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Shale, the Last Oil and Gas Train: Interview with Arthur Berman

Shale, the Last Oil and Gas Train: Interview with Arthur Berman.

By James Stafford | Wed, 05 March 2014 23:20 | 10

How much faith can we put in our ability to decipher all the numbers out there telling us the US is closing in on its cornering of the global oil market? There’s another side to the story of the relentless US shale boom, one that says that some of the numbers are misunderstood, while others are simply preposterous. The truth of the matter is that the industry has to make such a big deal out of shale because it’s all that’s left. There are some good things happening behind the fairy tale numbers, though—it’s just a matter of deciphering them from a sober perspective.

In a second exclusive interview with James Stafford of Oilprice.com, energy expert Arthur Berman discusses:

•    Why US gas supply growth rests solely on Marcellus

•    When Bakken and Eagle Ford will peak
•    The eyebrow-raising predictions for the Permian Basin
•    Why outrageous claims should have oil lawyers running for cover
•    Why everyone’s making such a big deal about shale
•    The only way to make the shale gas boom sustainable
•    Why some analysts need their math examined
•    Why it’s not just about how much gas we produce
•    Why investors are starting to ask questions
•    Why new industries, not technologies will make the next boom
•    Why we’ll never hit the oil and gas ‘wall’
•    Why companies could use a little supply-and-demand discipline
•    Why ‘fire ice’ makes sense (in Japan)
•    Why the US crude export debate will be ‘silly’

Arthur is a geological consultant with thirty-four years of experience in petroleum exploration and production. He is currently consulting for several E&P companies and capital groups in the energy sector. He frequently gives keynote addresses for investment conferences and is interviewed about energy topics on television, radio, and national print and web publications including CNBC, CNN, Platt’s Energy Week, BNN, Bloomberg, Platt’s, Financial Times, and New York Times. You can find out more about Arthur by visiting his website: http://petroleumtruthreport.blogspot.com

Oilprice.com: Almost on a daily basis we have figures thrown at us to demonstrate how the shale boom is only getting started. Mostly recently, there are statements to the effect that Texas shale formations will produce up to one-third of the global oil supply over the next 10 years. Is there another story behind these figures?

Arthur Berman: First, we have to distinguish between shale gas and liquids plays. On the gas side, all shale gas plays except the Marcellus are in decline or flat. The growth of US supply rests solely on the Marcellus and it is unlikely that its growth can continue at present rates. On the oil side, the Bakken has a considerable commercial area that is perhaps only one-third developed so we see Bakken production continuing for several years before peaking. The Eagle Ford also has significant commercial area but is showing signs that production may be flattening. Nevertheless, we see 5 or so more years of continuing Eagle Ford production activity before peaking. The EIA has is about right for the liquids plays–slower increases until later in the decade, and then decline.

The idea that Texas shales will produce one-third of global oil supply is preposterous. The Eagle Ford and the Bakken comprise 80% of all the US liquids growth. The Permian basin has notable oil reserves left but mostly from very small accumulations and low-rate wells. EOG CEO Bill Thomas said the same thing about 10 days ago on EOG’s earnings call. There have been some truly outrageous claims made by some executives about the Permian basin in recent months that I suspect have their general counsels looking for a defibrillator.

Recently, the CEO of a major oil company told The Houston Chronicle that the shale revolution is only in the “first inning of a nine-inning game”. I guess he must have lost track of the score while waiting in line for hot dogs because production growth in U.S. shale gas plays excluding the Marcellus is approaching zero; growth in the Bakken and Eagle Ford has fallen from 33% in mid-2011 to 7% in late 2013.

Oil companies have to make a big deal about shale plays because that is all that is left in the world. Let’s face it: these are truly awful reservoir rocks and that is why we waited until all more attractive opportunities were exhausted before developing them. It is completely unreasonable to expect better performance from bad reservoirs than from better reservoirs.

The majors have shown that they cannot replace reserves. They talk about return on capital employed (ROCE) these days instead of reserve replacement and production growth because there is nothing to talk about there. Shale plays are part of the ROCE story–shale wells can be drilled and brought on production fairly quickly and this masks or smoothes out the non-productive capital languishing in big projects around the world like Kashagan and Gorgon, which are going sideways whilst eating up billions of dollars.

None of this is meant to be negative. I’m all for shale plays but let’s be honest about things, after all!  Production from shale is not a revolution; it’s a retirement party.

OP: Is the shale “boom” sustainable?

Arthur Berman: The shale gas boom is not sustainable except at higher gas prices in the US. There is lots of gas–just not that much that is commercial at current prices. Analysts that say there are trillions of cubic feet of commercial gas at $4 need their cost assumptions audited. If they are not counting overhead (G&A) and many operating costs, then of course things look good. If Walmart were evaluated solely on the difference between wholesale and retail prices, they would look fantastic. But they need stores, employees, gas and electricity, advertising and distribution. So do gas producers. I don’t know where these guys get their reserves either, but that needs to be audited as well.

There was a report recently that said large areas of the Barnett Shale are commercial at $4 gas prices and that the play will continue to produce lots of gas for decades. Some people get so intrigued with how much gas has been produced and could be in the future, that they don’t seem to understand that this is a business. A business must be commercial to be successful over the long term, although many public companies in the US seem to challenge that concept.

Investors have tolerated a lot of cheerleading about shale gas over the years, but I don’t think this is going to last. Investors are starting to ask questions, such as: Where are the earnings and the free cash flow. Shale companies are spending a lot more than they are earning, and that has not changed. They are claiming all sorts of efficiency gains on the drilling side that has distracted inquiring investors for awhile. I was looking through some investor presentations from 2007 and 2008 and the same companies were making the same efficiency claims then as they are now. The problem is that these impressive gains never show up in the balance sheets, so I guess they must not be very important after all.

The reason that the shale gas boom is not sustainable at current prices is that shale gas is not the whole story. Conventional gas accounts for almost 60% of US gas and it is declining at about 20% per year and no one is drilling more wells in these plays. The unconventional gas plays decline at more than 30% each year. Taken together, the US needs to replace 19 billion cubic feet per day each year to maintain production at flat levels. That’s almost four Barnett shale plays at full production each year! So you can see how hard it will be to sustain gas production. Then there are all the efforts to use it up faster–natural gas vehicles, exports to Mexico, LNG exports, closing coal and nuclear plants–so it only gets harder.

This winter, things have begun to unravel. Comparative gas storage inventories are near their 2003 low. Sure, weather is the main factor but that’s always the case. The simple truth is that supply has not been able to adequately meet winter demand this year, period. Say what you will about why but it’s a fact that is inconsistent with the fairy tales we continue to hear about cheap, abundant gas forever.

I sat across the table from industry experts just a year ago or so who were adamant that natural gas prices would never get above $4 again. Prices have been above $4 for almost three months. Maybe “never” has a different meaning for those people that doesn’t include when they are wrong.

OP: Do you foresee any new technology on the shelf in the next 10-20 years that would shape another boom, whether it be fossil fuels or renewables?

