Topic: Tight oil Shale gas

In a Nutshell

The so called tight oil and shale gas revolution, brought on by the breakthrough in hydraulic fracturing (fracking), ushering in a new era of oil and gas abundance and bringing hope for US energy independence, is one of the biggest marketing myths created by the oil and gas industry, pumped by investment banks and fanned by mainstream media.

Their environmental impacts aside, tight oil and shale gas are neither cheap to produce nor abundant in supply (will last only years, not decades), and more like a retirement party than the dawn of energy independence.

Myths

At the peak of tight oil production, the US is projected to still import about 25% of its oil needs.

Although the technology has no doubt improved, fracking has been known to the industry for a long time. The enabler of the technology is high price – $100 oil makes the drilling for tight oil economically feasible.

This claim takes advantage of the public’s ignorance in how resources and, more critically, reserves are counted. Once you learn how to count, the number is closer to 20 years based on 2010 consumption rate. See Deconstructing the 100 Years of Natural Gas Abundance Narrative.

Tight oil production will reach a plateau between 2015 and 2020 and then face a one way decline beyond. See Years, Not Decades For Shale Oil & Gas

None. The industry collectively has not made a dime but instead has been burning cash since the dawn of the ‘fracking revolution’. They did not make money even when oil was over $100 a barrel.

From $50 to $70 a barrel, depending on the quality of the oil plays and labour cost. Tight oil represents one of the most expensive sources of oil. That’s why it is called unconventional oil, a euphemism for expensive oil.

Tight oil companies are loaded with debt and need the revenue from oil sale to service debt. The lower the oil prices, the more they need to produce to generate revenue while they try to figure out how to raise more debt to make up for the shortfall.

Unlike conventional wells which deplete 4 to 6% a year, tight oil and gas wells deplete up to 90% in three years. That means every three years you would need to drill another well just to maintain production at the same level. There are now hundreds of thousands of wells. Mathematics and physical limitations will tell you that you cannot continue to grow production. This is called the drilling treadmill. See Drilling Treadmill In Action – US Shale Oil update

(1) The depletion rates of horizontal wells are extremely high. (2) Compared to conventional wells, oil and gas from fracking can be brought online fairly quickly, making a fast ramp-up in production possible.

Cheap money. Investors hungry for yield driven by the central banks’ zero interest rate policy have been ploughing billions into tight oil companies, enabling them to use other people’s money to produce oil and gas at a loss. See Tight Oil’s First Domino


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