How Long Can the U.S. Oil Boom Last?
The long-term problem for oil frackers isn't just low prices. It's
National Geographic (http://news.nationalgeographic.com/)
Published December 19,
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 (http://ngm.nationalgeographic.com/2013/03/bakken-shale-oil/dobb-text)
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
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
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 (http://www.eia.gov/forecasts/aeo/er/executive_summary.cfm),
a level close to 1970's historic high and nearly as high as the
9.6 million barrels of daily oil production from Saudi Arabia. (http://www.eia.gov/countries/cab.cfm?fips=SA)
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 (http://www.eia.gov/energy_in_brief/article/foreign_oil_dependence.cfm),
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.
The U.S. Department of Energy reports a growing surplus of domestic
Because of all these
factors, oil prices that regularly reached more than $100 per barrel
the past three years (http://www.washingtonpost.com/opinions/why-we-missed-the-oil-price-crash/2014/12/05/d1fbf552-7a57-11e4-9a27-6fdbc612bff8_story.html)
have dropped about 40 percent to $60 or below.
On December 10 the Energy Department projected an average price
of $63 per barrel for West Texas intermediate crude for all of 2015.
In late November, gasoline prices in the U.S. fell to five-year
Breaking Even With Fracking
Fracking oil or gas from
mile-deep shales is expensive:
It requires deep vertical and horizontal drilling (http://education.nationalgeographic.com/education/media/how-hydraulic-fracturing-works/?ar_a=1)
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 (http://www.climatecentral.org/news/fracking-the-usa-maps-show-americas-1.1-million-oil-and-gas-wells-17226)
exist in the U.S.
With oil prices down,
so are profits.
Recent analysis by Scotiabank estimates that frackers need $69 per
barrel of oil (http://blogs.wsj.com/moneybeat/2014/12/01/morning-moneybeat-oils-crash-creating-winners-and-losers/)
to make money.
One oil executive quoted in the Economist (http://www.economist.com/news/finance-and-economics/21635505-will-falling-oil-prices-curb-americas-shale-boom-bind)
said he can cope as long as the oil price is above $50.
Another said the industry is "not healthy" below $70.
that the "dirty secret" of the shale oil boom is that
it may not last. (http://www.businessweek.com/articles/2013-10-10/u-dot-s-dot-shale-oil-boom-may-not-last-as-fracking-wells-lack-staying-power)
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."
Saudi Arabia remains the world's largest oil producer.
Known Middle East oil reserves are vastly bigger than U.S. oil shale
While low prices may
only temporarily throttle expansion of oil fracking, the underlying
geologydeeply buried shale rock that contains diffuse hydrocarbons
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 (http://www.iea.org/publications/freepublications/publication/WEO_2014_ES_English_WEB.pdf)
"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. (http://www.eia.gov/forecasts/aeo/er/executive_summary.cfm)
The basis for these forecasts
are estimates of shale oil reserves.
A 2013 Energy Department report on technically recoverable shale
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. (http://www.eia.gov/tools/faqs/faq.cfm?id=33&t=6)
The Energy Department's
estimate of "proved reserves" of shale oilthose
that can be recovered economically todayis only about ten
billion barrels (http://www.eia.gov/naturalgas/crudeoilreserves/).
That's about a sixth of technically recoverable reserves, and less
than a year and a half's worth of current consumption.
Proved reserves include all currently known U.S. oil shale resources-North
Dakota Bakken, Texas Eagle Ford, Colorado and Nebraska Niobrara,
Texas Barnett, and others.
In contrast, the proved
from just three Middle East nationsSaudi Arabia, Kuwait, and
the United Arab Emiratestotal more than 460 billion barrels.
That's 46 times U.S. shale oil reserves, and more than 12 times
the total U.S. oil reserves. (http://www.eia.gov/naturalgas/crudeoilreserves/)
Those estimates help
explain why the IEA projects the Middle East as "the major
source of future supply growth," long after the U.S. shale
oil boom has run its course.
Price is important, but whether oil exists at all is even more so.
Dennis Dimick serves
as National Geographic's executive editor for the environment.
You can follow him on Twitter, (https://twitter.com/ddimick) Instagram
(http://instagram.com/ddimick), and flickr. (https://www.flickr.com/photos/ddimick/sets/72157629650550643/)