ANOTHER NAIL IN THE U.S. EMPIRE COFFIN: Collapse Of Shale Gas Production Has Begun

The U.S. Empire is in serious trouble as the collapse of its domestic shale gas production has begun.  This is just another nail in a series of nails that have been driven into the U.S. Empire coffin.

Unfortunately, most investors don’t pay attention to what is taking place in the U.S. Energy Industry.  Without energy, the U.S. economy would grind to a halt.  All the trillions of Dollars in financial assets mean nothing without oil, natural gas or coal.  Energy drives the economy and finance steers it.  As I stated several times before, the financial industry is driving us over the cliff.

The Great U.S. Shale Gas Boom Is Likely Over For Good

Very few Americans noticed that the top four shale gas fields combined production peaked back in July 2015.  Total shale gas production from the Barnett, Eagle Ford, Haynesville and Marcellus peaked at 27.9 billion cubic feet per day (Bcf/d) in July and fell to 26.7 Bcf/d by December 2015:

Top-U.S.-Shale-Gas-Fields-Production

As we can see from the chart, the Barnett and Haynesville peaked four years ago at the end of 2011.  Here are the production profiles for each shale gas field:

Barnett-Shale-Gas-Field

According to the U.S. Energy Information Agency (EIA), the Barnett shale gas production peaked on November 2011 and is down 32% from its high.  The Barnett produced a record 5 Bcf/d of shale gas in 2011 and is currently producing only 3.4 Bcf/d.  Furthermore, the drilling rig count in the Barnett is down a stunning 84% in over the past year.

Haynesville-Shale-Gas-Field

The Haynesville was the second to peak on Jan 2012 at 7.2 Bcf/d per day and is currently producing 3.6 Bcf/d.  This was a huge 50% decline from its peak.  Not only is the drilling rig count in the Haynesville down 57% in a year, it fell another five rigs this past week.  There are only 18 drilling rigs currently working in the Haynesville.

Eagle-Ford-Shale-Gas-Field

The EIA reports that shale gas production from the Eagle ford peaked in July 2015 at 5 Bcf/d and is now down 6% at 4.7 Bcf/d.   As we can see, total drilling rigs at the Eagle Ford declined the most at 117 since last year.  The reason the falling drilling rig count is so high is due to the fact that the Eagle Ford is the largest shale oil-producing field in the United States.

Marcellus-Shale-Gas-Field

Lastly, the Mighty Marcellus also peaked in July 2015 at a staggering 15.5 Bcf/d and is now down 3% producing 15.0 Bcf/d currently.  The Marcellus is producing more gas (15 Bcf/d) than the other top three shale gas fields combined (12.1 Bcf/d).

I have posted the Haynesville shale gas production chart below to discuss why U.S. Shale Gas production will likely collapse going forward:

Haynesville-Shale-Gas-Field

What is interesting about the Haynesville shale gas field, located in Louisiana and Texas, is the steep decline of production from its peak.  On the other hand, the Barnett (chart above in red) had a much different profile as its production peak was more rounded and slow.  Not so with the Haynesville.  The decline of shale gas production at the Haynesville was more rapid and sudden.  I believe the Eagle Ford and Marcellus shale gas production declines will resemble what took place in the Haynesville.

All you have to do is look at how the Eagle Ford and Marcellus ramped up production.  Their production profiles are more similar to the Haynesville than the Barnett.  Thus, the declines will likely behave in the same fashion.  Furthermore drilling and extracting shale gas from the Haynesville was a “Commercial Failure” as stated by energy analyst Art Berman in his Forbes article on Nov 22 2015:

The Haynesville Shale play needs $6.50 gas prices to break even. With natural gas prices just above $2/Mcf (thousand cubic feet), we question the shale gas business model that has 31 rigs drilling wells in that play that cost $8-10 million apiece to sell gas at a loss into a over-supplied market.

Haynesville-Shale-EUR-Map-Berman

At $6 gas prices, only 17% of Haynesville wells break even (Table 3) and approximately 115,000 acres are commercial (Figure 2) out the approximately 3.8 million acres that comprise the drilled area of the play.

