Future U.S. Oil Production Will Collapse Just As Quickly As It Increased

While U.S. oil production reached a new peak of 10.25 million barrels per day, the higher it goes, the more breathtaking will be the inevitable collapse.  Thus, as the mainstream media touts the glorious new record in U.S. production that has both surpassed its previous peak in 1970 and Saudi Arabia’s current oil production, it’s a bittersweet victory.

Why?  There are two critical reasons the current record level of U.S. oil production won’t last and is also, a house of cards.  First of all, oil production profiles tend to be somewhat symmetrical.  They rise and fall in the same manner.  While this doesn’t happen in every country or every oil field, we do see similar patterns.  For example, this similar trend is taking place in both Argentina and Norway:

Here we can see that oil production increased, peaked and declined in a similar pattern in both Argentina and Norway.  However, many countries had their domestic oil industries impacted by wars, geopolitical events, and or enhanced oil recovery techniques that have resulted in altered production profiles.  Regardless, the United States experienced a symmetrical oil production profile from 1930 to 2007:

As we can see in the chart, U.S. oil production from 1930 to 2007 increased and then declined in the same fashion.  On the other hand, the new Shale Oil Production trend is much different.  What took 23 years for U.S. oil production to double from 5 million barrels per day (mbd) in 1947 to a peak of nearly 10 mbd in 1970, was accomplished in less than a decade with the new shale oil industry.  Total U.S. oil production doubled from 5 mbd in 2009 to over 10 mbd currently.

For those Americans or delusional individuals who believe the U.S. oil industry will be able to continue producing a record amount of oil for the next several decades, you have no idea about the financial carnage taking place in the U.S. shale oil industry.  This leads me to the second reason.  The U.S. Shale Industry hasn’t made any money producing oil since the industry took off in 2008.  And it’s even worse than that.  Not only have they not made any money, but they have also spent a lot of investor money (most that will never be returned) and added a massive amount of debt to their balance sheets.

According to the Financial Times article, In Charts: Has The US Shale Drilling Revolution Peaked?, they provided the following chart on the negative free cash flow in the U.S. Exploration and Production Industry:

Because the U.S. Shale Oil Industry was a Ponzi Scheme from day one, the shale oil companies had to design clever investor relations presentations to bamboozle, hoodwink, swindle and hornswoggle investors from their money.  And boy did it work.  Even though two-thirds of the U.S. shale energy companies are still losing money, investors continue to flood the energy sector with gobs of Dollars and Pennies from Heaven.  Without these much-needed funds, the U.S. Shale oil industry would go belly-up.

Now, there’s another downside to the U.S. Shale Oil Industry that I haven’t yet mentioned.  Because shale energy industry is producing a grade of oil that has a very high API gravity (very light oil), we have to export more and more of it as our refiners can’t use it all.  The notion that the U.S. decided to start exporting oil because we have become a leading oil producer is pure BOLLOCKS.  The real reason the U.S. Government allowed the exporting of oil in 2015 was that our refining industry couldn’t use it all…LOL.

If you have your thinking cap on, why would we have to export oil if we could use it ourselves??  Well, again… the answer is that we cannot use all of our “light tight” shale oil.  Here is a chart from one of the members of the PeakOilBarrel.com site:

According to the U.S. Energy Information Agency (EIA), the majority of growth in U.S. oil production is in the very light API gravity oils above 40.  Unfortunately, there is a glut of high API Gravity oils (light oil) in the United States and the world.  In the Petroleum Economist article, U.S. Tight Oil:  Too Light, Too Sweet, stated the following:

While the US runs on light products, with gasoline making up nearly 48% of the de­mand barrel, the rest of the world has a stron­ger taste for middle distillates. The global de­mand barrel is 36% middle distillates and only 32% gasoline. European and Eurasian mid­dle-distillate demand is an enormous 49.3% of the barrel, according to the latest BP Statistical Review. Middle-distillate demand is widely ex­pected to grow as worldwide trucking volumes increase and maritime fuels begin a major shift to marine gasoil from heavy fuel oil so they comply with new sulphur-emissions limits. Product consumption patterns outside the US argue for processing middle-gravity crudes such as Arab Light, Iranian Light and Russian Urals, rather than extra-light barrels such as 48°API gravity Eagle Ford.

The weighted average API gravity of EU crude imports in 2016 was 35.2°, according to Eurostat. Refinery inputs look similar: the current average API gravity of the crude entering American refin­eries is approximately 32.3°, nearly unchanged for the past 30 years despite the recent rise in light oil output. Worldwide investments into more complex, higher conversion refineries have eroded very light sweet oils’ long-prized light-distillate yield advantage.

As the article states, the rest of the world demands more middle distillate fuels that come from medium grade oil stock.  Furthermore, the weighted average API gravity of EU (European Union) crude oil imports in 2016 was 35.2°.  However, the majority of U.S. Shale oil API gravity is 40-50°+.  

