Trouble Ahead for the U.S. Oil Boom

The much touted Oil Boom in the U.S. may be heading for serious trouble.  Even though the EIA – U.S. Energy Information Agency and the MSM have been putting out very optimistic forecasts for a growing domestic oil supply, present data and analysis show that domestic production may indeed be hitting an “Inflection Point.”

U.S. Oil Production Inflection Point

According to the work by Alliance Berstein’s Bob Brackett:

We continue to believe that the rate of year-on-year production growth will slow. We believe that slowing (or as we term it, the inflection point at which the market realizes that production growth rates will be lower than the previous year) is a 2013 event. Exhibit 5 shows our logic. It plots US oil production by week in green and then shows the year-on-year growth.

The red shaded area corresponds to the growth that would be required to avoid inflection. It implies that the remainder of the year would need nearly 800 KBOPD of growth (with the first 63% of the year achieving only ~500 KBOPD). Given flattish rig counts and modestly rising efficiencies, we don’t believe such back-loaded growth will be possible.

Article Here

What Brackett is stating is that in order for U.S. oil production to continue increasing as it has in the past, we would need to add an additional 800,000 barrels a day of production in the remainder of the year.  Again, the data suggests that from JAN to the middle of AUG, the U.S. has added about 500,000 barrels a day of new production.

If you look at the right side of the chart in red, the U.S. oil production has to add a total of 1.3 (mbd) million barrels a day for 2013 to stay on the same trend as it has for the past several years.  Furthermore, if you look at the area of the chart on JAN. 2013, you will see that total production was 7.0 mbd.

As of the last EIA data entry, the U.S. hit 7.6 mbd on Aug 23rd.  With the high decline rates of the shale oil fields (Bakken & Eagle Ford) as well as the flat number of drilling rigs, the growth rate of oil production in the United States will more than likely decrease and then plateau in the next several years.

World Oil Production May Indeed Hit the Seneca Cliff

Ugo Bardi, Professor of Chemistry, Analyst at University of Florence, Italy believes that the downside of the global peak oil graph may be much steeper than most are forecasting. 

Seneca Cliff

Bardi bases this assumption by the work of the ancient Roman philosopher,  Lucius Anneaus Seneca:

“It would be some consolation for the feebleness of our selves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid.” Lucius Anneaus Seneca, Letters to Lucilius, n. 91

….. As Seneca says, “the way to ruin is rapid.”

Article Here

While the world’s governments are hastily investing great sums of money into producing unconventional sources of oil, this may only turn out to be a temporary solution in order to keep their fiat monetary system alive a little longer.

Advanced technology in removing more oil from old fields has kept the annual decline rates from rising, but it has increased the depletion rate of the field.  Basically, we are sucking the oil out faster than we would have without the advanced technology.

However, this may indeed cause the implications for a rapid decline in the future shown by the SENECA CLIFF.

Lastly, I believe the world cannot afford a portion of the oil that it is presently consuming.  Money printing and the huge increase in global debts have also masked the onset of peak oil.

ADDITIONAL NOTE:  I will be releasing the break-even figure for silver from the top 12 primary miners in the next few days.  I had forecasted that 4-5 of the companies would be showing net income gains and 7 would be stating losses.   However, it looks like only 3 made money, while the rest recorded losses.

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32 Comments on "Trouble Ahead for the U.S. Oil Boom"

  1. Steve,

    If the US increased the number of rigs in service wouldn’t that solve the problem of drilling and production in the short-term?

    Going from 500 MBD to 800 MBD is not out of the realm of possibilities. I still don’t buy peak oil theory. I will say that I agree with you from previous articles on the cheap oil theory and much of the low hanging fruit beings used up.

    However, oilfields do replenish over time and with advanced technology we can get above the 30% level of oil field recovery. I don’t think now is the time to declare peak oil on the horizon, have to play devil’s advocate on this one.

    Aaron

    • Aaron… I don’t know if you understood that 500-800 kbd increase, but the U.S. had to grow 1.3 mbd in 2013 to keep in line with the increase in 2012. That 500 kbd (thousand barrels a day) was from JAN to mid AUG. The U.S. has to basically add another 800 kbd in 4+ months.

