Debunking America’s Energy Fantasy: Shale Gas and Tight Oil Peak in Next Decade

We’ve written from time to time on how reports of America’s coming energy independence and continuing access to lots of affordable domestic shale gas and oil are based on studies that more careful geological work have demonstrated to be optimistic, and by a large margin. We’ve repeatedly pointed out, for instance, that shale gas production will peak in 2020 and decline gradually for a few years after that, then tail off more rapidly.

Oil and gas expert Arthur Berman gave a detailed talk last month about hype versus reality as far as the outlook for US shale gas and oil production is concerned (hat tip Pwelder). The presentation is followed by Q&A with geologists, so the level of discourse is higher than what you typically see.

Since the presentation is long, I’ve also embedded the slides. A quick and dirty way to get much of the content is to read the slides, and then zero in on the sections that interest you, or just listen to the Q&A, which starts is at 1:08.

Some key points from Berman’s remarks:

The US is a much smaller player, in global terms, than the cheerleading would have you believe

The EIA (which if anything has a bullish bias) projects that US oil production will peak in 2016

Shale gas production is falling for all US plays except Marcellus, and that is estimated to peak in 2020

LNG export is a bad idea; the US can’t compete with Russian prices

He also has a long and intriguing discussion of how ZIRP and financialization have played into what he calls “the beautiful story”. And he’s not terribly optimistic about the prospects for US shale gas operators: “a lot of these companies are toast….There’s not a nice, easy solution to this.”


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  1. Pepsi

    I wonder if there’s a way to link the “America needs energy independence” rhetoric of the early 2000s directly to fracking kingpins. There has to be a record of some foundation paying a pr firm at some point.

      1. Carla

        Please don’t leave out the crooks who call themselves Democrats, or you’ll miss the forest for the trees.

    1. wbgonne

      I think you are right. This — like most efforts by the corporatocracy today — was long-planned, well-thought, and brilliantly executed. Soften the marks with years of propaganda, buy off the politicians, draft the requisite legislation, then move with lightening speed to make the practice a reality so no one can object without being a job-killer.

      But really? All this destruction for 20 years of profiteering? Who is going to pay for the cleanups when the frackers dissolve into bankruptcy with their blood money hidden away in St. Kitts?

      1. jrs

        Well energy independence can sell well if you know (oh and deep down everybody knows) that we’ve been engaging in long draining pointless wars for oil. It can seem a good alternative. Not that energy independence on fossil fuels ever was anything but a pipe dream of course (I’m not saying *I* fell for it).

        And job killing can sell if all real jobs were outsourced etc.. Then it’s put up with anything for the promise of jobs (but never blame the people that led to this situation of desperation in the first place).

  2. Plutoniumkun

    Fantastic presentation – Berman (for those who haven’t been following the tracking story in detail) has been proven correct over and over again for the past decade or so. It really is depressing how easy it is to sell an optimistic story if it suits people in power. The amount of resources that will have been squandered in the oil and gas business in staggering, and might well precipitate the next crash.

  3. Rosario

    This presentation was less a warning to investors in fracking and more a call to investment in renewables and energy storage technology. Particularly while we still have the fossil fuels to subsidize the very expensive transition. Also, it was never completely clear who he is presenting to. Are they petroleum geologists? Industry insiders? Not that they would listen, but he needs to present this to congress.

  4. kevinearick

    Bridge Tokens

    Engineers are not hired to be creative, although they very well may be. Radio access is no accident.

    If you had a fifty yard advantage in the hundred yard dash, would you protect it and have a party for the winner? How many steps did Jordan get, and how far have blacks as a group, at the back end of the FILO bankruptcy queue, actually travelled?

    The false assumption is the rate, that everyone is in a competition to reach the same destination, artificial scarcity, only to repeat the stupidity, indefinitely. Technology is a derivative of science, which in the empire is a derivative of the gravitational side of nature, what the self-interested observer sees.

    Technology is always employed to drive rents relative to wages, driving income inequality and war, The Rich Get Richer & The Poor Get Prison. Seeking equal rights and affirmative action to bankruptcy isn’t a very bright idea.

    Look at all the ‘economic activity’ created by artificial oil volatility in the last business cycle, which is now on the other side of the fulcrum, with a net jump in retail price, to increase consumer confidence ahead of a rate hike titration relative to Europe, and out comes the weapons, surprise. Medicinal pot on Miracle Growth peddled as organic is more of the same.

    Elton John is a great talent, but I am not going to bet the farm on a homosexual, even if the person is my own son or daughter. Similarly, I am not going to give my children an advantage beyond genetic breeding. If anything, I am going to have higher expectations.

    Unions have a bad rap, for very good reasons, but they are what you choose to make of them, employing gravity. Of course others will demand an equal right to your production, without taking the risk, just as many unions have become feudal themselves, all in fear of being left behind, so they go nowhere, faster and faster.

    Domestic males have been leaving the labor force since the 50s, replaced by females and immigrants, females have been leaving since the 90s, and now immigration is drying up to the least skilled, as declining natural resources become obvious. The empire ponzi depends upon demographic acceleration, but the beneficiaries only mimic unions, hence the Clintons.