Thus, as the U.S. shale oil industry continues to produce more light oil, exports will likely increase.  And we already see this taking place.  The U.S. net oil imports have risen from 2 mbd in Oct 2017 to 4.4 mbd currently.  It is difficult to tell how much net oil imports will be over the next six months, but it is quite interesting to see the U.S. importing more oil even though we just hit a record of 10.25 mbd.

In conclusion, U.S. oil production in the future will collapse just as fast as it increased.  It is hard to forecast when U.S. oil production will finally peak for good because there is so much fraud, leverage, and debt propping up the system.  But, when the Greatest Financial Ponzi Scheme finally pops… I believe U.S. oil production will collapse much faster than we realize.

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34 Comments on "Future U.S. Oil Production Will Collapse Just As Quickly As It Increased"

  1. Enno Peters has this awesome interactive website http://shaleprofile.com/ showing the profiles of shale wells, showing the plunge in production after the first couple of months. So its not a question that to maintain current production we need thousands of new $10,000,000.00 wells brought on to production every year. With no new shale wells brought into production shale production would drop roughly 50% in 12 months.

  2. Michael Kohlhaas | February 7, 2018 at 5:30 pm |

    US oil production will collapse quicker than BitCoin

  3. Thank you Steve

  4. Robert Happek | February 7, 2018 at 6:25 pm |

    Scary stuff ! Yet, the fact that the old production peak of 9 million barrels per day (achieved in 1970) could be surpassed again by a combination of new technology and financial engineering is a miracle in my opinion. But Steve is right: Geology will prevail in the end.

  5. The US Shale Business is “not profitable” and can’t fund itself whether oil is at 100 or 50 dollars a barrel
    https://imgur.com/a/t7ulB

    MIT Technology Review: Shale Oil Will Boost U.S. Production, But It Won’t Bring Energy Independence
    https://www.technologyreview.com/s/507446/shale-oil-will-boost-us-production-but-it-wont-bring-energy-independence/

    The world’s largest oil trader Vitol says US oil production will peak in 2018
    https://www.reuters.com/article/us-commodities-summit-vitol/u-s-oil-output-may-be-set-for-last-spike-in-2018-vitol-idUSKBN1CF1MZ?rpc=401&

    Chevron CEO warns US shale oil alone cannot meet the world’s growing demand for crude
    https://www.cnbc.com/2017/05/01/us-shale-cannot-meet-the-worlds-growing-oil-demand-chevron-ceo-warns.html

  6. Arnold Ziffel | February 7, 2018 at 8:16 pm |

    Total shale oil debt is estimated at +300 billion. If we divide the current price of oil at $62 that would suggest there would need to be a minimum shale reserves of 4.8 billion barrels just to pay the debt. Since shale oil consist of small pools of oil created by fracking there is no way there are reserves anywhere large enough to pay back the debt. Guess the Federal Reserve will need to purchase this class of debt in the next QE round.

  7. Iraq’s crude oil supplies are likely possible to increase to reach 11 million b/d in few short years exceeding Saudi, Russia and cover for US depletion. 15 million soon after that wouldn’t be unrealistic, and that will keep the show going for antoher 10 years, BAU.

    The problem remains in physics thermodynamics, though – Civilisation cannot produce more useful energy exceeding the total energy put into constructing it before it fails and disintegrates, as a new circulated thesis in thermodynamics inspires;
    https://the-fifth-law.com/pages/press-release

    Physical human slavery might not be just a greed and savageness combined, but a standard law of physics, too, and Earth is never an energy paradise but an Energy-prison?

  8. The End of the Oil Age is Imminent

    Recently, the HSBC oil report stated that 80% of conventional oil fields were declining at a rate of 5-7% per year. This means that there will be an oil shortage of ~30 million barrels per day by 2030 and ~40 million barrels per day by 2040.
    http://www.scribd.com/document/367688629/HSBC-Peak-Oil-Report-2017

    What is mentioned far less often is that annual oil discoveries have lagged annual production since the 1980s.
    https://imgur.com/a/6dEDt

    Now, this problem has nothing to do with the recent decline in the oil price, which started in 2014. This has been an on-going problem for the past 30 years. Now, the IEA is predicting oil shortages by ~2020 due to declining exploration.
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Here, the IEA blames this problem on the low oil price. But, this problem started in the 1980s. The problem is geological: we are running out of conventional cheap oil. Shale and tar sands are not the answer, either. Those resources are far too expensive, compared to conventional oil, because the global economy is based on cheap conventional oil. Expensive oil is not a replacement for cheap oil.

    Based upon the HSBC report and the IEA, the End of Oil Age will start around ~2020: there will be a dramatic economic depression due to exhaustion of cheap oil. This will cause a global economic collapse.