      This is the problem with SHALE OIL. Its annual decline rates are 40-50% per year, so if they stopped drilling and adding wells at the Bakken and Eagle Ford, their production would drop 40-50% in one year. That means the Bakken would fall from 750,000 bd down to 400-415,000 bd.

      The problem with shale oil fields is that the SWEET SPOT is drilled first and then the DEAD-BEATS come on later and they don’t produce as much. So, this is the problem the shale oil companies will be dealing with.

      steve

    • 1. “oilfields do replenish over time” – Do you have any references for that? Are you arguing adiabiatic oil?

      2. As devil’s advocate, could you explain how we produced 10 million domestic barrels per day with the inferior 1970 technology, but now after spending many BILLIONS more with the advanced technology we’re only at 7.5 million barrels?

      3. maybe the peak oil guys should have called it “peak cheap oil” for less confusion. Could you clarify if you are arguing that cheap oil, like the $1.60 per barrel after WW2, is coming back due to super technology?

      4.If we’re sitting with a trillion barrels of oil in the ground but the only thing we can afford to burn is the water coming out of our tap, is that peak oil?

  2. Steve,

    I very much understood the 800 000 barrels a day increase compared to the numbers you were giving in your article of 500 000 barrels a day. If your talking about my script (M) stands for one thousand (MM) stands for one million. I have worked and continue to work for major oil companies and this script is generally used to represent amounts in terms of barrels, not (K) equaling one thousand.

    I am in agreement with you on the decline rate of shale oil wells. My point was that, for the short term, if they US wanted to increase production they could drill more of these wells and have the amount needed. Since your article stated that the current number drilling of rigs being used have remained flat this past year, yes then oil production will remain flat or be in decline.

    We have plenty of oil in the ground, we will not be running out anytime soon, my point is and I think you and I are in agreement on this the cheap oil has been found and produced. Now with more expensive technology we can tap greater supplies it will just be at a higher cost going forward.

    Webster,

    I don’t have any “scientific studies” offhand, which can always be changed to suit the users needs, but what I do have is physical observations of having worked in the oil industry over a number of years. Many times if you let a well sit it will fill up and you can begin pumping again at a later date.

    A couple of theories I’ve talked about with operators and engineers as to why this happens. First, lift pressure builds up again in the well allowing for hydrocarbons to come to the surface under natural pressure. Second continued seep from lower depths of oil migrating to the salt domes through porous rocks, Third, Naturally occurring adiabatic oil coming from somewhere in the earth.

    Either way, yes oil wells can fill back up in you do not pump them fully dry.

    Aaron

  3. Tying distanced but related points together is a real strength in articles…Declines in populations of lemmings in the arctic are appropriately compared to our own species too and it is refreshing to see the same approach here…
    Solid work as usual..
    L.

  4. matthew fingerle | September 2, 2013 at 8:39 am | Reply

    Do you think oil comes from plant and animal matter ? Sounds silly to me !!! There are massive oil fields that have been discovered only to be suppressed. Australia, Russia, USA, and of coarse Alaska which recently ramped up the worlds largest oil rig, its called the Liberty Rig. Are we being deceived only to bring forth higher oil prices ? Maybe they want to paint peak oil as the back drop ? When we finally approach there elevated peak price over a duration of time, will they become saviors to the rescue ? Just a thought….

    • matthew fingerle… while there is a great deal of misinformation out in the world about peak oil, there is a few known facts. Oil companies are not making as much money as they once were and on top of that, they are spending a great deal more CAPEX to receive less in profits.

      The reason for that is the falling EROI – Energy Returned on Invested. Most individuals who sit on the side of the fence that does not believe in peak oil, do not understand the EROI.

      Furthermore,BP has shut down the Liberty Rig in Alaska, not because of SAVING OIL or HOLDING OFF for higher oil prices, but rather the costs and the technical challenges have been overwhelming. The Liberty Rig was the largest in the world not because it was going to drill one of the so-called largest oil fields, rather it was going to drill the longest horizontal well in the world. That’s why it had to be powerful

      I explain all about that in the link below:

      http://www.silverdoctors.com/are-the-elite-misleading-the-public-through-folks-like-alex-jones-lindsey-williams/

      steve

    • With that line of thinking you have to go back to the 50’s when Dr. Hubbard first introduced his Peak Oil theory. It was valid then and his predictions were scoffed at. No one believed it. Then it played out the way he suggested.

