By Zainab
Calcuttawala - Dec 05, 2017, 5:00 PM CST
The
American shale boom may be overstated by the U.S. Energy Department,
according to a new MIT study that suggests the agency may be
over-attributing a rise in shale drilling to technological advances.
“The EIA is assuming that productivity of individual wells will continue to rise as a result of improvements in technology,” MIT
researcher Justin B. Montgomery told World Oil.
“This compounds year after year, like interest, so the further out in
the future the wells are drilled, the more that they are being
overestimated.”
Instead,
lukewarm oil prices have forced oil majors to drill only in
easy-to-access areas, located mostly in the Eagle Ford and Permian
basins in Texas, and the Bakken formation in North Dakota. This
has led to an exaggerated increase in the number of active wells, and a
hyperbolized narrative of growth in the shale industry, the study says.
“The
same forecasting methods are used in other plays in the U.S., and the
same dynamic is likely to be present,” Montgomery added.
Margaret
Coleman, the Energy Information Administration’s chief of oil, gas and
biofuels exploration and production analysis, said the “study raised
valid points” and offered insights for more accurate
analysis of domestic fossil fuel forecasting. Part of the blame can be
attributed to an information gap in data available to the EIA team, she
added.
Many
shale wells lack key pieces of data tracked down by the MIT team,
meaning EIA projections over-emphasized geological and capital
assumptions as well as technological developments to estimate the
shale industry’s growth. Of course, there have been some advances in
drill head technology, mapping software, and hydraulic fracking, but
that is just one part of the puzzle.
“It’s
really hard to bet against the ability of the industry to improve and
get more out of the rock,” Manuj Nikhanj, co-CEO of RS Energy Group,
told World Oil. Three years of oil prices have forced oil
and gas majors worldwide to get creative to lower costs and avoid
bankruptcies. Mass firings and empty offices pushed multinationals to
operate on a leaner human resources diet, utilizing robots and merging
job descriptions to keep the companies functional.
But
the U.S. shale boom’s story is different. Its initial crash correlated
deeply with the 2014 price burst, but its rise continued despite efforts
by the global oil producing community to curb international
output to battle a glut. A barrel price in the $40–$50 range still gave
shale producers enough cushion to drill, even as foreign producers with
expensive offshore and onshore operations struggled.
Output
in the Bakken tripled from 2012 to mid-2015, the MIT data shows. But
this boost related to oil major’s systematic abandonment of
tough-to-drill spots in favor of more lucrative acreage. American
shale companies were not allowed to export their crude prior to 2016.
This meant that oil output from the U.S. was not directly contributing
to the global oversupply. Still, the new production boosted inventories
and lowered the size and frequency of crude
orders by American refineries. Soon, the low-hanging fruit will have
been picked.
“There
certainly could be some validity to getting a rosier forecast because
right now, the industry is working sweet spots,” Penn State
hydrogeologist Dave Yoxtheimer said. “When that’s all played out,
they’re going to have to go to the tier-two acreage, which isn’t going
to be as productive.”
The
slowdown has already begun in the Northeast’s Marcellus basin and in
the Permian. Wells in the two prime shale drilling sites have lost
between 10 to 20 percent of their output since a peak last fall,
but barrel prices have been riding an upward trajectory for most of
2017, meaning the last resort “tier-two” acreage could remain profitable
for at least the next couple of years.
By Zainab Calcuttawala for Oilprice.com
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Alison K. Grass
Senior Researcher
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