NUMBERS PROVE IT: The U.S. Oil Industry Is In Serious Trouble

There is this silly notion that the United States will become energy independent in the next several years, thus making it unnecessary to import oil from Middle Eastern countries such as Saudi Arabia.  While some fairy tales in life may come true…. U.S. energy independence isn’t one of them.

Even though the U.S. is supposedly producing more oil than it has in 42 years, this is a party that won’t last long.  According to the U.S. Energy Information Agency (EIA), the United States produced an amazing 9.4 million barrels per day (mbd) during the week of 3/20/15, compared to 9.3 mbd of oil back in December, 1972.

That being said, there still seems to be a significant percentage of mortals out there who believe “Peak Oil” is complete nonsense as the Abiotic Oil Theory proves that oil fields continue to refill from the black gold that is produced deep inside the creamy nougat center of the earth.

One individual who continues to regurgitate this Abiotic Oil Theory is Jerome Corsi, the author of Black Gold Stranglehold.  Corsi, who is a frequent guest on the late night talk show Coast-to-Coast-Am, believes high oil prices over the past decade were due to the manipulation by the greedy corrupt major oil companies.

Well, Mr. Corsi might know how to write a great book to get the conspiracy folks all worked up, but applying simple 4th grade math totally destroys his faulty theories.

The Falling EROI (Energy Returned On Invested) from 100/1 in the 1930’s to Shale Oil at 5/1 today, proves that oil fields ARE NOT filling back up.  For clarification, the EROI of 100/1 means the U.S. oil industry was burning the energy equivalent of one barrel of oil in the 1930’s to produce 100 barrels for the market.

If the U.S. oil fields were refilling, then why are the poor slobs wasting time losing money drilling in the Bakken??  The oil industry in the U.S. was finding new oil fields during the early 1900’s with EROI in the 100’s and 1,000’s.  Again, why on earth would the majority of these greedy corrupt oil companies continue to suffer from negative Free Cash Flow operating in the Bakken, if all they had to do was extract much more profitable oil that was refilling in old fields?

You see, the logic and common sense here are very simple and easy to understand.  I am completely surprised at how seemingly intelligent individuals can fall for some of the most INSANE THEORIES.

Okay, here is the chart that also reveals why the United States is UP A CREEK WITHOUT A PADDLE.  In 2014, the U.S. produced a lousy 5,665 barrels of oil per drilling rig compared to Saudi Arabia at a staggering 157,335 per drilling rig.  Saudi Arabia produced 27 times more oil per oil drilling rig than the U.S. in 2014.

U.S. vs Saudi Arabia Oil Production Per Drilling Rig

I gather Saudi Arabia’s oil fields are doing a much better job refilling than ours.  Of course, I am only kidding.

The average oil drilling rig number for the U.S. in 2014 was 1,527 versus Saudi Arabia at a whopping 62… LOL.   However, the current low oil price has cut the U.S. oil drilling rig fleet nearly in half from a high of 1,600 in 2014, to 825 today.  According to data from Euan Mearns at Energy Matters, Saudi Arabia’s oil rig count increased to 75 in February.

If you look at the right bar in the chart above, you will see that due to the U.S. cutting its oil drilling rig fleet in half since 2014, its average oil production per rig has doubled.  Again… LOL.  This is not a good sign.  Even though the Saudi’s average declined a bit from 157,335 barrels per rig in 2014 down to 129,333 presently, they can afford to increase their drilling rigs while the U.S. oil industry has done the opposite.  The U.S. oil industry is in BIG TROUBLE.

How much trouble??  Well, this next chart just may give us an idea of what’s to come.

Bakken March 2015 Chart

According to the EIA’s recently released March 2015 Productivity Report, the Bakken is forecasted to show a decline in production in April by 8,000 barrels per day.  This may only be a small number, but this is only an estimate… which may be totally inaccurate.

The North Dakota Department of Mineral Resources released their Production Report for January which stated the following:

ND Directors Cut

Here we can see that the Bakken’s production declined from 1,227,483 barrels per day in December, to 1,190,490 in January 2015.  If we look at the U.S. EIA’s Productivity Report for the same month, this was their estimate:

Bakken Jan 2014 Chart

Something is very wrong here.  The U.S. EIA shows an increase of 27,000 barrels per day in January while the North Dakota DMR publishes a decline of 37,000 barrels per day.  Again, the EIA’s reports are estimates.