      Most everyone is looking at this with a hindsight bias but going back to before Peak Oil was known, that tells you a lot. We are now accustomed to thinking that everything is controlled by the elite and they “know” what is really going on.

      Two things the “elite” never dreamed of: Peak Oil and the internet. Those two things are completely destroying their plans for a New World Order. Oh they’ll go for it, but it will be an epic fail. Just like every other megalomaniac who has tried to take over the world. Ends in tears.

      • Finn… the one thing many of the folks from the now shut down THEOILDRUM did not perceive, is the large increase of “Unconventional” oil sources such as tar and shale. Actually, conventional oil production peaked and the only reason why we are seeing larger production is due to all this unconventional, highly expensive oil.

        As I have stated before, I believe a portion of the oil the world is now consuming… it cannot afford. The only reason why we have been able to afford this oil is due to PRINTING MONEY & INCREASING DEBT. So, once the PHAT LADY finally sings, and we have the collapse of the fiat monetary system… then we will have LESS OIL not MORE because of capital destruction.

        steve

        • Yes, indeed.

          When I first learned about Peak Oil and the shale gas I knew these days would come. Even in the peak oil community (Heinberg, Campbell), they predicted all of this. They said there would be an undulating plateau, not a steep decline. The plateau would be due to the combination of technology and desperation.

          Technology allowing for greater production rates and the desperation for higher production for higher profits. This thinking is clearly demonstrated in your article about the Mexican oil production.

          https://srsroccoreport.com/future-silver-supply-in-question-as-mexico-oil-production-declines/future-silver-supply-in-question-as-mexico-oil-production-declines/

          Quote: “The giant and supergiant oil reservoirs, like Cantarell, discovered more than 30 years ago,were produced irrationally at accelerated rates and are now in an advanced stage of decline or are practically exhausted.”

          You better believe this is happening all over the world with oil prices this high. Not good.

  5. matthew fingerle | September 2, 2013 at 9:11 am | Reply

    Appreciate your response. Makes sense considering Mexico EROI in decline. Thanks !!!

  6. For clarity my previous comment was directed at matthew…

  7. matthew fingerle | September 2, 2013 at 9:17 am | Reply

    Peak oil = Higher Silver prices !!!

  8. I can never understand how people think.

    I talk to my wife about the electric cars that were developed in California in response to the zero emission mandate back in the 1990’s and how efficient they were and her response is, “it doesn’t matter because they are not here any more.”

    http://www.whokilledtheelectriccar.com/

    I watched the gulf oil spill on TV and crude was spewing out so fast at 120,000 psi that they couldn’t contain it. There is not even an estimate of how much crude is down there in that one area. But there is not a peep out of anyone anymore relative to using that oil for anything.

    But we have an oil shortage?

    It seems that our biggest problem is our memory is so short term that a sound bite is all we are able to base our opinions on.

    • Jerry... the problem we face as a human race is not ABILITY, but the lack of KNOWLEDGE. The reason why this peak oil debate drags on, is due to incomplete understanding of all the factors. Believe me you, those who have been in the oil business for years, and I am not talking about CEO’s, but rather the engineers and geologists… they know exactly what is going on.

      I have been researching and writing about FALLING ORE grades in the gold and silver mining industry for several years. In the late 1800’s the world was producing silver at 1,600 grams/ton (g/t) and gold about 25-30 g/t. In 2005, the top 6 silver miners were producing silver at 404 g/t, but in 2012 it had fallen down to only 251 g/t.

      The top 5 gold miners in 2005 were yielding gold at 1.68 g/t, but in 2012 it had fallen down to 1.22 g/t. The gold mining industry is basically mining GOLD DUST. Any of these new mines that say they have a high-grade reserve of say 5-6 g/t of gold… the old gold prospectors in the 1800’s would laugh at such a pathetic grade.