The Haynesville Shale play is a commercial failure. Encana exited the play in late August. Chesapeake and Exco, the two leading producers in the play, both announced significant write-downs in the 3rd quarter of 2015.

Basically, the overwhelming majority of the shale gas extracted at the Haynesville was done so at a complete loss.  So, why do they continue drilling and producing gas in the Haynesville?

The reason Art Berman states is this:

What we see in the Haynesville Shale play are companies that blindly seek production volumes rather than value, and that care nothing for the interests of their shareholders. The business model is broken. It is time for investors to finally start asking serious questions.

Chesapeake is one of the larger shale gas producers in the Haynesville as well as in the United States.  According to its recent financial reports, Chesapeake received $1.05 billion in operating cash in the first three-quarters of 2015, but spent $3.2 on capital expenditures to continue drilling.  Thus, its free cash flow was a negative $2.1 billion in the first nine months of 2015.  And this doesn’t include what it paid out in dividends.

The same phenomenon is taking place in other companies drilling for shale gas in the other fields in the U.S.  This insanity has Berman perplexed as he states this in another article from his site:

This has puzzled me because the shale gas plays are not commercial at less than about $6/mmBtu except in small parts of the Marcellus core areas where $4 prices break even. Natural gas prices have averaged less than $3/mmBtu for the first quarter of 2015 and are currently at their lowest levels in more than 2 years.

The reason these companies continue to produce shale gas at a loss is to keep generating revenue and cash flow to service their debt.  If they cut back significantly on drilling activity, their production would plummet.  This would cause cash flow to drop like a rock, including their stock price, and they would go bankrupt as they couldn’t continue servicing their debt.

Basically, the U.S. Shale Gas Industry is nothing more than a Ponzi Scheme.

The Collapse Of U.S. Shale Gas Production Even At Higher Prices

I believe the collapse of U.S. shale gas production will occur even at higher prices  Why?  Because the price of natural gas increased from $2.75 mmBtu in 2012 to $4.37 mmBtu in 2014, but the drilling rig count continued to fall:

U.S.-Gas-Drilling-Rigs-vs-Spot-Price

As the price of natural gas increased from 2012 to 2014, gas drilling rigs fell 40% from 556 to 333.  Furthermore, drilling rigs continued to decline and now are at a record low of 127.  Just as Art Berman stated, the average break-even for most shale gas plays are $6 mmBtu, while only a small percentage of the Marcellus is profitable at $4 mmBtu.

Looking at the chart again, we can see that the price of natural gas never got close to $6 mmtu.. the highest was $4.37 mmBtu.  Thus, the U.S. Shale Gas Industry has been a commercial failure.

Now that the major shale gas producers are saddled with debt and many of the sweet spots in these shale gas fields have already been drilled, I believe U.S. shale gas production will collapse going forward.  If we look at the Haynesville Shale Gas Field production profile, a 50% decline in 4 years represents a collapse in my book.

The Two Nails In The U.S. Empire Coffin

As I stated in several articles and interviews, ENERGY DRIVES THE ECONOMY, not finance.  So, energy is the key to economic activity.  Which means, energy output and the control of energy are the keys to economic prosperity.

While the collapse of U.S. shale gas production is one nail in the U.S. Empire Coffin, the other is Shale Oil.  U.S. shale oil production peaked before shale gas production:

Top-4-Shale-Oil-Fields-Production

This chart is a few months out of date, but according to the EIA’s Productivity Reports, domestic oil production from the top four shale oil fields peaked in April of 2015… three months before the major shale gas fields (July 2015).

Unfortunately for the United States, it was never going to become energy independent.  The notion of U.S. energy independence was built on hype, hope and cow excrement.  Instead, we are now going to witness the collapse of U.S. shale oil and gas production.

