Predictions of a massive shale gas and oil bonanza in the United States are being branded as overblown and unsustainable. Moreover, it is claimed that the US Department of Energy’s Energy Information Administration has got its numbers wrong.
J David Hughes, a geoscientist who has studied the energy resources of Canada for nearly four decades, including 32 years with the Geological Survey of Canada as a scientist and research manager, warns that unconventionals like shale oil and gas will not turn out to be the energy saviours that many people think they could be.
It was in February that J David Hughes, author of the Post Carbon Institute report Drill Baby Drill, said that despite the huge growth in shale gas output in just a few years, the reality was that “production has been on a plateau since December 2011”.
Currently, 80% of shale gas production comes from five plays, several of which are in decline, including the Haynesville.
Hughes warns that the very high decline rates of shale gas wells require continuous inputs of capital . . . estimated at $42billion per year to drill more than 7,000 wells . . . in order to maintain production.
“In comparison, the value of shale gas produced in 2012 was just $32.5billion,” he claims.
“The best shale plays, like the Haynesville, are relatively rare, and the number of wells and capital input required to maintain production will increase going forward as the best areas within these plays are depleted.
“High collateral environmental impacts have been followed by pushback from citizens, resulting in moratoriums in New York State and Maryland and protests in other states.
“Shale gas production growth has been offset by declines in conventional gas production, resulting in only modest gas production growth overall. Moreover, the basic economic viability of many shale gas plays is questionable in the current gas price environment.”
Hughes similarly queries assumptions about so-called “tight” or shale oil exploitation, despite the rapid increase in output since 2008 that has enabled a reversal in US domestic oil production.
“More than 80% of tight oil production is from two unique plays: the Bakken in North Dakota and Montana, and the Eagle Ford in southern Texas,” says Hughes.
“The remaining nineteen tight oil plays amount to less than 20% of total production, illustrating the fact that high productivity tight oil plays are in fact quite rare.”
Like shale gas, tight oil plays are characterised by high decline rates, and it is estimated that more than 6,000 wells (at a cost of $35billion annually) are required to maintain production, of which 1,542 wells annually (at a cost of $14billion) are needed in the Eagle Ford and Bakken plays alone to offset declines.
As some shale wells produce substantial amounts of both gas and liquids, taken together shale gas and tight oil require about 8,600 wells per year at a cost of over $48billion to offset declines, according to Hughes, who predicts a 10-year boom for the Bakken and Eagle Ford; peaking in 2017 and crashing back to 2012 levels by 2019.
Hughes is blunt: “There are no unconventional fuel panaceas lying in wait to solve the problem of future higher-cost supplies of oil and gas.”
While the Hughes study is US focused, what he predicts for North America is likely to be broadly valid for Europe, where it is already clear that the shale story will unfold in a different way and is already fraught with additional complexities not prevalent in North America (US and Canada).
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