Shale Reality Check 2021

As goes the US, so goes the world.

For now, the bullish case for oil and gas rests largely upon financial issues: prices are still too cheap to justify aggressive new drilling, of the sort that produced huge increases in production a few years ago. Also, there is a problem of transport: natural gas transport from places where it is produced, to places where it is used (Europe and Asia) is still being expanded.

But, there is a larger and slower issue, which is the productivity of oil and gas fields even when capex “returns to normal,” or, if prices get high enough, far above normal. All oil and gas fields deplete and decline in production, eventually. There are a few people now saying that that point might be closer than we think, for the big US shale fields that have been the primary source of global production increases over the last decade. If that started to happen, over the next five years or so, we could see oil prices go to $200+ per barrel, and gas perhaps around $25/mcf — basically, as actually happened, in 2007-2008.

Here taking the bear case — for production, which is a bull case for pricing — is J. David Hughes, a career geologist, who goes through all the major US shale fields in detail. As you might expect from an organization called the Post Carbon Institute, it is rather “Limits to Growth”-esque in its conclusions. However, this is not the usual global warming-inspired organization that you see these days, but more along the line of serious oil and gas people giving a warning that all good things come to an end, including fossil fuels, and that you had best prepare for that, at least a little.

As an example, here are production figures for the Barnett shale field, in Texas:

This is the likely future of all the US shale fields. The main question is when they hit their peak, which is harder to determine than you might think. However, recent low prices have led drillers to focus on their highest production/lowest cost “core” areas. The result is that these have been intensively exploited. There are still a lot of second-tier resources, but these require more money and produce less oil. Production declines.

So, without further introduction, here is the Shale Reality Check 2021 by J. David Hughes. It is $20, and well worth it if you have more than $1000 invested in the oil and gas space.

Read Shale Reality Check 2021

Here also is the related website: Shalebubble.org