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


5 Triggers to Come-To-Jesus Moment for Tight Oil

As much as one thinks times are tough now for the tight oil sector, these 5 triggers arriving within the short term horizon have the ability to upset the entire apple cart and then some.

September 5, 2015

U.S. Shale Gas Production Outlook Update

After raining on the EIA’s Monterey shale oil parade resulting in the department’s subsequent jaw dropping 96% sobering haircut of the formation’s oil reserve, David Hughes, in Drilling Deeper and its latest updates, further challenges the EIA’s tight oil and shale gas production predictions.

May 11, 2015

Insane Policy Driving Stupid Money to Fuel Tight Oil Boom

The repressive interest rate policy of the Fed drove stupid money into the tight oil industry, the commercial viability of which is at best questionable at the price of oil much higher than the current level.

April 29, 2015

Years, Not Decades For Shale Oil & Gas

Geological consultant and expert in petroleum exploration and production explains in this video why the US has years, not decades of shale oil and natural gas, why the current price slump and where the industry is heading.

March 17, 2015

Tight Oil’s First Domino

The tight oil revolution is brought on by cheap debt and leverage. Should it unravel one day, then it would not be surprising that the first domino to fall will likely be from the capital markets.

December 13, 2014

A Nightmare Price Scenario for Tight Oil

In a what-if analysis, Deutsche Bank calculates the price threshold of oil below which would not only cause catastrophic events in the high yield bond market where tight oil companies raise their capital, but also send a shock wave across the entire high yield bond segment.

November 27, 2014

Drilling Treadmill In Action – US Shale Oil update

See how the phenomenon of the drilling treadmill is playing out in the two biggest tight oil fields in the US.

August 3, 2014

Behind The Oil & Gas Abundance Narrative: The True Status of Crude Oil

How does the claim of oil abundance and energy independence brought on by tight oil in the U.S. measure up against reality? What is the impact of tight oil in the context of global crude oil production and consumption?

June 21, 2014

Deconstructing the 100 Years of Natural Gas Abundance Narrative

How does the claim of 100-years of natural gas abundance touted by the shale oil and gas industry measure up against reality? What are the reasons the industry is maintaining this narrative?

May 27, 2014