Arthur Berman: I get asked about new technology that could make things different all the time. I’m a technology enthusiast but I see the big breakthroughs in new industries, not old extractive businesses like oil and gas. Technology has made many things possible in my lifetime including shale and deep-water production, but it hasn’t made these things cheaper.

That’s my whole point about shale plays–they’re expensive and need high oil and gas prices to work. We’ve got the high prices for oil and the oil plays are fine; we don’t have high prices for the gas plays and they aren’t working. There are some areas of the Marcellus that actually work at $4 gas price and that’s great, but it really takes $6 gas prices before things open up even there.

OP: In Europe, where do you see the most potential for shale gas exploitation, with Ukraine engulfed in political chaos, companies withdrawing from Poland, and a flurry of shale activity in the UK?

Arthur Berman: Shale plays will eventually spread to Europe but it will take a longer time than it did in North America. The biggest reason is the lack of private mineral ownership in most of Europe so there is no incentive for local people to get on board. In fact, there are only the negative factors of industrial development for them to look forward to with no pay check. It’s also a lot more expensive to drill and produce gas in Europe.

There are a few promising shale plays on the international horizon:  the Bazherov in Russia, the Vaca Muerte in Argentina and the Duvernay in Canada look best to me because they are liquid-prone and in countries where acceptable fiscal terms and necessary infrastructure are feasible.  At the same time, we have learned that not all plays work even though they look good on paper, and that the potentially commercial areas are always quite small compared to the total resource.  Also, we know that these plays do not last forever and that once the drilling treadmill starts, it never ends.  Because of high decline rates, new wells must constantly be drilled to maintain production.  Shale plays will last years, not decades.

Recent developments in Poland demonstrate some of the problems with international shale plays.  Everyone got excited a few years ago because resource estimates were enormous.  Later, these estimates were cut but many companies moved forward and wells have been drilled.  Most international companies have abandoned the project including ExxonMobil, ENI, Marathon and Talisman.  Some players exited because they don’t think that the geology is right but the government has created many regulatory obstacles that have caused a lack of confidence in the fiscal environment in Poland.

The UK could really use the gas from the Bowland Shale and, while it’s not a huge play, there is enough there to make a difference. I expect there will be plenty of opposition because people in the UK are very sensitive about the environment and there is just no way to hide the fact that shale development has a big footprint despite pad drilling and industry efforts to make it less invasive.

Let me say a few things about resource estimates while we are on the subject.  The public and politicians do not understand the difference between resources and reserves.  The only think that they have in common is that they both begin with “res.”  Reserves are a tiny subset of resources that can be produced commercially.  Both are always wrong but resource estimates can be hugely misleading because they are guesses and have nothing to do with economics.

Someone recently sent me a new report by the CSIS that said U.S. shale gas resource estimates are too conservative and are much larger than previously believed.  I wrote him back that I think that resource estimates for U.S. shale gas plays are irrelevant because now we have robust production data to work with.  Most of those enormous resources are in plays that we already know are not going to be economic.  Resource estimates have become part of the shale gas cheerleading squad’s standard tricks to drum up enthusiasm for plays that clearly don’t work except at higher gas prices.  It’s really unfortunate when supposedly objective policy organizations and research groups get in on the hype in order to attract funding for their work.

OP: The ban on most US crude exports in place since the Arab oil embargo of 1973 is now being challenged by lobbyists, with media opining that this could be the biggest energy debate of the year in the US. How do you foresee this debate shaping up by the end of this year?

Arthur Berman: The debate over oil and gas exports will be silly.

I do not favor regulation of either oil or gas exports from the US. On the other hand, I think that a little discipline by the E&P companies might be in order so they don’t have to beg the American people to bail them out of the over-production mess that they have created knowingly for themselves. Any business that over-produces whatever it makes has to live with lower prices. Why should oil and gas producers get a pass from the free-market laws of supply and demand?

I expect that by the time all the construction is completed to allow gas export, the domestic price will be high enough not to bother. It amazes me that the geniuses behind gas export assume that the business conditions that resulted in a price benefit overseas will remain static until they finish building export facilities, and that the competition will simply stand by when the awesome Americans bring gas to their markets. Just last week, Ken Medlock described how some schemes to send gas to Asia may find that there will be a lot of price competition in the future because a lot of gas has been discovered elsewhere in the world.

The US acts like we are some kind of natural gas superstar because of shale gas. Has anyone looked at how the US stacks up next to Russia, Iran and Qatar for natural gas reserves?

Whatever outcome results from the debate over petroleum exports, it will result in higher prices for American consumers. There are experts who argue that it won’t increase prices much and that the economic benefits will outweigh higher costs. That may be but I doubt that anyone knows for sure. Everyone agrees that oil and gas will cost more if we allow exports.

OP: Is the US indeed close to hitting the “crude wall”—the point at which production could slow due to infrastructure and regulatory restraints?

Arthur Berman: No matter how much or little regulation there is, people will always argue that it is still either too much or too little. We have one of the most unfriendly administrations toward oil and gas ever and yet production has boomed. I already said that I oppose most regulation so you know where I stand. That said, once a bureaucracy is started, it seldom gets smaller or weaker. I don’t see any walls out there, just uncomfortable price increases because of unnecessary regulations.

We use and need too much oil and gas to hit a wall. I see most of the focus on health care regulation for now. If there is no success at modifying the most objectionable parts of the Affordable Care Act, I don’t suppose there is much hope for fewer oil and gas regulations. The petroleum business isn’t exactly the darling of the people.

OP: What is the realistic future of methane hydrates, or “fire ice”, particularly with regard to Japanese efforts at extraction?

Arthur Berman: Japan is desperate for energy especially since they cut back their nuclear program so maybe hydrates make some sense at least as a science project for them. Their pilot is in thousands of feet of water about 30 miles offshore so it’s going to be very expensive no matter how successful it is.

OP: Globally, where should we look for the next potential “shale boom” from a geological perspective as well as a commercial viability perspective?

Arthur Berman: Not all shale is equal or appropriate for oil and gas development. Once we remove all the shale that is not at or somewhat above peak oil generation today, most of it goes away. Some shale plays that meet these and other criteria didn’t work so we have a lot to learn. But shale development is both inevitable and necessary. It will take a longer time than many believe outside of North America.

OP: We’ve spoken about Japan’s nuclear energy crossroads before, and now we see that issue climaxing, with the country’s nuclear future taking center-stage in an election period. Do you still believe it is too early for Japan to pull the plug on nuclear energy entirely?

Arthur Berman: Japan and Germany have made certain decisions about nuclear energy that I find remarkable but I don’t live there and, obviously, don’t think like them.

More generally, environmental enthusiasts simply don’t see the obstacles to short-term conversion of a fossil fuel economy to one based on renewable energy. I don’t see that there is a rational basis for dialogue in this arena. I’m all in favor of renewable energy but I don’t see going from a few percent of our primary energy consumption to even 20% in less than a few decades no matter how much we may want to.

OP: What have we learned over the past year about Japan’s alternatives to nuclear energy?