      People don’t see the change because they only live in the present.

      DEEP OIL is very dangerous. Yes, there was a great deal of that oil in BP Macondo’s Field, but it was extremely close to penetrating the MANTLE. At those depths, the pressures are unbelievable. The Russians were experimenting with ULTRA DEEP ON LAND wells back in the early 1970’s.

      However, after some initial success, the wells started to expel a nasty oil that they couldn’t shut-off. The Russians had to send down a small NUKE device to shut in the well way down at the bottom. The Americans drilled a very deep well in 1973, but after a few days of getting good quality oil, they started to get this nasty asphalt oil-gas garbage and they shut the well in.

      The oil that was coming out of Macondo was not good quality oil as they planned on. It turned out to be this sour-asphalt oil with a great deal of heavy metals and impurities. This is not the kind of oil a company wants to produce. That is why we saw all the nasty ORANGE oil on the beach.

      Anyhow, there is a great deal of misinformation out in the public about the oil industry. The world is in much worse shape as it pertains to energy than it realizes.

      steve

  9. matthew fingerle | September 2, 2013 at 9:28 am | Reply

    Question : If oil isn’t abiotic and fossil fuel doesn’t seem plausible; Where does oil derive from ?

  10. I highly recommend watching the movie “Collapse” by Michael Ruppert. He goes into great detail about Peak Oil and yes it has all to do with EROI. It gets to a point that it’s not worth getting the oil because of the cost.

    He also artfully linked how the World’s population boom is directly tied to Oil and the industrial revolution. He believes as oil becomes harder to find and produce the world’s population will decline with it.

  11. I know the wells in the sweet spot of the Bakken play drop off in production fast. Our check is 75% less than 18 months ago. Overall production in ND keeps dropping. The quality of life that I moved to western ND for is now gone for good. I sold our home and live in an apartment now waiting for reality to come back and overtake the greed.

    • Cattlefitter… thanks for the insight. Most people get caught-up in the BOOM MENTALITY. The Bakken oil play is another California Gold Rush…. soon production will decline exponentially.

      Furthermore, those who think the SHALE GAS companies are going to make the U.S. Energy independent need to read the latest coming from Chesapeake Energy.

      Insight: To cut natural gas costs, Chesapeake pumps up royalty deductions

      The largest natural gas operator in Pennsylvania’s Marcellus shale formation, Chesapeake started this year to take much heavier deductions from royalty checks it sends landowners to help pay to gather, compress, market and transport natural gas, in most cases cutting compensation by more than half.

      http://www.reuters.com/article/2013/08/28/us-chesapeake-marcellus-insight-idUSBRE97R05O20130828
      ————-

      So, not only is production falling, the land owners who were PROMISED A PIPE DREAM of great oil revenues will be getting a HUGE CUT in their royalties.

      I give the shale energy industry a year or two and the whole thing will come CRASHING DOWN…. and along with it, the pathetic notion that the U.S. will become energy independent.

      steve

  12. Steve, as a footnote to your article, some oil companies are engaging in more, and more dangerous practices to increase production.
    Case in point is Canadian Natural Resources Limited (CNRL) Which operate an in situ oil recovery system from tar sands. Its known as “cyclic steam stimulation” that involves injecting high-pressure steam into a tar sand reservior over a prolonged period of time.
    The heat and pressure creates cracks and openings through which the bitumen can flow. Only the bitumen emulsion pathway cannot be identified with certainty, reulting in continuing wide spread seepage spills.
    Since these spills occur in an aboreal forrest setting with minimal population, they go undetected for long periods and are ignored by the main stream media. As peak oil progresses on its down hill glide, these dangerous recovery practices will only proliferate.

    http://www.mediacoop.ca/blog/sandracuffe/18545

    • Outlookingin… I totally agree. I haven’t touched on CLIMATE CHANGE as that would really get a great deal of whiplash, but I believe we will deal with future consequences of the environment that we have no idea.

      steve

  13. There will probably be a golden age of renewables and technology. But not before WW3 and about 6 billion less people on the planet. Too bad most of us won’t be here to see it.