    You have had a complete business cycle to prepare your work experience, education, mechanical aptitude, and motivational profile, turning subjective measures into objective measures. Yes, the gravitational system that most see is an entirely rigged game, but that doesn’t mean that what the majority sees is the universe.

    America may or may not have run its course, but regardless of where you are on this planet, you will find opportunity if you look, where others do not, and prepare accordingly. Don’t waste your time fighting over the past, expecting to see the future, which somebody actually has to build, because God isn’t going to do it for you.

    The jobs with earning power remaining are few and far between, but there are fewer who are serious about raising children. Any moron can hand kids over to the peer pressure of empire. Make no mistake; the crowd employs the bully, to avoid responsibility for ganging up against your children, and is surprised when the dog turns on its owner.

    Feudalism is only The Imperative for empire, common noise. Because it is separated into public, private and non-profit corporations, with politicians separated into executive, legislative and judicial branches with majority vote, all filtered through public education for the purpose of ensuring misdirection, doesn’t make America an exception to the empire rule of natural resource discharge.

    The Fed replaced labor with a machine, as mandated by Congress, and is measuring the efficiency of the replacement, to confirm supply-side economics, the arbitrary redistribution of debt, brilliant. Whether Ferguson is the chicken or the egg is irrelevant, as is monetary and fiscal policy. It’s still zero time, inside the mirror. Don’t let the misdirection fool you.

  5. WorldisMorphing

    [“A quick and dirty way to get much of the content is to read the slides, and then zero in on the sections that interest you, or just listen to the Q&A, which starts is at 1:08. “]

    Not a good idea. Watch the whole thing.
    The only disappointment is that this guy is too cool to wear a tie…but he wears one.
    Anyway, thanks a lot Yves; this has been added to my YouTube treasure trove of favorite videos.

  6. Thor's Hammer

    Meanwhile in the real world:

    “A hundred years from now, humans may remember 2014 as the year that we first learned that we may have irreversibly destabilized the great ice sheet of West Antarctica, and thus set in motion more than 10 feet of sea level rise.
    Meanwhile, 2015 could be the year of the double whammy — when we learned the same about one gigantic glacier of East Antarctica, which could set in motion roughly the same amount all over again. Northern Hemisphere residents and Americans in particular should take note — when the bottom of the world loses vast amounts of ice, those of us living closer to its top get more sea level rise than the rest of the planet, thanks to the law of gravity.
    The findings about East Antarctica emerge from a new paper just out in Nature Geoscience by an international team of scientists representing the United States, Britain, France and Australia. —– ”

  7. Oil Dusk

    As someone that co-authored a novel on Peak Oil almost a decade ago when the US was building LNG import terminals, I have a personal justification to wish that what Arthur Berman is saying is accurate and reasonable. Unfortunately, it is neither.
    Here are some of the key misrepresentations from this talk:
    (1) Arthur Berman’s focus on “proven” reserves is deliberately misleading. The SEC determines that proven reserves are mostly limited to five year periods:

    In other words, it doesn’t matter if a company has 2,000 drilling opportunities. They can only book as “proven reserves” the ones that they can drill in the next five years. Here’s a link that describes some of these administrative issues:

    When you look the actual volume of reserves in the US, you get a much different picture:

    This page shows 665 tcf of technically recoverable shale gas reserves in the United States.

    (2) His discussion about the silliness of exporting crude oil has little to do with whether the US will produce more than we export. The law that restricts the export of crude oil in the United States is an outdated law from the 70’s that restricts who US producers can sell their oil to. While the West Texas Intermediate grade of oil is a better quality oil than Brent, it’s been facing a $10 differential recently. This means that if US producers could sell their oil directly to a European refinery instead of a US refinery, this differential would go away. Why allow OPEC to sell their oil at a $10 higher oil price than US producers can receive? Living with this law and the current strength of the US dollar is imposing a great deal more misery on US oil companies than is necessary?

    (3) His whole suggestion that the capital investment in oil and gas is a “Ponzi scheme” incapable of generating positive cash flow is completely mistaken. While it is difficult for many oil and gas companies to make sufficient money to pay for their costs of investment at these prices, these prices are very unlikely to persist and the technology for drilling and fracking oil and gas wells has gotten better and better. At $80 a barrel, which is probably a reasonable crude oil price for the next five years, the more marginal reservoirs will not be economic, but a large portion will be. Arthur’s technical assertions on the productivity of shale oil and shale sands has not kept up what is really happening in the industry. Once oil prices recover to more normal levels, these companies will do quite well financially.

    (4) The Marcellus and Utica are the natural gas gorillas in the United States. The reason that companies aren’t drilling the Haynesville or Eagle Ford dry gas wells these days is that their costs are higher than the ones in the northeastern United States. The low natural gas prices facing our industry are a function of wonderfully productive wells that enable us to both displace coal production for electricity and export natural gas to other countries. While oil prices will likely return to the $80 a barrel level within the next few years, natural gas prices in the US will likely stay low for some time. Even so, exploration and production companies that guessed right and have these productive reservoirs in their inventory, will likely do very well. The other reservoirs will eventually be tapped, but it may take decades before they become the most economic opportunities available.

    So, the good news is that the sky is not falling and there is no gross industry fraud in progress.

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