Arthur Berman: We have learned that it takes a lot of coal to replace nuclear energy when countries like Japan and Germany made bold decisions to close nuclear capacity. We also learned that energy got very expensive in a hurry. I say that we learned. I mean that the past year confirmed what many of us anticipated.

OP: Back in the US, we have closely followed the blowback from the Environmental Protection Agency’s (EPA) proposed new carbon emissions standards for power plants, which would make it impossible for new coal-fired plants to be built without the implementation of carbon capture and sequestration technology, or “clean-coal” tech. Is this a feasible strategy in your opinion?

Arthur Berman: I’m not an expert on clean coal technology either but I am confident that almost anything is possible if cost doesn’t matter. This is as true about carbon capture from coal as it is about shale gas production. Energy is an incredibly complex topic and decisions are being made by bureaucrats and politicians with little background in energy or the energy business. I don’t see any possibility of a good outcome under these circumstances.

OP: Is CCS far enough along to serve as a sound basis for a national climate change policy?

Arthur Berman: Climate-change activism is a train that has left the station. If you’ve missed it, too bad. If you’re on board, good luck.

The good news is that the US does not have an energy policy and is equally unlikely to get a climate change policy for all of the same reasons. I fear putting climate change policy in the hands of bureaucrats and politicians more than I fear climate change (which I fear).

See our previous interview with Arthur Berman.

Richard Heinberg: Why The Oil ‘Revolution’ Story Is Dead Wrong | Peak Prosperity

Richard Heinberg: Why The Oil ‘Revolution’ Story Is Dead Wrong | Peak Prosperity.

Bruce Rolff/Shutterstock

Richard Heinberg: The Oil ‘Revolution’ Story Is Dead Wrong

The data tell a vastly different tale than the media
by Adam Taggart
Sunday, March 9, 2014, 1:45 PM

With all the grandiosity of the media headlines touting our destiny as the new “Saudi America”, many pundits have been quick to pronounce Peak Oil dead.

Here at PeakProsperity.com, one of the most frequent questions we’ve received over the past two years is: will the increased production from new “tight” oil sources indeed solve our liquid fuels emergency?

Not at all, say Chris and this week’s podcast guest, Richard Heinberg. Both are fellows at the Post Carbon Institute, and you are about to hear one of the most important and most lucid deconstructions of the false promise of American energy independence:

I recently went back and reread the first edition of The Party’s Over because it was the tenth year anniversary. And I was actually a little surprised to see what it really says. My forecasts in The Party’s Over were really based on the work of two veteran petroleum geologists—Colin Campbell and Jean Laherrère. So they were saying back before 2003, because it published in 2003, so it was actually written in 2001 and 2002. So they were saying back in 2000 and 2001 that we would see a peak in conventional oil around 2005—check—that that would cause oil prices to bump higher—check—which would cause a slowdown in economic growth—check. But it would also incentivize production of unconventional oil in various forms—check—which would then peak around 2015, which is basically almost where we are right now and all the signs are suggesting that that is going to be a check-off, too. So amazing enough, these two guys got it perfectly correct fifteen years ago.

The big news right now is that the industry needs prices higher than the economy will allow, as you just outlined. So we are seeing the major oil companies cutting back on capital expenditure in upstream projects, which will undoubtedly have an impact a year or two down the line in terms of lower oil production. That is why I think that Campbell and Laherrère were right on in saying 2015, 2016 maybe, we will also start to see the rapid increase of production from the Bakken and the Eagle Ford here in the US start to flatten out. And probably within a year or two after that, we will see a commencement of a rapid decline.

So you know, on a net basis, taking all those things into account, I think we are probably pretty likely to see global oil production start to head south in the next year or two.

But this change in capital expenditure by the majors, that is a new story. You know, just a couple of years ago, they needed oil prices around $100 a barrel in order to justify upstream investments. That is no longer true. Now they need something like $120 a barrel but the economy cannot stand prices that high. So you know, if the price starts to go up a little bit, then demand just falls back. People start driving less. And so the economy is unable to deliver oil prices to the industry that the industry needs. I think Gail Tverberg is saying this is the beginning of the end. I think she’s right.

If we [continue along with our current policies and dependence on petroleum] then everything will eventually change — as a result of the economy coming apart, the debt bubble bursts, you know, agriculture declines because of the expense of oil and because of depletion of topsoil and because you cannot trust the weather anymore. And we have a very dystopian future if we do not do anything.

So it has never been more important for the average person to understand energy issues than it is right now. But I doubt if there has ever been a time when energy issues have been so deliberately confused by the people who should be explaining it to us.

Click the play button below to listen to Chris’ interview with Richard Heinberg (49m:43s):

TRANSCRIPT

Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson, and today, I am really excited to introduce a man who needs no introduction, Richard Heinberg, author, educator, speaker, writer now of eleven books including Party’s Over, the one that got me started on the peak oil story, The End of Growth, and Snake Oil: How Fracking’s False Promise of Plenty Imperils Our Future.

Richard Heinberg: Try say that fast five times.

Chris Martenson: [Laugh] I did, and that is the best I could do [laughter]. Welcome, Richard.

Richard Heinberg: Good to be with you, … read more

SHARE

ABOUT THE GUEST

Richard Heinberg
Richard is a Senior Fellow of thePost Carbon Institute and is widely regarded as one of the world’s foremost Peak Oil educators. He has authored scores of essays and articles that have appeared in such journals as Nature, The American Prospect, Public Policy Research, Quarterly Review, The Ecologist, Resurgence, The Futurist, European Business Review, Earth Island Journal, Yes!, and The Sun; and on web sites such as Resilience.org, TheOilDrum.com, Alternet.org, ProjectCensored.com, and Counterpunch.com.
He has been quoted in Time Magazine and has spoken to hundreds of audiences in 14 countries, including members of the European Parliament. He has appeared in many film and television documentaries, including Leonardo DiCaprio’s 11th Hour, is a recipient of the M. King Hubbert Award for Excellence in Energy Education, and in 2012 was appointed to His Majesty the King of Bhutan’s International Expert Working Group for the New Development Paradigm initiative.
Richard’s animations Don’t Worry, Drive OnWho Killed Economic Growth? and 300 Years of Fossil Fuels in 300 Minutes (winner of a YouTubes’s/DoGooder Video of the Year Award) have been viewed by 1.5 million people .
Since 2002, he has delivered more than five hundred lectures to a wide variety of audiences—from insurance executives to peace activists, from local and national elected officials to Jesuit volunteers.
He lives in northern California with his wife and is an avid violin player.

Richard Heinberg: Why The Oil 'Revolution' Story Is Dead Wrong | Peak Prosperity

Richard Heinberg: Why The Oil ‘Revolution’ Story Is Dead Wrong | Peak Prosperity.

Bruce Rolff/Shutterstock

Richard Heinberg: The Oil ‘Revolution’ Story Is Dead Wrong

The data tell a vastly different tale than the media
by Adam Taggart
Sunday, March 9, 2014, 1:45 PM

With all the grandiosity of the media headlines touting our destiny as the new “Saudi America”, many pundits have been quick to pronounce Peak Oil dead.

