I’ve been watching the EIA’s Drill productivity reports for a couple of months now and they do hint at a slowdown in US shale oil and shale gas production.
Certainly it has to be said that over the last year the overall figures show production is up for gas, although down slightly for oil. However as figure 1 shows this represents drops in older legacy fields being replaced by new production in less mature fields. But in some cases the rate of replacement lags behind the rate of decline, hence why production from some fields is now down and oil is now down overall.
Figure 1: Overall production changes for various shale oil & gas fields [Source: EIA, August 2016]
One of the issues with shale oil and shale gas fields is that production rates tend to tail off much more rapidly than with a conventional oil or gas field. Often there’s a need to perform further fracking on the field at regular intervals to maintain production. So a drop in the rig count in many parts of the US would probably be the explanation for this tailing off of older fields. And of course it implies that once the younger fields complete their current growth spurt, they too will enter into decline.
Figure 2: US rig count [Source: Peakoilbarrel.com, Feb 2016, Based on EIA data]
Indeed the situation becomes more stark when we look at the rate of change in production by field over the last year (figure 3). Looking at individual fields (figure 4) we can see there are signs that some of America’s major shale oil and shale gas basins have already peaked and are starting to enter into a state of decline.
Figure 3: Change in production output of Shale oil & gas fields [Source: EIA, August 2016]
Now, lets not get ahead of ourselves. Oil production rates do go up or down, few fields or regions show a constant upwards trend throughout their entire lives. And with oil prices so low its hardly surprising output is falling. If oil companies are already losing money on shale oil and shale gas plays, why throw good money after bad just so you can drive down prices even further? Some production growth may emerge in future, but it would require much higher prices. Of course if prices go too high, that risks an economic slow down and a fall in demand. And ultimately its clear that there is a natural limit to year on year production from shale gas and shale oil sources, which we might not be very far from exceeding.
Figure 5: US oil basins overall trend from year of first flow to April 2016 [Source: Shaleprofiles.com 2016]
Consider that even all of America’s unconventional oil production is only about 4 million barrels/day, while US oil consumption is closer to 16 million bbl/day. So while yes shale oil is doing a lot better than many would have thought was possible, its still not good enough. America is a long way from self sufficiency. And if current trends continue this could well be the high point of shale oil production.
The best case scenario now for the shale oil and gas industry is for something to happen that would make oil and gas prices go up. One could even present a case for carbon taxes as being pro-shale industry. Given that gas generates less carbon emissions than coal (well on paper anyway, some research would dispute these claims), it would probably benefit from any decline in coal production. Higher oil and gas prices would mean more drilling, although yes in the long run it would mean them going out of business.
But certainly what these trend do demonstrate is that Shale oil and shale gas are not the infinite horn of plenty that its long been argued they represent.