The collapse of U.S. shale oil and gas production are two nails in the U.S. Empire coffin.  Why?  Because U.S. will have to rely on growing oil and gas imports in the future as the strength and faith of the Dollar weakens.  I see a time when oil exporting countries will no longer take Dollars or U.S. Treasuries for oil.  Which means… we are going to have to actually trade something of real value other than paper promises.

I believe U.S. oil production will decline 30-40% from its peak (9.6 million barrels per day July 2015) by 2020 and 60-75% by 2025.  The U.S. Empire is a suburban sprawl economy that needs a lot of oil to keep trains, trucks and cars moving.  A collapse in oil production will also mean a collapse of economic activity.

Thus, a collapse of economic activity means skyrocketing debt defaults, massive bankruptcies and plunging tax revenue.  This will be a disaster for the U.S. Empire.

Lastly, it is hard to forecast how this unfolds, but the best plan of action is to be more self-sufficient in the country with wealth held in physical gold and silver.

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37 Comments on "ANOTHER NAIL IN THE U.S. EMPIRE COFFIN: Collapse Of Shale Gas Production Has Begun"

  1. The collapse of the empire is not ideal for the people inside, but it will be beautiful for the people outside it who are subjected to their drone attacks, government overthrows etc. Bring it on the sooner the better

    • Hear, Hear!!!! Petet

    • Do you really believe those msm sideshow tricks? Remember, anytime you see an illusionist, there are diversions from what is really happening.

    • a guy from Ukraine | January 29, 2016 at 5:38 am | Reply

      I can’t but agree with you. Here in Ukraine we are so fed up with the US meddling. We don’t want anything bad to the US, other than for the US to experience what we have been through thanks to the american hawking imperial policies.

      • lastmanstanding | January 29, 2016 at 9:55 am | Reply

        Could you give us a “guy on the ground” report as to what you see going on in Ukraine?

        Many of us around the world are not truly globalist’s but we do hope that those living around the world have great communities, lives and opportunity.

        I can honestly say, 50% of Americans have no idea what is going on around the world…and could care less…but they will.

      • Cliff T. Collins | January 29, 2016 at 10:25 pm | Reply

        It’s only just begun! You have been caught in the “Democracy and Freedom” trap! Your going to have a tough time getting out of this mess that your wonderful EU/US Dictators have organized for you! After all the illegal interventions that the US/EU and NATO have brought to our otherwise peaceful world, I would have thought your country would have seen through this! NOT!! Enjoy 2016 with your new Masters!

  2. Steve,

    Stop peddling fiction will ya! Lol. I noticed the huge decline in rig counts. Less rigs online require less employees to service these fields moving forward. The one bright and sunny spot in U.S. job creation is getting very dark very quick. Thanks for putting together the cold hard fact and making this easy for the lay person to see.

    • Jared,

      Yeah, a good percentage decline of those gas rigs were conventional vertical rigs. However, horizontal gas drilling rigs fell significantly as well.

      With drilling rigs down along with the gas price, U.S. natural gas production will fall like a rock. The only way I could see a bit of a different outcome if the price of Natgas increased quickly to say $7-$8. But, the chance of that is slim to none.

      steve

      • This should be good for natgas companies. The industry is plagued by over-production and warm weather. If you think that the production is reduced, the price of natgas should rise and profitability will increase proportionally. Your argument just does not make any sense.

  3. “The reason these companies continue to produce shale gas at a loss is to keep generating revenue and cash flow to service their debt. If they cut back significantly on drilling activity, their production would plummet. This would cause cash flow to drop like a rock, including their stock price, and they would go bankrupt as they couldn’t continue servicing their debt.”

    Similar to primary silver miners I would think. Maybe also base metal miners

  4. Steve

    Why doesn’t someone in your country get on the telephone and let the world know you are running out of future Oil and Gas supplies? and come say 2020 you will need X amount of Oil and Gas per day. Why doesn’t someone just get on the telephone…? It should be that simple. Russia and Iran would probably be the first to put their hands up and say.. We will sell you our Oil and Gas !!!!!! or am I just naïve and immature… Lol … It would most likely be cheaper to buy it than bombing the crap out of everyone so you can steal it !!!