Here at PeakProsperity.com, one of the most frequent questions we’ve received over the past two years is: will the increased production from new “tight” oil sources indeed solve our liquid fuels emergency?

Not at all, say Chris and this week’s podcast guest, Richard Heinberg. Both are fellows at the Post Carbon Institute, and you are about to hear one of the most important and most lucid deconstructions of the false promise of American energy independence:

I recently went back and reread the first edition of The Party’s Over because it was the tenth year anniversary. And I was actually a little surprised to see what it really says. My forecasts in The Party’s Over were really based on the work of two veteran petroleum geologists—Colin Campbell and Jean Laherrère. So they were saying back before 2003, because it published in 2003, so it was actually written in 2001 and 2002. So they were saying back in 2000 and 2001 that we would see a peak in conventional oil around 2005—check—that that would cause oil prices to bump higher—check—which would cause a slowdown in economic growth—check. But it would also incentivize production of unconventional oil in various forms—check—which would then peak around 2015, which is basically almost where we are right now and all the signs are suggesting that that is going to be a check-off, too. So amazing enough, these two guys got it perfectly correct fifteen years ago.

The big news right now is that the industry needs prices higher than the economy will allow, as you just outlined. So we are seeing the major oil companies cutting back on capital expenditure in upstream projects, which will undoubtedly have an impact a year or two down the line in terms of lower oil production. That is why I think that Campbell and Laherrère were right on in saying 2015, 2016 maybe, we will also start to see the rapid increase of production from the Bakken and the Eagle Ford here in the US start to flatten out. And probably within a year or two after that, we will see a commencement of a rapid decline.

So you know, on a net basis, taking all those things into account, I think we are probably pretty likely to see global oil production start to head south in the next year or two.

But this change in capital expenditure by the majors, that is a new story. You know, just a couple of years ago, they needed oil prices around $100 a barrel in order to justify upstream investments. That is no longer true. Now they need something like $120 a barrel but the economy cannot stand prices that high. So you know, if the price starts to go up a little bit, then demand just falls back. People start driving less. And so the economy is unable to deliver oil prices to the industry that the industry needs. I think Gail Tverberg is saying this is the beginning of the end. I think she’s right.

If we [continue along with our current policies and dependence on petroleum] then everything will eventually change — as a result of the economy coming apart, the debt bubble bursts, you know, agriculture declines because of the expense of oil and because of depletion of topsoil and because you cannot trust the weather anymore. And we have a very dystopian future if we do not do anything.

So it has never been more important for the average person to understand energy issues than it is right now. But I doubt if there has ever been a time when energy issues have been so deliberately confused by the people who should be explaining it to us.

Click the play button below to listen to Chris’ interview with Richard Heinberg (49m:43s):

TRANSCRIPT

Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson, and today, I am really excited to introduce a man who needs no introduction, Richard Heinberg, author, educator, speaker, writer now of eleven books including Party’s Over, the one that got me started on the peak oil story, The End of Growth, and Snake Oil: How Fracking’s False Promise of Plenty Imperils Our Future.

Richard Heinberg: Try say that fast five times.

Chris Martenson: [Laugh] I did, and that is the best I could do [laughter]. Welcome, Richard.

Richard Heinberg: Good to be with you, … read more

SHARE

ABOUT THE GUEST

Richard Heinberg
Richard is a Senior Fellow of thePost Carbon Institute and is widely regarded as one of the world’s foremost Peak Oil educators. He has authored scores of essays and articles that have appeared in such journals as Nature, The American Prospect, Public Policy Research, Quarterly Review, The Ecologist, Resurgence, The Futurist, European Business Review, Earth Island Journal, Yes!, and The Sun; and on web sites such as Resilience.org, TheOilDrum.com, Alternet.org, ProjectCensored.com, and Counterpunch.com.
He has been quoted in Time Magazine and has spoken to hundreds of audiences in 14 countries, including members of the European Parliament. He has appeared in many film and television documentaries, including Leonardo DiCaprio’s 11th Hour, is a recipient of the M. King Hubbert Award for Excellence in Energy Education, and in 2012 was appointed to His Majesty the King of Bhutan’s International Expert Working Group for the New Development Paradigm initiative.
Richard’s animations Don’t Worry, Drive OnWho Killed Economic Growth? and 300 Years of Fossil Fuels in 300 Minutes (winner of a YouTubes’s/DoGooder Video of the Year Award) have been viewed by 1.5 million people .
Since 2002, he has delivered more than five hundred lectures to a wide variety of audiences—from insurance executives to peace activists, from local and national elected officials to Jesuit volunteers.
He lives in northern California with his wife and is an avid violin player.

Jean Laherrere uses Hubbert linearization to estimate Bakken shale oil peak in 2014  |  Peak Oil News and Message Boards

Jean Laherrere uses Hubbert linearization to estimate Bakken shale oil peak in 2014  |  Peak Oil News and Message Boards.

In his latest research on shale oil French oil geologist Jean Laherrere from ASPO France

http://aspofrance.viabloga.com/texts/documents estimates a Bakken shale oil peak in 2014.
He uses a Hubbert linearization to calculate a total of 2,500 mb to be produced
In global terms, a total cumulative of 2.5 Gb is just around 10% of annual crude production and 1.3% of daily production.
Well productivity in Bakken is stagnant at around 130 b/d for a couple of years now.
There has been a peak in the number of drilling rigs. A shift of the rigs curve by 2 years suggests a production peak in 2014.
Jean’s research is in line with that published by David Hughes in November 2013:

Transport Safety Board Releases Safety Recommendations for Oil By Rail Shipment | DeSmog Canada

Transport Safety Board Releases Safety Recommendations for Oil By Rail Shipment | DeSmog Canada.

The federal agency investigating the Lac-Megantic oil train derailment and explosion that killed forty-seven people released recommendations last week to improve the safety of shipping crude oil by rail. If the recommendations are implemented by the federal government they will serve as a strong step forward in protecting communities living along railway lines.

“The federal transport minister has a clear choice: protect public safety or secure profits of oil companies,” says Keith Stewart, a climate and energy campaigner with Greenpeace Canada.

One of the country’s most active lobby groups – the Canadian Association of Petroleum Producers (CAPP) – responded to the recommendations earlier this week. CAPP asked the federal government “to ensure their implementation does not interrupt service and respects the competitiveness of transporting our products by rail.” In other words, new regulations should not interfere with business as usual for the oil industry.

“Companies have to pay the price for safety. Their profits cannot come before communities, the environment and general safety,” John Bennett, director of the Sierra Club Canada told DeSmog Canada.

The Transport Safety Board (TSB) made three recommendations to Transport Canada improve safety of oil-by-rail shipments: tougher standards for the susceptible-to-rupturing DOT 111 tank cars, strategic routing of oil trains that considers the environment and communities, and emergency response plans for rail lines transporting large volumes of oil.

Greenpeace and the Sierra Club welcome the recommendations. Both organizations have been pushing for stricter oil by rail transport rules since before disaster struck Lac-Megantic, Quebec on July 6th of last year. Rail company CN also supports the TSB’s recommendations. Rail tank cars are owned either by shipping companies or oil producers. Rail companies on the other hand own the rails, and are liable for derailments.

