Forecasts from the U.S. Energy Information Administration (EIA), along with
those from its Paris-based counterpart, the International Energy Agency (IEA), are often cited as the gold standard for energy outlooks.
Businesses and governments often refer to these forecasts for long-term
investments and policy planning.
In that context, it is important to know if the figures are accurate, to the
extent that anyone can accurately forecast precise figures decades into the
future.
A new report from the Post Carbon Institute asserts that the
EIA's reference case for production forecasts through 2050 "are extremely
optimistic for the most part, and therefore highly unlikely to be
realized."
The U.S. has more than doubled oil production over the past decade, and at
roughly 12.5 million barrels per day (mb/d), the U.S is the largest producer in
the world. That is largely the result of a massive scaling-up of output in
places like the Bakken, the Permian and the Eagle Ford. Conventional wisdom
suggests the output will steadily rise for years to come.
It is worth reiterating that after an initial burst of production, shale wells
decline rapidly, often 75 to 90 percent within just a few years. Growing output
requires constant drilling. Also, the quality of shale reserves vary widely,
with the "sweet spots" typically comprising only 20 percent or less
of an overall shale play, J. David Hughes writes in the Post Carbon Institute
report.
After oil prices collapsed in 2014, shale companies rushed to take advantage of
the sweet spots. That allowed the industry to focus on the most profitable
wells first, cut costs and scale up production. But it also pushed off a
problem for another day. "Sweet spots will inevitably become saturated
with wells, and drilling outside of sweet spots will require higher rates of
drilling and capital investment to maintain production, along with
higher commodity prices to justify them," Hughes says in his PCI report.
In addition, this form of "high-grading" does allow for rapid
extraction, but it doesn't necessarily mean that more oil is ultimately going
to be recovered when all is said and done.
The same might be true for all of the highly-touted productivity gains, Hughes
says. The industry has boosted productivity by drilling longer laterals,
intensifying the use of water and frac sand, as well as increasing the number
of fracking stages. These productivity improvements are "undeniable,"
Hughes writes.
However, the "limits of technology and exploiting sweet spots are becoming
evident, however, as in some plays new wells are exhibiting lower
productivities," Hughes says. "More aggressive technology, coupled
with longer horizontal laterals, allows each well to drain more reservoir area,
but reduces the number of drilling locations and therefore does not necessarily
increase the total recovery from a play—it just allows the resource to be
recovered more quickly."
Already, some shale plays have seen production plateau while others are in decline.
In short, Hughes says that of the 13 major shale plays analyzed in the PCI
report, the EIA has "extremely optimistic" outlooks for nine of them.
Of the remaining four, three of them are "highly optimistic," and
only one - the Woodford Play in Oklahoma - is ranked as "moderately optimistic."
He notes that in some instances, the EIA's forecasts are so optimistic that the
production volumes exceed the agency's own estimates for proven reserves plus
unproven reserves. The EIA also assumes that every last drop of proven reserves
is produced, along with a high percentage of unproven reserves by 2050.
"Although the 'shale revolution' has provided a reprieve from what just 15
years ago was thought to be a terminal decline in oil and gas production in the
U.S.," Hughes writes, "this reprieve is temporary, and the U.S. would
be well advised to plan for much-reduced shale oil and gas production in the
long term."
Regardless of the geology, climate policy and waning investor interest will
likely result in a lot of oil being left in the ground. Hughes says that the EIA's
figures are optimistic, even without considering any mandates to cut greenhouse
gas emissions. "If U.S. energy policy actually reflected the need to
mitigate climate change...the EIA's forecasts for tight oil and shale gas
production through 2050 make even less sense."
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