    • GrahamB,

      Because that would be like the Fed & U.S. Treasury admitting there is very little gold in U.S. Reserves. The only way U.S. oil and gas production would not collapse is if we had $100-$120 oil or $8-$10 natural gas for a decade. However, that won’t happen because that would mean the world would have to generate a substantial amount of debt to continue bringing on production.

      Unfortunately, the world can’t afford to service the debt it has now. So, increasing debt is not possible. Furthermore, if the U.S. and world just wrote off all the debt, then that would collapse world economic activity, oil, metal and commodity production.

      We live in interesting times.

      steve

      • It is like being stuck between a rock and a hard place Steve. I fully understand the FED, Money Creation and hence Debt BUT I do struggle getting this energy thing into my head. I don’t think I am Robinson Crusoe and I think I am getting there. Heading into the future my head just knows it is the most important thing associated with the economy, it is just having trouble understanding that fact.One of my daughters once said to me, “BRAINS are funny things aren’t they dad”… ROFL

        • GB
          This may help if you keep this in mind; hydrocarbons are not derived from fossils as the post evolutionists are being forced to confront with the latest finds. As much as some may want to deny who lack the scientific credentials, their generation is continuous at a given rate as are all the lighter elements due to radiometric decay. MLCOA

          • Saxon,

            I don’t care what hydrocarbons are derived from. The Falling EROI- Energy Returned On Invested proves the cheap, easy to to extract hydrocarbons are long gone.

            Again, extracting U.S. hydrocarbons at an EROI of 100/1 in 1930, 30/1 in 1970 and shale oil at 5/1 proves that their abundance is finite. Unfortunately, Shale oil at an EROI of 5/1 isn’t commercially viable. Folks who continue to regurgitate that oil is aboitic, fail to realize it doesn’t matter.

            steve

          • I understand where you are coming from there Saxon. I have read Thomas Gold’s book on “The Deep Hot Biosphere”. And I knew your statement would drag a response out of Steve.. LOL. BUT what Steve says below is correct, they have found the easy stuff. Lang Hancock one of out late prospectors (his daughter is Gins Rinehart one of our richest women) found his wealth in iron ore from an aeroplane in Western Australia. it was sitting above the earths crust. RIO TINTO are now the owners. Now they have exploratory Geologist crawling all over the place digging holes looking for the stuff, NOT flying around in aeroplanes … 🙂

  5. Steve
    There’s no regurgitation on my part, I understand science quite well. My field of research is the Standard Model of Particle Physics and I know that energy can be derived from any and all matter through both fission and fusion. While your model of failing EROI, seems accurate, it is provincial to think there are no alternatives to H/C. There are some we have known about since the age of learning about radioactive nuclear decay.
    All those who understand scientific methodology know that with the advent of quantum mechanics, no science is ever settled to a zero probability. So the quest is continuous, but the primal question that should be asked is ‘why have none of them been commercialized?”
    Saxon

    • Quantum physics is another scam. You’re right oio is abiotic, but nuclear energy and quantum ohysics are a true scam virtually everyone has swallowed without question.

      Water is abiotic as well, and you can drain wells… Water is the result of burning an hydrocarbur lol

    • “I understand science quite well. My field of research is the Standard Model of Particle Physics and I know that energy can be derived from any and all matter through both fission and fusion. While your model of failing EROI, seems accurate, it is provincial to think there are no alternatives to H/C. There are some we have known about since the age of learning about radioactive nuclear decay.”

      You would have to understand science quite well. I’m a doctor with a bachelor’s degree in geology. Not in your league as far as science goes, but even if one has no education the operative questions still are…if there is all this technology to produce energy from matter…where is it? Where is it being developed or harnessed to replace oil? How cost-effective is it? And, since most “infrastructure” is built on burning petroleum, where is the energy to build new factories, vehicles, etc. that will run on another source of energy?

      Maybe there is some vast conspiracy to profit from all the oil and then the oligarchs bring out another source of energy they can profit from. However I doubt that.