The recommendations focus on tank cars, not the rails themselves, which is one of the shortcomings of the recommendations. Improvements on both are needed.

Recommendations cannot protect the public if they are not implemented. Bennett is not very optimistic the recommendations will be applied by the federal government. Many TSB recommendations in the past, he says, have “just sat there” and were not adopted, like rail line improvement recommendations made after the Lake Wabamun derailment in Alberta in 2005.

Stewart speculates the federal government will wait to see what the U.S. does, something he thinks is very problematic.

“Lives are at risk. Canada should be taking a leadership role,” Stewart told DeSmog from Toronto.

The TSB and the U.S. National Transport Safety Board announced their safety recommendations for oil-by-rail intentionally at the same time. Transport Canada has ninety days to reply to the TSB’s findings. Upon release of the recommendations in Ottawa on January 23rd, TSB chair Wendy Tadros insisted “change must come and it must come now.”

If adopted, applying the recommendations may prove to be difficult. Rerouting oil tank cars away from densely populated or environmentally sensitive areas is difficult due to Canada’s limited rail options.

Emergency response plans also require greater communication between shippers in the public, especially regarding large oil shipments. Shippers have been reluctant to do this in the past.

“Canadians need to ask themselves why are we doing this? Transporting oil more – whether by rail or pipeline – is a risk with little to no benefits for communities because it is going for export,” says Bennett, who is based in Ottawa.

“We already have enough infrastructure to meet our own oil consumption needs,” Bennett told DeSmog Canada.

Oil tank car shipments in Canada have dramatically jumped from five hundred carloads in 2009 to 160,000 last year, but Canada’s consumption of oil has declined during the same period. All of the recent pipeline proposals in Canada are destined to export oil out of the country with the exception of the Line 9 pipeline in Ontario and Quebec.

“The federal government would be more than happy for this debate to be rail versus pipeline oil shipments,” says Stewart.

“The debate should really be between dirty energy and clean energy and why we continue to invest billions in infrastructure for the fossil fuel industry when that money should be used to fight climate change and reduce our dependence on oil,” Stewart told DeSmog Canada.

The oilsands boom in Alberta and the Bakken shale oil boom in North Dakota coupled with stiff opposition to new pipeline approvals have been blamed for the massive increase in oil-by-rail transport in North America. In the US, oil tank carloads went from 10,800 in 2009 to 400,000 in 2013.

Image Credit: Transportation Safety Board

The 4 Big Dangers of Fracking

The 4 Big Dangers of Fracking.

By now you’ve likely heard that the U.S. is expected to overtake Russia this year as the world’s biggest producer of oil and gas. The surge in production comes from a drilling boom enabled by using hydraulic fracturing, or fracking, along with, in many places, horizontal drilling. These technologies have made previously inaccessible pockets of oil and gas in shale formations profitable.

But at what cost? Accidents, fatalities and health concerns are mounting. Here’s a look at what we’ve learned about the dangers of fracking in the last few weeks.

1. Exploding Trains

Another day, another oil train accident, it seems. On the night of January 7, a traincarrying crude oil and propane derailed near Plaster Rock in New Brunswick, Canada. A day later the fire continued as locals evacuated, unsure if they were being exposed to toxic fumes.

It’s a familiar story. 2013 went out with a bang in North Dakota when a train carrying crude oil from the Bakken shale derailed and exploded on Dec 30. The ensuing fireballs and toxic smoke caused the evacuation many of Casselton’s 2,300 residents.

Fracking has unleashed a firestorm of drilling in the Bakken (a rock formation under parts of North Dakota, Montana and Saskatchewan). The Casselton accident was the third rail accident in six months in North America involving oil trains from the Bakken (it’s unclear if the Plaster Rock train was carrying Bakken oil). The most horrific was the July derailment and explosion of a train that killed 47 people in the small town of Lac-Megantic in Quebec. The second occurred in Alabama in November.

All of this has grabbed the attention of the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration. “Crude oil produced in North America’s booming Bakken region may be more flammable and therefore more dangerous to ship by rail than crude from other areas, a U.S. regulator said after studying the question for four months,” wrote Angela Greiling Keane and Mark Drajem for Bloomberg.

That doesn’t mean shipments will stop, only that trains may be relabeled to say they are carrying a more hazardous cargo.

As Gordon Hoekstra wrote for the Vancouver Sun:

The significant increase in the transport of oil by rail, and the growing evidence that Bakken shale oil is proving itself to be a very explosive commodity, shows that regulations on both sides of the border are not adequate, said Mark Winfield, an associate professor at York University who researches public safety regulation.

Even Robert Harms, who heads North Dakota’s Republican party and consults with the industry, has called for a slowdown, according to Reuters.

2. Workers at Risk

Those who live along train routes aren’t the only ones facing safety risks from the oil and gas industry. NPR reports that accidents among workers in the industry are on the rise—bigtime. From 2009 to 2012 the industry added 23 percent more workers but “the hiring spree has come with a terrible price: Last year, 138 workers were killed on the job — an increase of more than 100 percent since 2009,” wrote Andrew Schneider and Marilyn Geewax for NPR . “In fact, the fatality rate among oil and gas workers is now nearly eight times higher than the all-industry rate of 3.2 deaths for every 100,000 workers.”

Last July, I visited a well pad in New Milton, West Virginia. The following day there was an explosion at the site injuring several workers, two of whom died from their injuries. In my time in West Virginia I met several workers on other sites who were bleary-eyed from long hours on the job.

Sure, jobs are good, but safe jobs should be a priority. Accidents happen in a dangerous industry, but they also increase when workers are kept on the job for too many hours or lack proper training or industry doesn’t follow safe practices.

3. The Accidents You Don’t Hear About

Trains bursting into flames usually (and rightfully) makes the national headlines—especially when fatalities occur. But smaller accidents happen daily that often fail to make it beyond local reporting, if that. Those who live in communities adjacent to the oilfields and gaslands keep their own tallies.

In Tyler County, West Virginia on January 2 an incident occurred on the Lisby natural gas well pad. The West Virginia Department of Environmental Protection press release said, “A tank ruptured and leaked fluids to surrounding grounds on the well site.”

“Ruptured and leaked” may be accurate, but more than an understatement. A tank filled with fracking fluid (although the WVDEP hasn’t been able to say for sure what exactly was in it) ignited and ended up across the well pad. “What we’ve been able to determine is that a tank ruptured during the flushing of frac lines,” said Thomas Aluise, spokesperson for the WVDEP. “Vapors formed from the fluids inside the tank and were somehow ignited, possibly by static electricity, but that has not been confirmed. As a result of the ignition and subsequent rupture, the tank was dislodged from its foundation.”

Does this photo look like the tank simply “dislodged?”

 

The tank held 50 barrels of fluid, some of which has leaked into soil, a neighboring property, and potentially into a nearby stream. The explosion happened 625 feet from the nearest house and one person at the site, a contractor who broke his ankle, was injured in the incident. The company, Jay-Bee Oil & Gas, is required to submit plans for soil and water sampling by January 14, which seems like quite a while to wait to take samples if chemicals are leaking into the ground or water sources.