  9. As M. King Hubbert (1956) shows, peak oil is about discovering less oil, and eventually producing less oil due to lack of discovery.
    https://imgur.com/a/6dEDt

    IEA Chief warns of world oil shortages by 2020 as discoveries fall to record lows
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Saudi Aramco CEO sees oil shortage coming as investments, oil discoveries drop
    https://www.reuters.com/article/us-aramco-oil/aramco-ceo-sees-oil-supply-shortage-as-investments-discoveries-drop-idUSKBN19V0KR

    Peak Oil Vindicated by the IEA and Saudi Arabia

  10. Give up Steve.

    My job is to tell you guys that you are wrong, doom is not going to happen.
    -Energy production from all sources is so high as to be infinite
    -With infinite fiat credit, there is never a shortage of money and the stock market can rise forever, and millions of people will get rich
    -Human population will continue to increase, medical advances will mean we will live longer and longer
    -The technological singularity and AI will make all processes more efficient and profitable, it’s good that machines are replacing us, that gives us more money and time
    -All the Whites, Blacks, Jews, and Mexicans in America get along fine, and happily celebrate their belonging to the greatest empire in history, the only one to achieve permanent world domination. Whether Trump or the Democrats, they are noble stewards of this great empire. Europe is old. Russia is hopelessly corrupt. China is a disaster waiting to happen. The Muslims of the Middle East are pathetic.

    Just admit you were wrong.

    • Are you MillionDollarBonus from ZH (disappeared there) relocating on Steve’s site?
      Pathetic indeed…

    • Just buy some more silver dolph. Regain that smile. I did… that’s why I’m so friendly today. 🙂

    • DisappearingCulture | February 8, 2018 at 11:23 am |

      dolph,

      Your most entertaining post to date! I like having a good laugh. Thanks! You are very creative.

  11. Steve, Most of the light oil has to be be blended with heavier imported crude, before it can be refined. Apparently this heavier crude comes mostly out of Cushing. In a recent interview with Art Berman and Pat Hemsworth, Pat suggested that the inventory levels of this heavier crude is extremely low. Is this not a potential red flag?

  12. Steve, what will this crash in oil prices do to the price of Silver if the are highly correlated?

  13. What is going on with EXXON Mobil w/ the earning & their stock ticker?

    Is the BIG energy complex on the verge of implosion, like ENRON magnified by 1000???

    Is a combined Deutsche Bank – Wells Fargo – Exxon Mobil implosion, even bigger than Lehman-Bear Stearns in the works?

    Something SERIOUSLY big has imploded behind the curtain. Fidelity website shut down similar to Coinbase on increased volatility on Monday. My gut feeling says, the entire 401K – IRA – Public pension funds complex may be on the verge of a stratospheric volcanic implosion…..like thinking about Mount St. Helens near Oregon-Washington border back in 1980.

    https://seekingalpha.com/article/4144104-exxon-mobil-perfect-storm

    https://www.marketwatch.com/investing/stock/xom/charts

  14. A bit of a summation is in order: Oil rises, PMs should rise but not this time; National debt is heading to 22 billion, PMs should rise but not this time; War with North Korea is likely, PMs are a safe haven but not this time; Stocks crash 3,000 points PMs should rise but not this time; Fed is raising interest rates, stocks go down PMs should rise but not this time; dollar weakens these past 6 months, PMs should rise but not this time;Production costs keep rising, PMs should rise but not this time; some mines are closing or reducing production, PMs should rise but not this time. And most assuredly everything you’ve written about with all your super charts and data these past 7 years has had NO AFFECT on silver? Why? In your case your years too soon. In PMs case, with cryptos afoot or some other idea is where people are putting their money.As a matter of fact silver may hit $14 before it ever hits $17 again. The only spot of good news was someone bought 12,000,000 ounces of silver last week and silver rose $ .50. I’m saying supply/demand is silver’s only hope.

    • DisappearingCulture | February 8, 2018 at 11:32 am |

      “I’m saying supply/demand is silver’s only hope.”

      Until physical delivery demand overwhelms the COMEX, the spot price will remain range bound [managed]. If the combination of wholesale + retail sales exceeds supply, the real selling price will go up regardless of where the COMEX sticks it [COMEX spot price + premiums related/proportional to the demand/supply imbalance].

    • . I’m saying supply/demand is silver’s only hope.

      Your right. Many assume supply is driven by cost of production because of visual direct relationships, and this is true when demand is on par with production, however when demand becomes greater than production then the law of supply and demand kicks back in.
      This can be seen in ag products all the time.

