Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

Survey of shale oil; also the Peak Oil Myth – #26

Matt Ridley provides an overview of the flood of fracked shale oil in his post, The dash for shale oil will shake the world.

He points to The Shale Oil Boom: a US Phenomenon, a newly released report from Leonardo Maugeri.

I’ve mentioned this in the past, but look again at the explosion of estimated recoverable oil in Bakken:

In 1995 the Bakken field was reckoned by the US Geological Survey to hold a trivial 151 million barrels of recoverable oil. In 2008 this was revised upwards to nearly 4 billion barrels; two months ago that number was doubled. It is a safe bet that it will be revised upwards again.

That growth is not newly discovered fields, or the result of correcting bad estimates. That oil wasn’t in the recoverable category because until a few years ago there was no way to get it out. With horizontal drilling and hydraulic fracturing, there is 50 times more recoverable oil than 18 years ago.

Remember that core concept of Peak Oil doctrine that there won’t ever be a way to get oil out of the ground that we can’t get today?

Busted.

Again.

Look at this survey of the four biggest shale oil plays in the US:

Now the Bakken is being eclipsed …

…even more productive shale formation in southern Texas called the Eagle Ford. Texas, which … has doubled its oil production in just over two years

Then there’s the Permian Basin in west Texas, which looks as big as the other fields…

Monterey shale in California … which, at 15 billion recoverable barrels, could be bigger than the Bakken and Eagle Ford combined…

The numbers are so large they are almost ludicrous.

Rate of production drop

Regarding that very steep dropoff in production, take a look at how astoundingly profitable these wells are:

Mr Maugeri calculates that at $85 a barrel most shale oil wells repay their capital costs in a year.

If you can recover your capital costs in a year, do you really care that your production rate will drop rapidly? If you get your capital back in 12 months, then starting in month 13 the difference between revenue and marginal costs of maintaining the well goes straight to the bottom line.

What if the 500K estimated ultimate recovery (EUR) as spread over 30 years? The well would still be profitable. It would take a decade (just a wild guess) to recover your costs instead of one year.  The return is very front loaded.  There are very few places in the US economy where you can invest $10M and recover your investment in a year. CEOs of manufacturing or retail companies would love to have those kinds of investment opportunities.

Peak What?

As to Peak Oil doctrine, Dr. Ridley says:

Predictions that the oil supply in the US would peak, loud a few years ago, are a distant memory.

He puts Peak Oil into the myth category:

… there is little doubt that the inevitably ever-rising price of fossil fuels as they run out is, for the third time in my life, proving a myth.

Check out the full article. I’ve downloaded Mr. Maugeri’s booklet and will dive into it soon.

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5 thoughts on “Survey of shale oil; also the Peak Oil Myth – #26

  1. Peak oil a myth? Any such assertion betrays a startling degree of scientific and mathematical illiteracy. The bottom line is that no matter how much oil and gas there is in the world, oil and gas fields take millions of years to form and decades to deplete. The only possible debate is about when oil supplies will peak, not whether they will peak or not.

    • Thanks for your comment Mr. Sommers.

      Scientificly illiterate? Perhaps.

      CPAs are not typically known for being mathematically illiterate. It is in fact my mathematical ability, along with lots of reading, that leads me to the conclusions you see on this blog.

      Further thoughts on this post and your comment can be found at a new post here.

  2. You presented a quote in your article saying that the amount of recoverable oil in the Bakken now stands a 8 billion barrels. Actually, the most wildly optimistic estimates go even further. There _may_ even be as many as 24 billion barrels of oil in the Bakken … but remember, this is the most optimistic estimate I’ve seen. Anyway, that sounds like a a LOT of oil, doesn’t it?
    The shocking truth though is that this amounts to about three quarters of annual world consumption (30 billion barrels) or about 3 and a half years of U.S. consumption (roughly 7 billion barrels). And this oil is considerably harder and more expensive to extract than conventional oil, too. So all in all this doesn’t really quite solve the problem of Peak Oil, don’t you think?

  3. Pingback: I’d be worried about Peak Oil if… (#30) | Outrun Change

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