Jay-Bee does not have a glowing corporate record. “The West Virginia Department of Environmental Protection has cited the company for 21 environmental violations since 2010, and the federal Occupation Safety and Health Administration has cited the company for 38 worker safety violations, “ wrote Gayathri Vaidyanathan for E&E. “The incident suggests that environmental and worker safety violations often go hand in hand.”

How many environmental and safety violations does it take before a company is shut down?

Accidents like this are common across oil and gas country. So are compressor station fires in PennsylvaniaNew YorkNew JerseyWyoming. Or truck accidents, as Food and Water Watch reports: “Heavy-truck crashes rose 7.2 percent in heavily fracked rural Pennsylvania counties (with at least one well for every 15 square miles) but fell 12.4 in unfracked rural counties after fracking began in 2005.”

The Centers for Disease Control reported that the top cause of fatalities in the oil and gas industry are motor vehicle accidents. “[W]orkers drive long distances on rural highways to travel to well sites. Often these roads lack firm shoulders and other safety features,” the agency reports. This puts not just workers at risk, but everyone on the road.

All these incidences won’t make national news, but collectively they add up for the residents who live nearby who may fear for their safety while on the roads or in their own homes.

4. Not So Good for Your Health

Findings presented at a recent meeting of the American Economic Association by researchers from Princeton University, Columbia University and Massachusetts Institute of Technology have made headlines. The researchers “looked at Pennsylvania birth records from 2004 to 2011 to assess the health of infants born within a 2.5-kilometer radius of natural-gas fracking sites,” reports Mark Whitehouse for Bloomberg.

“They found that proximity to fracking increased the likelihood of low birth weight by more than half, from about 5.6 percent to more than 9 percent,” writesWhitehouse. “The chances of a low Apgar score, a summary measure of the health of newborn children, roughly doubled, to more than 5 percent.”

The study has yet to be peer-reviewed, so let’s see how it fares. It does not implicate drinking water, however. The most likely culprit is air pollution. Oil and gas operations have been found to release volatile organic compounds (VOCs) and nitrogen oxides, which contribute to ground-level ozone.

So far no communities where fracking is occurring have done a comprehensive health assessment to see how residents may be at risk from activities related to increased oil and gas drilling. Is it time yet?

EIA International Energy Statistics for August and September » Peak Oil BarrelPeak Oil Barrel

EIA International Energy Statistics for August and September » Peak Oil BarrelPeak Oil Barrel.

The EIA has finally published its International Energy Statistics. The last one had July data. This one is has two months updates, August and September. All the data I publish comes is Crude+Condensate from January 2000 through September 2013.

Again, all data is C+C in thousand barrels per day with the last data point September 2013.

World

As you can see from the chart World C+C production has leveled out in the last year and one half. September 2013 is slightly lower than February 2012.

There were a couple of major revisions in the July data. Canada was revised down by 269 kb/d while Non-OPEC was revised down by 228 kb/d. There were other small revisions upward. OPEC C+C had no revisions so that left World C+C for July revised down by 228 kb/d.

Both the USA and Canada are on a real tear, owing of course to Light Tight Oil and the Oil Sands. Their combined production is up about 1.9 mb/d since in one year, since last September.

USA + Canada

But they are the only ones on a tear. Almost everyone else is flat to down with a few small producers up slightly.

World Les US & Canada

World less USA and Canada is actually below where it was in June 2004 and is swiftly approaching the bottom it hit after the crash of 2008. The peak was in January 11 and they are down 2.65 mb/d since that point.

Actually only Light Tight Oil is keeping the world from declaring peak.

World Less USA

World less USA is down over 1.5 mb/d since the peak of January 2011.

Non-OPEC is up on the strength of the USA and Canada.

Non-OPEC

However the EIA has OPEC C+C down considerably.

OPEC C+C

Charts of all Non-OPEC producers are now up on the Non-OPEC Chartspage.

Also a new page has been added, World Crude Oil Production by Geographical Area

Exclusive: Permit Shows Bakken Shale Oil in Casselton Train Explosion Contained High Levels of Volatile Chemicals | DeSmogBlog

Exclusive: Permit Shows Bakken Shale Oil in Casselton Train Explosion Contained High Levels of Volatile Chemicals | DeSmogBlog.

On January 2, the Pipeline and Hazardous Materials Safety Administration (PHMSA)issued a major safety alert, declaring oil obtained via hydraulic fracturing (“fracking”) in the Bakken Shale may be more chemically explosive than the agency or industry previously admitted publicly.

This alert came three days after the massive Casselton, ND explosion of a freight rail train owned by Warren Buffett‘s Burlington Northern Santa Fe (BNSF) and was the first time the U.S. Department of Transportation agency ever made such a statement about Bakken crude. In July 2013, another freight train carrying Bakken crude exploded in Lac-Mégantic, vaporizing and killing 47 people.

Yet, an exclusive DeSmogBlog investigation reveals the company receiving that oildownstream from BNSF — Marquis Missouri Terminal LLC, incorporated in April 2012 by Marquis Energy — already admitted as much in a September 2012 permit application to the Missouri Department of Natural Resources (DNR).

The BNSF Direct “bomb train” that exploded in Casselton was destined for Marquis’ terminal in Hayti, Missouri, according to Reuters. Hayti is a city of 2,939 located along the Mississippi River. From there, Marquis barges the oil southward along the Mississippi, where Platts reported the oil may eventually be refined in a Memphis, Tennessee-based Valero refinery.

According to Marquis’ website, its Hayti, Missouri terminal receives seven of BNSF Direct’s 118-unit cars per week, with an on-site holding terminal capacity of 550,000 barrels of oil.

Marquis was one of many companies in attendance at a major industry conference in Houston, Texas in February 2013, called “Upgrading Crude By Rail Capacity.” Its September 2012 Missouri DNR permit application lends additional insight into how and why BNSF’s freight train erupted so intensely in Casselton.

“Special Conditions”

Rather than a normal permit, Marquis was given a “special conditions” permit because the Bakken oil it receives from BNSF contains high levels of volatile organic compounds (VOCs), the same threat PHMSA noted in its recent safety alert.

Among the most crucial of the special conditions: Marquis must flare off the VOCs before barging the oil down the Mississippi River. (Flaring is already a highly controversial practice in the Bakken Shale region, where gas is flared off at rates comparable to Nigeria.)

It’s a tacit admission that the Bakken Shale oil aboard the exploded BNSF train in Casselton, ND is prone to such an eruption.

“Hazardous Air Pollutant (HAP) emissions are expected from the proposed equipment,” explains the Marquis permit. “There will be evaporative losses of Toluene, Xylene, Hexane, and Benzene from the crude oil handled by the installation.”

Benzene is a carcinogen, while toluenexylene and hexane are dangerous volatiles that can cause severe illnesses or even death at high levels of exposure.