So, if North Dakota is already showing a decline in Bakken oil production in January, how bad would it be by the middle of the year?  I believe energy analyst Art Berman may indeed be correct forecasting Shale Oil Production Will Fall By 600,000 Barrels Per Day By June.

The United States will never become energy independent as its shale oil industry’s costs and decline rates are just too damn high.  Furthermore, the U.S. still imported 6.9 million barrels per day of oil during the week of 3/20/15.  There is no way the United States will ever close that gap.

For all the folks who still believe in the Abiotic Oil Theory or that the U.S. contains a trillion barrels of oil resources in the west, logic and common sense are not on your side.  If the companies drilling in the Bakken with an EROI of 5/1 are losing money and are in debt up to their eyeballs, who in their right mind is going to extract the trillion barrels of lousy oil shale in the western U.S. at a lousy EROI of 2/1???

Note:  Shale oil in the Bakken is technically called “Tight Oil”.  However, shale oil should not be confused with oil shale.  Oil shale is not even oil.  To extract oil from oil shale, the shale has to be crushed and then heated to remove the oil.  So, crappy low EROI oil shale resources should not be placed in the same category as high EROI light sweet crude.

Anyone who quotes the U.S. has a trillion barrels of oil resources (including that lousy oil shale), is doing so out of complete ignorance or stupidity.

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10 Comments on "NUMBERS PROVE IT: The U.S. Oil Industry Is In Serious Trouble"

  1. I heared the copper market was bought up with one with very deep pockets.
    Half of the production in one year.

    In the same articel was proclaimed that China wants to rebuild the current net.(10% of them).

    That could be a turning Point if it’s true.As Long as the HUI is weak I’am cautios.

  2. Re: abiotic oil, I was reading some stuff on this a while back – no idea what to make of it not being an oil expert, and I know that at face value it seems to be pure fantasy along with things like cold fusion.

    However, my understanding of the topic is that its largely Russian engineers who support the theory, and that they have drilled wells far deeper than we’d expect to find biotic oil (based on geological/biological factors).

    As such, the EROI falsification that you’ve outlined here regarding US oil (100-1 to 5-1) is irrelevant if the US is not pursuing abiotic oil (if such even existed); rather, the test should be applied to the economics of Russian oil to determine if their EROIs are falling as much as the rest of the oil producers, or if their’s is somehow more stable.

    Again, I’m not arguing for abiotic oil, merely pointing out that the falling US EROI doesn’t necessarily support a falsification of the idea.

    • Gunn,

      If it was true that Russia drilled ultra deep wells to offset PEAK OIL, then yes… what I say is meaningless. However, it looks as if Russia will peak in oil production in the next year or two. Abiotic Oil may be taking place, but it’s too insignificant to make any difference.

      The Falling EROI justifies that ultra-deep drilling for Abiotic Oil hasn’t done much to change the outcome.

      U.S. and Russian oil geologists exchange oil drilling-production information on a commercial basis. If drilling for ultra deep oil was tremendously successful, American oil companies would be all over it. But, they are not.

      steve

    • “The great tragedy of Science — the slaying of a beautiful hypothesis by an ugly fact”
      Thomas Huxley

      “However, my understanding of the topic is that its largely Russian engineers who support the theory, and that they have drilled wells far deeper than we’d expect to find biotic oil (based on geological/biological factors).” Lets focus on the “far deeper”.

      One of several ugly facts is the geothermal gradient… “the rate of increasing temperature with respect to increasing depth in the Earth’s interior. Away from tectonic plate boundaries, it is about 25 °C per km of depth (1 °F per 70 feet of depth) in most of the world.”

      Gasoline is highly volatile. What happens to gasoline when it is heated? If under pressure in the absence of oxygen it may not explode or ignite, but it will separate [turn into a gas] and separate from heavier less volatile hydrocarbons.

  3. Hi Steve,

    I just purchased the book Twilight in the Desert written in 2005 by Matthew R. Simmons which discusses the exaggerated and overstated Saudi Oil reserves. Saudi oil reserves figures, I understand, were last updated by OPEC in 1982. I was just wondering if you might have any information on the Saudi oil reserve situation? I do remember reading an article a couple of years ago talking about the Saudis possibly using natural gas for domestic use.

