the end of the next decade, new oil and gas fields in the US will produce more than twice what Saudi Arabia produces today,” Global Witness said in its report.
This presents a massive challenge. “To avoid the worst impacts of climate change, our analysis shows that global oil and gas production needs to drop by 40% over the next decade. Yet, instead of declining, US oil and gas output is set to rise by 25% over this time, fueled by expansion in new fields,” the report warned.
By Nick Cunningham of Oilprice.com
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Ryan Duman, principal analyst with Wood Mackenzie’s Lower 48 upstream team, said, “The challenges of modeling tight well estimated ultimate recoveries are growing, and accurately selecting a representative terminal decline rate is not always straightforward. It may have been historically, but using those assumptions for today’s Wolfcamp wells in the Permian may contribute to inaccurate volume assessments and valuations.”
The study found that, after five years of production, the most active Wolfcamp subplays have annual decline rates roughly double the proxy value of 5% to 10% that is commonly used. The most common terminal decline value actually observed in mature horizontal Wolfcamp wells was 14%.
The report analyzed the impact of the more plausible terminal decline rates and found that under a 14% terminal decline scenario, the near-term impact to total Permian supply is relatively minimal, but by 2040 nearly 800,000 bbl/day of Permian production is at risk.
“The most significant risk associated with this error could sit with investors looking to purchase assets with a significant proportion of existing producers,” Mr Duman said. “To date, the bulk of Permian M&A (merger and acquisition) activity has targeted undeveloped tight oil acreage, but we are starting to see more developed properties transact. In the past two years alone, 16 of the largest Permian deals, totaling almost $2 billion, have involved what we classified as mid-life or late-life assets.”
The impact of accelerated declines will be hardest felt by companies trying to grow within a constrained capital budget. As mature wells contribute less and less, more drilling is needed to maintain growth. This will affect future finding and development costs, cash flow and residual present value as the tight oil projects mature.
Mr Duman said, “Operators with the smallest projected cash flow deficit – that is, more established players – may fare the worst in regard to present value erosion because they have more mature wells in their portfolio today and could have exhausted a larger portion of ultra-low-cost drilling locations.”
He added, “If shale plays are classified as drilling treadmills, the Permian treadmill could actually be set on an incline.”
Global Witness, the source of this article, is a propaganda arm of George Soros' Open Society. Just look at their donor report. Their funding is almost exclusively from Soros and the Omidyar Network. They also took donations from the Tides Foundation, which has numerous links to actual convicted terrorists.
Not sure the assumption of "no change" works, as per other posted comments.
In the grand scheme of things, burning fossil fuel is barely a blimp in our planet's history. Burning what came out of shale formations might be missed altogether.
Perspective is everything when it comes to using and appreciating precious resources.
Over 9 months ago my engineer friends where already telling me very negative data on production rates, employee losses, service company closings, and the real metrics that they were incurring in shale. All of us see US production soon collapsing across most basins and even the Permian might have peaked. This will be the story soon and it will have broad implications on supply and prices.
One trend I myself have encountered is shale drillers trying to acquire conventional production (vertical) that will mitigate their company&#039;s overall declines. It&#039;s a pretty smart move and will add long life reserves versus their short life shale EUR&#039;s.
In sum, the world is not going to drown in oil. That statement reminds me of Goldman in 2014 forecasting a base WTI of $120 forever. We know how well that turned out.