Shale Bubble

False Promises

In recent years Americans have been hearing that the United States is poised to regain its role as the world’s premier oil and natural gas producer, thanks to the widespread use of horizontal drilling and hydraulic fracturing (“fracking”). This “shale revolution,” we’re told, will fundamentally change the U.S. energy picture for decades to come—leading to energy independence, a rebirth of U.S. manufacturing, and a surplus supply of both oil and natural gas that can be exported to allies around the world. This promise of oil and natural gas abundance is influencing climate policy, foreign policy, and investments in alternative energy sources.

The primary source for these rosy expectations of future production is the U.S. Department of Energy’s Energy Information Administration (EIA).

But what if the EIA’s forecasts are wrong?

The Reality

The Reality is that the government’s long-term forecasts—the ones everyone is relying on to guide our energy policy and planning—are overly optimistic. An exhaustive, county-by-county analysis of the 12 major shale plays in the U.S. (accounting for 89% of current tight oil and 88% of current shale gas production) concludes that both oil and natural gas production will peak this decade and decline to a small fraction of current production by 2040.

Shale plays suffer from high decline rates and declining well quality as the “sweet spots” run out, meaning that ever more wells will have to be drilled just to keep production flat—until even that is no longer achievable. Continued drilling requires massive amounts of capital, which can only be supported by high levels of debt or higher prices.

Diminishing Returns

High productivity shale plays are not ubiquitous and wells suffer from very high rates of depletion.

The Drilling Treadmill

Because depletion rates are so high and drilling locations increasingly unproductive, industry must drill ever more wells just to offset declines.

Questionable Profits

To continue drilling rates, industry will need prices to rise substantially or have to take on more debt, which may not be sustainable.

If the long-term future of U.S. oil and natural gas production depends on resources in the country’s deep shale deposits, as the Energy Department contends, we are in for a big disappointment.

KEY FINDINGS

Drilling Deeper

Drilling Deeper: A Reality Check on U.S. Government Forecasts for a Lasting Tight Oil & Shale Gas Boom investigates whether the Department of Energy’s expectation of long-term domestic oil and natural gas abundance is founded. It aims to gauge the likely future of U.S. tight oil and shale gas production based on an in-depth assessment of all drilling and production data from the major shale plays, current through early- to mid-2014. The report determined future production profiles given assumed rates of drilling, average well quality by area, well- and field-decline rates, and the estimated number of available drilling locations.

The report was authored by J. David Hughes on behalf of Post Carbon Institute.