Scientific Vindication

In a December 31 Google Hangout conversation between actor Mark Ruffalo, founder of Water Defense, and the group’s chief scientist Scott Smith, Mr. Smith discussed the oil samples he collected on a previous visit to North Dakota’s Bakken Shale.

“What I know from the testing I’ve done on my own — I went out to the Bakken oil fields and pumped oil from the well — I know there are unprecedented levels of these explosive volatiles: benzene, toluene, xylene,” said Smith.

“And from the data that I’ve gotten from third parties and tested myself, 30 to 40 percent of what’s going into those rail cars are explosive volatiles, again that are not in typical oils.”

In an interview with DeSmogBlog, Smith said Marquis Energy’s Missouri DNR permit application is in line with his own scientific findings, a vindication of sorts in the aftermath of the Casselton explosion.”We must work to better understand the risks involved with the transportation of unconventional crude oil, whether diluted bitumen or Bakken fracked oil,” Smith told DeSmogBlog.

“It all starts with scientifically and transparently understanding exactly what is in these crude oils, and working to set new safety standards to protect human lives and all waterways, wetlands, marshes and sensitive ecosystems.”

It may be the dead of winter in North Dakota, but the Casselton explosion has shined a bright light on the myriad serious threats of Bakken oil rolling down the tracks through the backyards of thousands of Americans. The industry’s secrecy about the explosiveness of this oil just went up in flames.

But how will the public react to the news that industry knew this could happen all along? With the Dec. 30 explosion in Casselton, and the deadly Bakken oil train explosion in Lac Megantic, Quebec last July, all North Americans ought to question the wisdom of extracting and transporting this highly dangerous oil.

peak oil climate and sustainability: When will US LTO(light tight oil) Peak?

peak oil climate and sustainability: When will US LTO(light tight oil) Peak?.

The rapid rise in oil output since 2008 has the mainstream media claiming that the US will soon be energy independent.  US Crude oil output has increased about 2.8 MMb/d (56%) since 2008 and about 2 MMb/d is from the shale plays in North Dakota ( Bakken/Three Forks) and Texas (Eagle Ford). My modeling suggests that a peak from these two plays may be reached by 2016, other shale plays (also known as light tight oil [LTO] plays) may be able to fill the gap left by declining Bakken and Eagle Ford output until 2020, beyond that point we will see a rapid decline.

US Light Tight Oil to 2040

fig 1

There are two main views:

  1. There will be little crude plus condensate (C+C) output from any plays except the Bakken/Three Forks in North Dakota and Montana and the Eagle Ford of Texas.
  2. The other LTO plays will come to the rescue when the Bakken and Eagle Ford reach their peak and keep LTO near these peak levels to about 2020 with a slow decline in output out to 2040.
Where are these “other LTO plays”?  There are a couple of these in Oklahoma and Texas (in the Permian basin, Granite Wash, Mississippian basin), the Appalachian, the Niobrara in Colorado, and others (see slide 17 of the USGS presentation link below).  Is it possible for these LTO plays to offset future declines in the Bakken and Eagle Ford?  I hope to answer that in this post.
When doing my modeling of the Eagle Ford, I needed an estimate of the technically recoverable resource(TRR) for that play.  The April 2013 USGS Bakken Three Forks Assessment roughly doubled their earlier assessment of that play (mostly this was due to not including the Three Forks in their earlier assessment.)
see slide 17 at the USGS Bakken/Three Forks Assessment presentation.
   In light of this I decided to increase the earlier (1.73 Gb) Eagle Ford estimate of undiscovered technically recoverable resources(TRR) from the USGS by a factor of 2.3 to 4 Gb.  To determine total TRR, the proved reserves and oil already produced need to be added to the undiscovered TRR, in the case of the Eagle Ford output to the end of 2011 was only 0.1 Gb and proved reserves were about 1 Gb (check the EIA data on the change in proved reserves since 2009 in districts 1 and district 2 of Texas):

So for the Eagle Ford estimated TRR would be 4+1=5 Gb.

For the North Dakota Bakken undiscovered TRR is 5.8 Gb, 2.2 Gb of proven reserves, and 0.5 Gb of oil produced for a Total TRR of 8.5 Gb. See my previous post for more details.

For the rest of the US we can deduct Bakken (7.38 Gb), Eagle Ford(1.73 Gb), and Alaska(0.94 Gb) from the US total (13 Gb) which leaves about 3 Gb, now assume that a reassessment by the USGS increases this by a factor of 2.3 to 7.2 Gb, then add the Montana Bakken/Three Forks (1.6 Gb) and reserves from the Permian basin and other plays (1.3 Gb) to get 9.2 Gb for a TRR estimate for US “other LTO”(Total LTO minus [North Dakota Bakken/Three Forks plus Eagle Ford play]). Total TRR for all US LTO is 22.7 Gb. (I have assumed LTO from Alaska’s North Slope will not be produced.)

For the North Dakota Bakken/Three Forks and Eagle Ford plays we use the following economic assumptions to find the Economically Recoverable Resource (ERR):

OPEX (operating expenditure) is $4/barrel, royalty and tax payments are 24.5 % of wellhead revenue, annual discount rate is 12 % (used to find the net present value[NPV] of a well over its 30 year life). Transport costs are $12/barrel for the Bakken and $3/barrel for the Eagle Ford.  Well costs are 9 million for the Bakken in Jan 2013 and fall by 8% per year to 7 million in 2016 and for the Eagle Ford well costs are $8 million in Jan 2013 and fall 8% per year to $6.5 million in mid 2017.  Real oil prices follow the EIA’s 2013 Annual Energy Outlook reference case to 2040 and then continue to rise at the 2030 to 2040 rate to the end of the scenario.  All costs and prices are in May 2013$ so they are real prices rather than nominal prices.
The concept of ERR is discussed in detail in the Sept, 2013 post after figure 3.

Figure 1

fig 2
I will use the Eagle Ford play as my template because it has ramped up much more quickly than the Bakken, this is a very optimistic scenario and it is unlikely that there will be greater output from US LTO than the scenario I will present.

The underlying assumptions are:
-the average well will look like the average Eagle Ford well
-ramp up of additional wells will be slow until the peak of combined Bakken and Eagle Ford output
-in 2015 the Bakken and Eagle Ford peak and reach break even levels of profitability by 2016
-in response to reaching break even the number of new wells per month added in both the ND (North Dakota) Bakken and the Eagle Ford are reduced substantially.
-new wells added in the other US LTO plays ramp up as the rate that wells added to the Bakken and EF are reduced
As before we adjust the decrease in new well EUR (both when it begins and how long it takes to reach its maximum) so that the TRR matches our estimate of 9.2 Gb.  In this case the EUR starts to decrease in July 2018 and reaches its maximum monthly rate of decrease of 2.37 % in June 2020. The “other LTO” peaks in 2020 at about 2 MMb/d.
To determine ERR we make identical economic assumptions as our Eagle Ford case above except that we assume transport costs are $5/barrel on average ($3/barrel in EF case).

