Thursday, August 1, 2013

Peak shale oil? What peak?


A graphic contributed by Jean Laherrere indicating that shale oil production in North Dakota may soon peak and start declining.


This figure, made by Jean Laherrere, deals with oil production from the "Bakken Shale," a geological formation existing in large part in North Dakota. Shales may contain oil deposits, in most cases in the form of "tight oil." This is oil is trapped in a porous matrix which cannot flow to the surface without the help of sophisticated fracking technologies (you can find a nice illustration of the process here). The recent revival of oil production in the United States, which gave rise to so much optimism on the future of oil production, is almost solely related to use of these technologies for the exploitation of the Bakken Shale. 

The problem is, of course, for how long it will be possible to maintain the rapidly growing production trend from the Bakken deposits. In the figure, Laherrere shows the oil production in North Dakota (ND prod) in thousands of barrels per day (kb/d) as well as the number of exploration rigs (nb rigs). Laherrere has also shifted the rigs curve forward of about one year, in order to match the production curve.

Now, it is clear that you cannot produce anything that you haven't previously found. So, it is well known that production in a certain area mirrors exploration, but it is shifted forward in time. With conventional oil, the time lag between discoveries and production is of the order of 30-40 years. With oil from shales, it seems to be much faster: wells are rapidly put into production but also have a short lifetime.

In the figure, Laherrere finds a time lag of just around one year. And, since we see a drop in the number of exploration rigs in 2012, it seems likely that production will start declining soon, perhaps during the present year.

This is a conclusion that has to be taken with caution since the drop in the number of exploration rigs could be just a temporary phenomenon. But it is also true that the exploitation of shale oil is expensive in terms of resources and energy required. In the end, as always, it is a question of EROEI: we can only have the oil we can afford to extract.


On this subject, see also a post by Stuart Staniford on the Bakken Shale production that arrives to conclusions similar to those of Laherrere. See also a post of mine which examines shale gas production using the same method. See also an extensive article by Jean Laherrere on the recent trends of oil production.

Also, I am adding a second graph, kindly provided by Jean Laherrere, that examines production in Montana using the same method. It shows that it makes sense to shift the number of rigs of one year forward to match the production curve.





13 comments:

  1. The Stuart Staniford post on drill rigs was from 6 1/2 months ago. His current post from a copy weeks ago is at:
    http://earlywarn.blogspot.it/2013/07/us-oil-rig-count-and-oil-production.html

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    1. Yes, but the article by Staniford that I cited is the one where he shows a curve very similar to the one by Laherrere

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  2. Hey Ugo!

    I will be Cross Posting this article along with the first of your Podcasts on the Doomstead Diner on Saturday.

    The Podcast by itself will be found on the Podcast Page of the Diner @

    http://www.doomsteaddiner.net/blog/podcasts/

    The article will appear on the Diner Blog along with the first Podcast Widget.

    RE

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  3. Another peak....

    IT’s happening. IT is happening now here. I am scared of people who cannot see IT as well as frightened of people who do see why IT is occurring and yet consciously and deliberately refuse to speak out loudly and clearly truth to the powerful about why human population numbers are exploding on our watch. Truly, what is happening is tragic….. an abject moral and strategic failure of colossal proportions. ‘The brightest and best’, the electively mute ones, are failing all the rest, all that exists.

    http://www.youtube.com/watch?v=ozDskXxmdDI

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  4. to correctly infer the drop of near future oil shale production, it has to be convincingly explained why the 2009-2010 fluctuation in the rig count is not reflected in the 2010-2011 production. IMHO, the time lag should be quantified at least around 3-5 years,not simply one.

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    1. Good point: I had noticed that, too. For this reason I said in the post that these results have to be taken with some caution.

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  5. looking more carefully the chart, I assume that the rig count should be the number of NEW rigs.

    On the contrary i can't explain why there is production in the 1990-1992 where there are no rigs ( maybe the rig number data is missing there) and why there is a drop to zero rigs in 1999 without the production stopping too.

    I remember that in 1999 the oil barrel reached a minimum ( around 15$) so maybe this discouraged the installment of new rigs.

    If the nb_rigs is indeed the number of new rigs, this could explain why the 2009-2010 fluctuation has little effect on production. 2008-2010 is characterized by economic crisis and demand destruction, so new installment are reduced. Production, on the other side, is still going, driven by the larger number of already installed rigs.

    At this point, if my interpretation is correct, this graph is misleading because we are comparing montly (?) production with the monthly(?) increment of rigs. More appropriate, should be to compare the monthly production with the entire number of active rigs.

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    1. Well, as far as I know, the number of rigs is simply the number of rigs in operation. In 1990-1992, the data are clearly missing. But I'll forward your questions to Jean

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    2. Jean says to write to him at jean.laherrere(littlewhirlywhirl)alsatis.net, he'll send you an answer with some further graphs.

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    3. This is Jean's answer - the plot he refers to is added to the post above

      ________________________________


      Jean Laherrere 6 August 2013


      Do not confuse no data with zero data.

      It is hard to find historical data and the rig count is found on Baker Hughes site and starts only from 1992 when oil monthly production is found on EIA site since 1980 and on North Dakota dmr site since 1951.

      The number of rigs can drop to zero like 1999 because of very low oil price (10$/b) or in 2009 because financial crisis (independent companies borrow money), but these extreme constraints are short and do not seem to disturb the trend.

      I do not understand the question on new rigs and the difference with active wells. Are they new because coming from the shop or new on the area ? Baker reports only active rigs

      Rigs are there to drill wells, being new or not. It should be better to get the number of new wells but this data is not available. ND DMR reports only the number of producing wells, but it is the sum of new wells less shut wells.

      The best should be to get the n number of new fractured wells because it takes month after the rig is gone before the hydraulic fracturation.

      The North Dakota graph is a guess I have a better graph with production excluding the Bakken

      But this graph is confirmed by the similar graph on Montana where production has peaked in 2006 with Elm Coulee field, one year after the rig count peak, but showing a new peak coming in 2015 with Elm Coulee Northeast.


      I do not see on what basis is the statement on a shift for 3-5 years (it is one year in Montana) and on a misleading graph. A graph is a graph, it is only the interpretation which can be wrong or misleading

      The data is official data and well defined.

      I should be pleased to know a better way to forecast North Dakota oil peak and what is Phitio’s guess.

      La critique est aisé, mais l’art est difficile !

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  6. Ok, now I see the misunderstanding, I confused "rigs" with "oil wells".

    So, oil rigs are indeed the machinery used to drill new wells: we are then comparing the production with the , I could say, the "drilling activity" .

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  7. I forgot to tell my guess: as far as I can deduce from the graph, the fall in bakken could arrive next year if the fall in rig count will continue.

    If the rig count will stay constant, it could be delayed another year,more or less.

    I think that the production fall rate should be smaller than the rig count one, on account of the tails of production of previously drilled wells.


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  8. Exploration and production rig counts do not bear direct correlation to each other. Once seismic and exploration drilling work proves the viability of an area. Sufficient thickness of the Brakken Shale with the right geophysics/geochemistry( ability to be fractured economically etc). Then the Exploration rig may tender for other work and production rigs introduced. The numbers are rarely the same. However having said that more rigs are being modified specifically for combined exploration and production. It's pretty much a given that most of the areas now in production have encountered the Brakken and has some economic potential al be it fairly short term. Return on net investment may be smaller than in traditional oil reservoir plays, but the probability of a return (of some measure) is way higher. Dril more wells for a lesser gross return but a more measured return. These are the dynamics of the Brakken!!! Fudging graphs that don't match this dynamic... is a fools errand!!!

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Who

Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014)