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Ross McCracken

Ross McCracken

Ross is an energy analyst, writer and consultant who was previously the Managing Editor of Platts Energy Economist

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The IEA’s Search For A New Narrative Of Doom

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The International Energy Agency (IEA) released its Oil 2019 report March 11, providing forecasts to 2024. The IEA paints an extraordinary picture of transition for the oil industry, but it is not the ‘energy transition’ driven by climate change; the impacts on the oil market of policies designed to mitigate climate change appear relatively weak over the next five years. The seismic changes illustrated by the IEA are those wrought by the US shale industry.

The IEA’s former narrative on US shale was that once it had burst upon the scene it would eventually burn itself out in the mid-2020s. The sweet spots would be exhausted, marginal costs would rise as oil became harder to locate, and more oil would constantly have to be found to replace the level of decline from wells drilled during the expansionary phase, eventually making it impossible to sustain growth – essentially the classic path of a conventional oil basin.

To a large extent this story remains in place, but it is also clearly under constant re-evaluation, the problem being that the depth and longevity of US shale is not known and remains a function of price and productivity – which means the ultimate recoverable reserve should be treated as elastic rather than finite.

If a bell curve in the style of Marion King Hubbert were used to predict US shale oil production, 2018’s mammoth expansion would have moved the predicted peak higher and further back in time, resulting in a significantly larger area representing the total volume of recovery.

This is shown by the IEA’s forecast for total North American liquids production, which is expected to reach 26.9 million b/d in 2024, 800,000 b/d higher than that forecast for 2025 under the IEA’s New Policy Scenario in its 2018 World Energy Outlook published only last November. This sizeable revision underlines that it is still too early to treat US shale as a conventional oil basin.

A second major uncertainty, stemming from the IEA’s focus on oil in this report, is the linkage between oil and gas production, which complicates any assessment of shale’s marginal economics.

According to the IEA, by 2024, shale oil will be by far the largest component of US liquids production at just below 10 million b/d, but second to that will be the expansion of Natural Gas Liquids (NGLs), which will reach some 5.5 million b/d, much of which is the product of natural gas processing.

The…




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