U.S. Shale Plays. Oil-Prone Shale Plays: The Illusion of Energy Independence

Transcription

1 U.S. Shale Plays Oil-Prone Shale Plays: The Illusion of Energy Independence Arthur E. Berman Austin, Texas Slide 1

2 Shale Magical Thinking "I know not any thing more pleasant, or more instructive, than to compare experience with expectation, or to register from time to time the difference between idea and reality. It is by this kind of observation that we grow daily less liable to be disappointed." --Samuel Johnson: Letter to Bennet Langton What few people realize: While oil production has increased, the U.S. is not going to become energy independent. Resources are not reserves, and reserves are not supply. Shale oil wells have high decline rates and require substantial capital expenditure to keep production flat much less increasing. Oil production from the Eagle Ford and Bakken shales will probably increase U.S. supply by 1-2 million barrels per day by 2020 depending on oil price. Slide 2

3 The Good News Propaganda Campaign About Oil Why not? Price, cost, and returns. None are really dealt with by the IEA. --Rune Likvern Slide 3

4 Modified from Medlock (2010) Reserves are a very small sub-set of resources. Reserves take years of development drilling to become supply. Proved undeveloped reserves may never be developed. Slide 4

5 A view from the bottom of the resource pyramid Unconventional plays became important as better plays were exhausted. There is no technological revolution, just improvement through extensive & expensive trial-and-error. Shale reservoirs will not perform as well as conventional reservoirs. Economics depend on high oil prices. And the drilling treadmill never ends because of high decline rates. Demand destruction will limit oil price and, therefore, the long end of the unconventional production curve. Slide 5

6 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Thousands of Barrels Per Day Crude Oil vs. Liquids 25,000 Supply and disposi on of crude oil and petroleum products 20,000 15,000 Net Imports 10,000 Natural Gas Liquids Processing Gain Biofuels Prudhoe Bay 5,000 Crude Oil Produc on Shale Revolu on 0 Crude oil, petroleum products & petroleum liquids are commonly grouped together. They are not the same. Natural gas liquids have lower heat content than oil, and are not used for transport. NGLs must be distilled from natural gas. Refinery processing gain results from refining crude oil into products with lower specific gravity. Biofuels are not made from petroleum & have lower heat content. Slide 6

7 U.S. Oil Production U.S. oil production is now flat at 6.3 mmbo/day. U.S. crude oil consumption is 15.4 mmbo/day. The gap between production and consumption is 9 mmbo/day. It is unlikely that the U.S. will become energy independent. Slide 7

8 Bakken Shale Location Map Data from DI 236 rigs drilling in the Bakken. Second highest rig count. Slide 8

9 Barrels of Oil Per Day Number of Producing Wells Bakken Shale Total Production Bakken Shale Production Oil Production Number of Wells 600,000 6, , ,000 5, , ,000 4, , ,000 3, , ,000 2, , ,000 1,000 50, /1/2000 8/1/2000 3/1/ /1/2001 5/1/ /1/2002 7/1/2003 2/1/2004 9/1/2004 4/1/ /1/2005 6/1/2006 1/1/2007 8/1/2007 3/1/ /1/2008 5/1/ /1/2009 7/1/2010 2/1/2011 9/1/2011 4/1/ Data from DI Oil production has increased to 573,000 barrels per day from 4874 producing wells. Average well is 118 barrels of oil per day. Well cost is $11.5 million. Slide 9

10 Jun-00 Oct-00 Feb-01 Jun-01 Oct-01 Feb-02 Jun-02 Oct-02 Feb-03 Jun-03 Oct-03 Feb-04 Jun-04 Oct-04 Feb-05 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Barrles of Oil Per Day Number of Wells Bakken Shale Annual Base Replacement Bakken Shale Static Decline Profile Oil Production Number of Wells 350, , , , , , , Data from DI 38% annual decline rate. Must replace 182,000 bo/d each year to maintain supply. That means approximately 1,488 new producing wells/year at a cost of ~ $17 billion new producing wells were added in last 12 months ($13 billion). Houston SIPES Continuing Education Seminar Slide 10

11 Barrels of Oil Per Day Bakken Shale Annual Base Replacement 200,000 Bakken Shale Annual Base Replacement 180, , , , , , , ,000 First 182,000 bopd 1636 Wells $18.8 Billion (8/2009) Second 182,000 bopd 1480 Wells $17 Billion (10/2010) 2012 Base Replacement 1488 Wells $17.1 Billion (1/2012) 80,000 60,000 40,000 20, Incremental Producing Wells Fewer wells required today to replace same volume as in No improvement in efficiency between 2010 and Data from DI Houston SIPES Continuing Education Seminar Slide 11

12 Vintaged Bakken Shale Production Slide 12

13 Bakken 12-month Cumulative Production Map Map shows wells with first production in 2006 or later. Green areas indicate break-even or greater production volumes Most production on the map is from the Three Forks reservoir. Indicates that production is from discreet fields. Slide 13

14 Shale Oil Observations Shale oil obeys the laws of physics Commercial oil is found in fields, Plays are not fields, Shale plays depend on constant drilling and most current production is from wells drilled yesterday. Decline rates are breath-taking. Shale oil production requires infinite capital at low cost of capital. It is unlikely that oil from shale plays will result in energy independence. Slide 14

15 U.S. Shale Plays Oil-Prone Shale Plays: The Illusion of Energy Independence Arthur E. Berman Austin, Texas Slide 15