    • Michael,

      Check out this article written by Ron Patterson at the PeakOilBarrel.com: http://peakoilbarrel.com/jodi-iraqi-reserves-and-ghawar/#comments

      Saudi has the world’s largest oil field, Ghawar, and it is severely depleted. This 2004 paper, Selected Features of Giant Fields, Using Maps and Histograms, has a wealth of information on the discovery and depletion of giant oil and gas fields.

      Do the math, this 2004 chart says Ghawar started with 97 billion barrels of oil and was, in 2004, over 81% depleted. Of course the rest of Saudi is not that depleted. They have three fields that have been producing only a few years, Khurais, Manifa and Shaybah. These three fields, along with their other old giants, have enabled Saudi to keep production between 9 and 10 million barrels a day. But it is highly likely that they are about two thirds depleted.

      And from a 2006 Saudi Article:

      • Without “maintain potential” drilling to make up for production, Saudi oil fields would have a natural decline rate of a hypothetical 8%. As Saudi Aramco has an extensive drilling program with a budget running in the billions of dollars, this decline is mitigated to a number close to 2%.

      Massive infill horizontal well drilling has made it a new ball game. They enable a country like Russia or Saudi Arabia to keep production from declining any great amount until its fields are around two thirds depleted or more. But then when decline finally does set in it will be steep, very steep. Their production profile will resemble a Seneca Cliff.

      How many countries are approaching this Seneca Cliff? I have no idea but I would guess most of the big produces like Saudi and Russia are very near hitting that point.

      steve

  4. There are more than a few equities in play here. One of the important ones is logistics. Saudi oil must transit sea lines of communication in a dangerous neighborhood. There is a reason why they are intervening in Yemen (not solely due to the presence of one million Yemenis in KSA).

    This “single point perspective,” focusing on EROI alone, lacks context. Moreover, it ignores technological developments. The world is a place of competition for only three things: ideas, resources, and living space. Nothing more and nothing less.

    I confess. I am Vice President of an Oil Company. What hydraulic fracturing has done is to put a limit on the caprice of OPEC (KSA, to be honest). And make no mistake, the Kingdom of Saudi Arabia is furious. Venezuela is on the ropes and Russian illiberal aggression has been hamstrung. Ironically, this has only increased the shrill messaging of Russian propaganda. I laugh my way through Ed Steer’s Gold and Silver Daily as between 25% and 33% of his “must reads, are Russian propaganda. LOL. PT Barnum was right.

    Fear not! The U.S. fracking industry is playing a critical role in undermining the puissance of illiberal regimes around the world. There is more disinformation than information available to persuade the sheeple. I advise all to do your own math!

    Cordially,
    Harlan

    • Harlan,

      While there most certainly is Russian Propaganda taking place, to say the U.S. is acting Saintly in the Ukrainian situation is also propaganda. I have been listening to weekly interviews by John Bachelor-Prof Stephen Cohen on the situation in Ukraine for over a year now. Even Prof. Cohen of Russian Studies, states the Russians are also playing up the situation, but he still places the fault of the aggression on the U.S. and U.S. sponsored NATO aggression.

      Now, as it pertains to the U.S. Shale Gas industry, I have to agree with Art Berman who says, it has been a “Commercial Failure.”

      Harlan, unless you think Shale oil and gas companies spending more money on CAPEX than they receive in operating cash is a “Sustainable Business Model”, then I don’t know what to say about your notion of “Technological developments” to save the day.

      Furthermore, I spoke on the phone for two hours last week with a president of an independent oil company in Texas. He has been in the industry for 40 years and knows just about everyone looking for oil in Texas, Oklahoma and Louisiana. He only goes after conventional projects that are at least 25/1 ROI. He will not go after any of what is called RESOURCE PLAYS because the EROI and Economics are lousy…LOL.

      Finally, the Falling EROI (Energy Returned On Invested) is the single most important equation that decides if a system survives or fails. Technology has not made our EROI increase, rather it continues to fall. Throwing more technology at a problem just makes the EROI fall even further.

      I am sorry to say… the Falling EROI will be the reason for the collapse of the U.S. Empire, just as it was the end of the Roman Empire.

      steve

  5. Harlan,

    I agree we are reaching Peak Oil not only in the U.S but the world. When the world realizes this, won’t it have an effect of “increasing the value of Oil”. Oil is energy and if the world needs energy and it will have to pay more for it. There is nothing I am aware of that can replace Oil that is as energy rich and abundant.

    Brent

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