  6. You are not supposed to talk about that Saxon. As far as Washington is concerned the science is settled and you are supposed to believe them like every one else. They have been spreading this line of bullsh*t for 150 years. And they have controlled the price of it since they got rid of the gold standard back in the seventies. The world needs cheap effective and reliable energy and plenty of it. Energy that does not hold countries and its people to ransom. Where you find that has got me stuffed .. 🙂

    • Regarding energy: check out Dr. Judy Wood with her “Where did the Towers Go?” – applied free energy technology in short…

  7. Good article. Fracking was always going to be a temporary phenomenon, no matter the price. The current price structure just accelerates the inevitable.

    Steve, when are we going to see new quarterly profitability results on the precious metal miners?

  8. Don’t agree with your interpretation of the data.. I think this is simply another manipulated takeover. Having driven prices lower, the banksters will buy the assets for pennies in the dollar and leave the public with the worthless “junk bonds” they created. The oil price will then be run back up for the banksters to make their next killing.

    Same thing will happen world wide, particularly in OPEC and the “emerging nations”, whether it be for oil, gold, silver, land, shares, whatever. And the rise of the USD makes the current scenario perfect for them. The “top 1%” are about to get a whole lot richer!

  9. Shale oil was not a long term project in the first place as it was just too costly, environmentally unfriendly and of course a pain in the ass to big oil. The largest oil deposit on the planet is in the Atlantic right off the North Carolina coast and it has never been touched. The fact is that big oil has plenty of reserves in the ground and will not be touched for years to come. The goal is to bleed everyone else dry first and that is exactly what is happening. Another misconception the article states that the US economy needs oil in vast amounts. It does not. The US has more natural gas than they know what to do with. They just can’t sell it because the way big oil has the economy “oil” dependent. If there was a real shortage in oil, virtually everything can be converted to natural gas, from cars, trucks, trains, industrial furnaces and even aircraft. The lobbyist for the natural gas producers have been lobbying Congress for years and have gotten no where except forcing the coal fired utilities and coal fired industrial furnaces to convert to clean burning natural gas. The reason they have made very little progress is that there is just too much oil in the US and for that matter the world and as long as big oil is making billions, that is not going to change. The article is total fear porn as the author seems not to understand the oil and natural gas market!

    • There could be vast deposits of oil under Antarctica too, but the same thing applies to deposits in the Atlantic: How cost effective it is to remove, and at what EROI?

      This is poignantly true with natural gas or oil in the U.S. or within U.S. reach or jurisdiction [like off the coast].

      Your reply is conspiracy porn, and I don’t think what you believe about the quantity of gas and oil reserves on land is accurate.

      Regardless if it isn’t cost-effective or EROI effective, it may as well not be there. We can’t keep creating more and more debt to extract it.

  10. thank you. would like to receive notice of new posts.

  11. Thank you for a superb report. I look forward to these very much. I hope more readers will support you, because this is an important blog. Thank you again.

  12. hype ,hope & cow excrement-The later would have being a better foundation.
    Americian developments in not needing the stacked ponzis fronting oil,arms&atom mafias-
    Where astounding and now are purged and gone.
    Self chilling buildings-1940.
    Self heating and chilling buildings-1980
    Crapmobiles punching thru the 2% operating thermal efficiency barrier
    to plus 200mpg- 1986.
    Then there were the 400mpg light aircraft. Those were more recent and Slovenian.
    Note how the set up to restrict and enslave performance-predates the 1970’s set up of the petro dollar Ponzi.
    You have lost everything with your loss of adaptability ,and stolen the adaptability of others with it.

  13. I expect tough times are right around the corner for North America.

    Global conventional production plateaued in 2005. By 2008 the global economy took a shit.

    Look at what happened to the Soviet Union after their oil production peaked. It became the former Soviet Union.

    Look at Argentina’s oil production. When did they collapse again?

    Go back a century and look at the British coal production. Peaked in 1913. When was the Fed created? When did the sterling lose reserve status? When did WWI begin?

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