Figure 2

fig 3

When we combine our North Dakota Bakken/Three Forks, Eagle Ford, and “other LTO” models we get the following chart:

Figure 3

fig 4

This scenario is indeed optimistic, but not nearly as optimistic as the EIA’s scenario for LTO in the 2013 Annual Energy Outlook.  For comparison I computed the ERR for 2013 to 2040 for my US LTO scenario, it was 17.6 Gb over that period, the EIA scenario has a total output of 24.5 Gb over the same period, 40% higher output than an already optimistic scenario.  My guess is that reality will lie between the blue curve and the green curve with the most likely peak around 2018+/- 2 years at about 3.1+/- 0.2 MMb/d.

Dennis Coyne

 Appendix Bakken and Eagle Ford Details
I am still working on this section, check back for details
Using the USGS TRR estimates as our guide we assume new well estimated ultimate recovery (EUR) eventually decreases as the room for new wells in the most productive areas (the sweet spots) starts to run out.  If new wells are producing an average of 450 kb over 30 years before this decrease begins, we assume at some point, say June 2014 the new well EUR starts to decrease maybe by 0.4% per month, the rate of decrease continues to increase for 18 months so that after 18 months the new well EUR is decreasing at a monthy rate of 7.2 %.

fig 5

fig 6

The Coming Bust of the Great Bakken Oil Field : SRSrocco Report

The Coming Bust of the Great Bakken Oil Field : SRSrocco Report.

The Coming Bust of the Great Bakken Oil Field

Filed in Energy by  on November 16, 2013

There has been a lot of Fanfare on the huge increase of oil production coming from the Bakken Field located in North Dakota.  There are many stories of people moving to the state to take advantage of the new OIL BOOM.  It seems like everyone is going there to start a new life and make it rich in one of the coldest areas in the United States.

However, with all BOOMS, comes the inevitable BUST.  This was true shown by the famous example of the 1800′s California gold rush:

California_Gold_Production

According to the article, “The Bakken Boom: The Modern Day Gold Rush”:

Despite the low productivity of the labor-intensive process of gold panning, annual production grew from just over 1,400 ounces in 1848 to more than 3.9 million ounces by 1852. To put this into perspective, prior to 1848, cumulative U.S. gold production amounted to just over 1 million ounces.

Of course nuggets are easier to find than flakes, and the great majority were discovered in the first few years. By 1852, only four years after gold was first discovered, California gold production began a rapid descent. Production declined 50% by 1862 and 80% by 1872.

The decline was only barely checked by the adoption of ‘hydraulic mining’ – a process by which massive amounts of water under intense pressure is used to disintegrate entire hillsides. At the North Bloomfield mine, for example, 60 million gallons of water per day eroded more than 41 million cubic yards of debris between 1866 and 1884. (http://www.sierranevadavirtualmuseum.com/docs/galleries/history/mining/hydraulic.htm)

Typical of all BOOMS, production increases exponentially, peaks and then declines in the same fashion.  However, Even with high-tech hydraulic water mining techniques, the industry could never produce more gold than it did in 1852 when it reached nearly 4 million ounces.

BAD NEWS FOR THE BAKKEN:  Decline Rate of 63,000 Barrels A Day

The EIA – U.S. Energy Information Agency is now putting out data on the individual shale oil and gas plays in the country.  While the American public and world have been made aware of the huge increase in oil production coming from the Bakken, few are privy to the dark side of the equation.  The Bakken’s daily decline rate from their existing oil wells has reached a staggering 63,000 barrels a day.

Bakken 63000 Oil Decline Chart

This means, that every day the Bakken pumps oil, its existing wells are now declining 63,000 (bd) barrels a day.   As you can see from the chart above, the rate really started to decline in a big way after 2011 when the average daily decline was only 20,000 bd.  In less than 3 years, this rate has increased more than 3 times (63,000 bd).

This next chart gives us the total as well as net oil production increases month over month:

Bakken Legacy Decline

The EIA is showing what is indicated to take place in December over November.  If we look at the actual data that comes out of the North Dakota Department of Mineral Resources, Bakken oil field production in September hit 867,123 bd.  The difference to reach that 1 million barrels a day is coming from the Montana portion of the Bakken.

Here is an actual screenshot of the ND DMR’s monthly report released November 5th:

ND Directors Cut

Moreover, if we look at total production, again using the North Dakota DMR’s data, their total oil production data for the state in September was 931,940 bd.  This includes oil production outside the Bakken and Three Forks (data for Bakken in the EIA charts includes Three Forks).

Astonishingly, 93% of North Dakota’s oil production comes from the Bakken region alone.

The Bakken Drilling Frenzy Gives The Illusion of Sustainable Growth

The typical American believes the United States has all this hidden oil and gas resources that we can easily tap into.  I just had a conversation with a neighbor yesterday who told me that he couldn’t understand why we weren’t “ENERGY INDEPENDENT.”  Gosh, if I had a dollar for every time someone said that…

Again, the public is only told about all the huge increases in production, but for some strange reason, MSM tends to omit the negative side.  The only way oil production is increasing in the Bakken is due to the massive amount of new wells that have been added.  The chart below reveals the illusion of this sustainable growth:

Bakken Production & Producing Wells

First, the figures in white represent North Dakota’s total wells producing for their production of the Bakken.  Even though the graph includes Montana’s production, it still gives us a good idea of the huge increase in oil wells it takes to grow production.

Second, in 2008, the Bakken in North Dakota only had 479 producing wells, however at last count in September when then Bakken was producing 867,123 barrels of oil a day, it took 6,447 wells to do so.  Thus, the energy companies drilling and producing oil in the Bakken have to keep increasing wells each month (and year) to offset the huge 63,000 bd decline.

For example, there were an additional 135 new wells (ND) producing in Sept. over Aug. which added 20,589 bd of production.  If there were only say 100-105 new wells added that month, production would have remained flat or possibly declined for Sept.

Lastly, the best and most productive wells are exploited first leaving the dead-beats for last.  This will make things even more fun as the peak and subsequent bust finally arrives.

The Coming Bust of The Great Bakken Field

As with all oil fields, there are only so many sweet spots and areas to drill.  The 63,000 bd decline rate at the Bakken only has one way to go — and that’s higher.   If the present trend continues (highly likely) then we are going to see a daily decline rate of 75-85,000 barrels a day by the end of 2014.

Thus, the shale oil players are going to have to make those drilling hamsters work even harder as they will need to increase more wells each month just to grow production.  At some point in time (sooner rather than later), the daily decline rate will reach a figure that these companies will be unable to offset.

There are only so many drilling locations available and once they run out, the Great Bakken Field will become a BUST as the high decline rates will push overall oil production down the very same way it came up.

Those who moved to the frigid state of North Dakota with Dollar signs in their eyes and images of sugar-plums dancing in their heads will realize firsthand the negative ramifications of all BOOM & BUST cycles.  At this time, the word “Cold” will have more than one meaning.

Once the Bakken and Ealge Ford oil fields peak and decline, the United States has no other “ENERGY RABBIT” in its hat.  This is precisely why investors need to understand energy and why its important to own physical assets such as gold and silver.

Check back for more updates at the SRSrocco Report.

 

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