  15. Arnold Ziffel | February 8, 2018 at 7:48 am |

    Exxon theoretically is a liquidating trust. Exxon the past couple of years has negative free cash flow yet in continues buybacks and paying dividends.

    https://oilprice.com/Energy/Energy-General/ExxonMobil-Is-Digging-Its-Own-Grave.html

  16. Hi Steve

    Art Berman had some charts up on twitter showing input to U.S. refiners had only moved from 30.7 to 31.6 API on average, despite the fact that most tight oil is >35API. I asked this question, if most tight oil is >35API, and tight oil is ~50%? of U.S. production, how are refineries maintaining input not much changed from ~30.7API? One follower tweeted “Imports” but I was looking for a less simple answer.

    You partially answer the question in the essay above. Do you know, what is the portion of shale oil production blended lower API oil. Or is most of it exported?

    Gosh, the more I read about this Shale game, the worse it sounds: An industry extracting our natural resources for no profit, for export. There must be a bigger picture I am missing.

    • Shawn

      I think the bigger picture is without shale and tar sands global oil production would be flat for the last ten years. Shale is poo but can be blended in to at least mask production stagnation.

      Your point is a good one on the avg API. It proves that shale is a worthless product. What is happening is plastic manufacturers are ramping up because they love the stuff. Exxon and Shell are all in ramping up production but they’re likely to over heat their market.

      The shale revolution that’s been grabbing all the headlines is a Ponzi scheme of massive proportions. I think the majors know it but what do you do give up? Who’s going to buy the drill rigs? Where will all the roughnecks go for work Walmart.

      I think the collective attitude is fake it til you make it. This has slipped into every industry. It’s an entirely different world now. There are no investors. There are only speculators who’s time horizon is 30sec instead of 30years.

  17. OutLookingIn | February 8, 2018 at 2:40 pm |

    The Double Whammy.

    Peak Oil and the Population Demographic.

    It has taken mankind 200,000 years, until 1700 to grow the world population to 2 billion humans. Because thats all the bio-mass of the planet could confidently support. Then along came the industrial revolution and the invention of the engines. Now farmers could support multitudes of people, instead of just his family and few friends. The worlds human population exploded to 8 billion in just over 200 years.

    All those extra mouths that oil feeds will be “going”, away along with much of mankind’s present day so-called ‘civilization’.

  18. OutlookingIn

    It’s much worse. World population reached 2 Bn in the late 20’s. Late 1920’s.
    1 Billion was early 1800’s.

  19. Hello Steve…I know that President Trump signed an executive order to start oil exploration and mining off the U.S. continental shelf in areas that were once prohibited. What’s your opinion on exploration and mining in new areas off the continental shelf? Could the focus on virgin territory push out the energy crises?

    https://www.washingtonpost.com/news/energy-environment/wp/2017/04/28/trump-signs-executive-order-to-expand-offshore-drilling-and-analyze-marine-sanctuaries-oil-and-gas-potential/?utm_term=.049ee9e3fbfd

  20. Thanks Steve for telling it as it really is in the shale oil patch.

  21. How can the Dow fall? TPTB have a printing press with unlimited funds. The dollar is the world reserve currency. Retirement accounts are required to invest in US Equities or Bonds. Since 2013 the fed has taken complete control of the debt based fiat monetary system. They keep the precious metals just above the mining cost. They support US Equities and Bonds. Why do you think the smart one’s are investing in the crypto sector? The new Zeitgeist is approaching. Waiting for the entire planet to shut down is not a wise strategy. Who knows how long it will take for the laws of thermodynamics to take control? The strategy to employ? Own physical precious metals, especially SILVER! Invest in the cryptos sector. This is free advice / you don’t have to subscribe or pay me anything………..

  22. The US discovered how to turn a trade deficit into oil. Quite clever really. As long as you can keep it up.

  23. Harry Fineman | February 12, 2018 at 7:04 am |

    Shale is a scam. EURs are overstated by 100%. Industry is over $300 billion in debt and never made a profit regardless of the price of oil. Bankers and financiers who enable this industry are fools who will never get their money back. It’s like a bank granting a 20-year mortgage on an apartment building that will produce decent rents for a couple of years and then spontaneously collapse into a pile of rubble.

  24. One thing that is missing from the unconventional oil conversations is the transportation needed to put them in a place that can use them. It explains the crude export ban being lifted.

    http://carnegieendowment.org/2012/05/03/understanding-unconventional-oil-pub-48007

  25. Do people actually believe the nonsense spouted in the above article …

    If oil, coal, Natural Gas… Insert your … “Sky is falling we are doomed” flavor of the month.. Millions of Acres of American lands would not have been designated as “National Monuments” by the NeoCon/DemoCrat Clinton Crime Cartel..

    • bv,

      I gather you are new to the website and Energy Analysis. Shame. However, you are free to believe in Conspiracies when the Falling EROI- Energy Returned On Investment of oil is destroying everything in its path.

      steve

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