Peak 'Cheap' Oil: Shale Oil Proves Peak Oil Is Indeed Upon Us
We wouldn't drill for it if the cheap stuff were still here
by Chris Martenson
Monday, September 30, 2013
Ever the contrarian, I have been quite skeptical of the many breathless claims being made by wide swaths of the media about how a new energy bonanza
is going to overtake the U.S. and eventually the world. The subject, of course, is the new shale plays in both natural gas and oil.
While these plays are in special cases quite extraordinary, and the technology is just brilliant, many of the more exuberant claims made in the past
about the potential contributions of these plays are now being dialed back.
The reason? Just like any other resource, the shale plays were 'high graded,' meaning the best ones were drilled first. (As they say in Texas: We
drill the best spots first.)
The reason I say in the title that shale oil proves that Peak Oil is upon us is that we would not be drilling them if there were anything better left
to drill. The simple yet profound reason that we're going after this more difficult and expensive oil is – drum roll please – the easy and cheap
stuff is all gone.
Rather than proving that Peak Oil is dead, as many have claimed, the new focus on shale plays indicates to me that we've indeed moved down the
resource ladder to the next best (i.e., less good) options because the better ones are all gone.
Again, I think the technology and ingenuity on display in the shale plays is extraordinary. And I think, in the end, we're going to drill all of these
plays up – not just here, but elsewhere in the world. These are legitimate wells.
But they are not the same as the old conventional plays. Not by a long shot.
They are expensive. And they consume a lot of water and a lot of land. A typical shale play will involves tens of thousands of wells with drill pads
all over the place – something that will pretty much prevent their widespread adoption in more populated areas of the world.
A Peak Oil Mistake
A big mistake of the Peak Oil community (of which I am a self-described member) was in not qualifying statements about oil reserves and production in
terms of price. Obviously, the higher the price goes, the more exuberant and elaborate will be the attempts to get more oil from harder, deeper, and
more expensive places.
That is, up to a point, the amount of oil that we will drill for will depend on price.
If, for example, oil were to suddenly fall to $50 per barrel or less and stay there, then there would be no more drilling in the shale plays, because
the all-in cost of those plays is higher than that. In many plays, a lot higher than that.
Conversely, if the price of oil was to rocket up to $300 a barrel, then you'd see all kinds of marginal oil plays around the world suddenly begin to
So the amount of oil we'll ultimately get is a tricky function of price, actual reserves, technological developments, and geopolitical realities.
The actual argument that makes the most sense is to call for Peak Cheap Oil, which is something that we can quite confidently argue is now safely in
the rear-view mirror.
And someday, no matter how much the shale oil plays ultimately contribute to the story, those, too, shall have their days of ascendancy followed by a
Oil "Peak" Delayed
It seems shale oil has pushed back the date of the arrival of the true worldwide "peak" in oil, possibly by as much as five to ten years.
This is new information that changes things some. But, unfortunately for a world still addicted to oil, not nearly as much as many had originally
hyped – er, hoped.
Back in 2009 and 2010, I calculated that somewhere around 2013-2014, the world would have to come to terms with the reality of peak oil production. I
rather doubt that's the case now.
Back then, I underestimated the impact that the 2008 global recession would have on demand, as well as the contributions that would come from shale.
Together, these have served to lessen the global demand for oil to the extent that a (barely) tolerable price of ~$100 per barrel is balancing supply
and demand (for now), which is allowing Peak Oil to shift off into the distance for a few more years.
The way that global oil supply and demand have balanced has involved both increased U.S. production and reduced U.S. demand, which has dramatically
reduced U.S. demand from elsewhere on the globe. This has then allowed the rest of the world to compete for non-U.S. oil with relative ease.
If we look at U.S. production, nearly 2 million barrels per day (mbd) of increased domestic production over the past two years simply meant 2 mbd that
the U.S. did not have to import:
So that helped. And it was a good thing, too, because if we look at global production of crude oil with the U.S. removed from the equation, we see
Virtually zero growth in oil production across the globe, despite a full doubling of expenditures by the oil companies on exploration and production
and a near tripling of the price of oil.
If you want to understand why oil prices tripled, the above chart is really all you need to look at. It's just basic economics. Supply and demand are
matched by price. If demand was rising (and it was) and supplies were stagnant (and they were), then price balances the equation.
To know when Peak Oil will finally be recognized across the world's stage, I would need to know by just how much global economic growth is going to
advance, what new discoveries will arrive, the price of oil, and whether or not the Middle East will stabilize or destabilize.
In short, I can't predict any of these things with any sort of statistical accuracy. But I can know that every oil find eventually depletes and that
the new ones are less spectacular than prior ones. And that we've drilled out the best plays first, so the future ones are likely to be
The Best Plays First
It's important to note that the recent U.S. experience in drilling the Bakken, Eagle Ford, and Permian Basin plays cannot and should not be linearly
extrapolated across the 20 total U.S. shale basins known to exist.
The reason is that the remaining plays are certain to be of lesser quality, more difficult/expensive to access, and/or lower yielding.
This has certainly proven to be true, at least judging by these news releases:
Shale formation in Montana frustrates oil drillers
Mar 15, 2013
The pessimists are right for now: The Heath oil play cutting a swath across Central Montana is no match for the Bakken.
In fact, a handful of companies drilling in this shale formation in Central Montana have all pulled out.
And Montana’s other big energy hope -- using CO2 to coax oil out of the old Bell Creek field in southeastern Montana -- has been delayed.
“The last wells are coming in at 15 or 20 barrels a day. At $4 million to $6 million a well, that doesn’t cost out,” said independent oil man
Tom Hauptman of Billings.
Production of shale wells decline rapidly after a year or two. So the Heath wells would have to produce 30 times what they are now to be economical,
Two years ago, the petroleum industry veteran was touting the Heath as a potential mini-Bakken.
edit on 11-10-2013 by raiden12 because: (no reason given)