How Long Can the U.S. Oil Boom Last?
The long-term problem for oil frackers isn't just low prices.
It's low reserves.
Published December 19, 2014
Now that oil prices have
dropped to levels not seen since 2009, helped by a flood of oil
flowing from hydraulic fracturing or fracking wells in North Dakota
and Texas, it's time to ask the question:
How long can the U.S. oil boom last?
In the short term,
the price drop threatens profits from fracking, which is more
expensive than conventional drilling.
Sure enough, permit applications to drill oil and gas wells in the
U.S declined almost 40 percent in November.
But in the long term,
the U.S. oil boom faces an even more serious constraint:
Though daily production now rivals Saudi Arabia's, it's coming
from underground reserves that are a small fraction of the ones
in the Middle East.
That geologic reality
is easy to forget in the euphoria of the boom.
Output from oil fracking in the U.S. , from about one million barrels
per day in 2010 to more than three million barrels per day at the
end of 2013.
Total U.S. oil production has risen to more than nine million
barrels a day, a level close to 1970's historic high and nearly
as high as the 9.6 million barrels of daily oil production from
Years of oil prices above $100 per barrel have driven a boom
in oil production from shale, providing thousands of oil field jobs
and boosting U.S. production to near-record levels.
While the U.S. still
relies on imports for about 40 percent of its petroleum, oil imports
have dropped since 2005 because of improved domestic supply from
oil fracking, better vehicle fuel efficiency, and depressed fuel
demand as a result of the 2008 economic crash.
Because of all these factors, oil prices that regularly reached
more than $100 per barrel the past three years have dropped
about 40 percent to $60 or below.
Breaking Even With
Fracking oil or gas from
mile-deep shales is expensive:
It requires deep vertical and horizontal drilling and injections
of chemicals, sand, and water at high pressure.
Until now, high oil prices have nonetheless made fracking a lucrative
More than a million fracked oil or gas wells exist in the U.S.
With oil prices down,
so are profits.
that the "dirty secret" of the shale oil boom is that
it may not last.
Fracked wells are short-lived, with a well's output typically
declining from more than 1,000 barrels a day to 100 barrels in just
a few years.
New wells must be drilled frequently to maintain production.
While wells currently
pumping can survive low market prices because they have already
incurred startup and drilling costs, low oil prices diminish
the incentive to invest in new well investments.
Of course, as Michael
Webber of the University of Texas at Austin told the New York Times,
price fluctuations are part of a repeating cycle in the oil business
over the past century.
No one thinks the current low prices are permanent.
"This is what
commodity markets do," Webber said.
"They go to high price, and high price inspires new production
and also inspires consumers to use less.
After a couple of years of that, prices collapse.
Then low prices inspire consumers to consume more and encourage
suppliers to turn off production.
Then you get a supply shortage and prices go back up."
While low prices may
only temporarily throttle expansion of oil fracking, the underlying
geologydeeply buried shale rock that contains diffuse hydrocarbons
looms as a more fundamental limit on fracking's future.
Recent projections indicate that by decade's end or a few years
after, U.S. oil production from fracking will likely flatten out
as supplies are depleted.
oil market in the short-term should not disguise the challenges
that lie ahead," International Energy Agency (IEA) chief economist
Fatih Birol said in releasing the IEA's 2014 World Energy Outlook.
The IEA report projects
that U.S. domestic oil supplies, dominated by fracking, will begin
to decline by 2020.
"As tight oil output in the United States levels off, and
non-OPEC supply falls back in the 2020s," the report says,
"the Middle East becomes the major source of supply growth."
Earlier this year the
U.S. Energy Information Agency (EIA) also forecast a plateau in
U.S. oil production after 2020.
The basis for these forecasts
are estimates of shale oil reserves.
A 2013 Energy Department report on technically recoverable shale
oilthe amount that's recoverable without regard to costputs
U.S. potential at 58 billion barrels.
That's equivalent to a little more than eight years of U.S. consumption
at the current rate of almost 19 million barrels a day.
The Energy Department's
estimate of "proved reserves" of shale oilthose
that can be recovered economically todayis only about ten
That's about a sixth of technically recoverable reserves, and less
than a year and a half's worth of current consumption.
Price is important, but whether oil exists at all is even more
( 19/12/2014 )
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