    • webster… while I agree RENEWABLES will have their place in the future, it takes a great deal of OIL & GAS ENERGY SOURCES to produce solar, wind and etc. We should have been making the transition decades ago.

      I see renewables being used, but at a much smaller local scale. There is no way renewables will be able to power the world the way we are running it presently.

      The CLOCK HAS RUN OUT… now we get to deal with the SENECA CLIFF.

      steve

      • Totally agree. Renewables will not power business as usual before a collapse, currency crisis etc…

        Here’s a thought exercise however.

        When you (and people like me) say renewables will be on a much smaller scale, you are not acknowledging the exponential growth that IS occurring in certain fields like solar PV (and robotics, drones, bioinformatics, IT). According to guys like RAy Kurzweil, solar energy is on track to power the earth in ~18 years and he’s making calculations based on real numbers and real growth rates that have actually occurred, even during the last 5 years of depression!! And there has been price deflation in solar much faster than the rate of monetary inflation. .

        In other words, solar PV with price deflation is growing remarkably DESPITE a liquid fuels crisis and poor EROI and a depression for the last 5 years etc…. I cannot argue that this will continue, however, why does our camp never articulate this?

  14. This article is pure crap, just like the all the “peak oil” garbage that floats around…

    It is deceptive in NOT once mentioning the EPA and Obama administration [effective] caps that have been placed on the industry in the US. Any growth that has occurred – has done so in spite of such pressure and constraints. Your “inflection” point or plateau would not even be there if you had a pro-business administration.

    The world is 30+ years past the “peak” and its still cranking more oil out and finding new sources not to mention new technologies. Yet, alarmist continue to role this sad old story out for lemming consumption.

    • Urbo… I appreciate the CANDID reply. I replied to your comment at ZEROHEDGE, but I will repost it here for those on this site:

      Mark Urbo… I don’t know where you got that “30 YEARS PAST PEAK”, but most were predicting peak in the 2005-2010 range. Hubbert did a pretty good job in 1953 when he forecasted the world peak to hit 2000-2005.

      Regardless, Peak Conventional already hit several years ago. We are making up the difference with UNCONVENTIONAL OIL that is very expensive and I would argue that the world cannot afford. Hence, the monetary printing and huge increase in debts.

      Lastly, if we want to go by AVAILABLE NET OIL EXPORTS and not the silly TOTAL PRODUCTION, that peaked in 2005 at approximately 41 million barrels a day. In 2012, it fell to 34.5 mbd. So, the world has 6.5 million barrels of oil a day less to export to the 155 importing nations.

      IROINIC AIN’T IT??? The price of oil has tripled since the peak in AVAILABLE NET OIL EXPORTS.

      Talk about LOGIC….

      • “30 years past peak”. Maybe he’s referring to domestic production. In that case, 10mbd then versus 7.5mbd now. How would you deny those numbers?

    • what were you paying for gas 10 years ago? Was it less than you’re paying now? That’s peak oil that you can calculate for yourself.

      Anyway, how do you explain declining production rates in the rest of the world? How can Obama be the boogeyman for every country that’s oil production is in decline?

  15. The concept of the Seneca Effect is compelling. It always seemed that Hubbert’s classic bell curve in production would become a plateau from technology, aggressively applied; pressure injection, horizontal drilling, etc. And, that bringing the resultant production forward only steepens the backside slope. Your point that non-conventional oil became white swans is as ironic as it is destructive.

    In the linked article ‘Peak Oil and the Seneca Effect’ Ugo Bardi asked,

    “Do people simply give up extracting, as it is implicitly assumed in the Hubbert model, or do they try harder? And in the latter case, what happens?”

    I would agree that this is the answer: “…the world’s governments are hastily investing great sums of money into producing unconventional sources of oil … in order to keep their fiat monetary system alive…” because the fiat monetary process is both catalyst and impetus for the Seneca cliff; an autonomous predisposition for turning peak to plateau, slope to cliff.

    The realities of peak-oil in combination with weakening global economics make for a dark synergy. This Gary Lammert quote seems fitting:

    “Just like the formation of galaxies and hurricanes and nautilus shells, the universe of the macro-economy operates through non stochastic fractal growth progression and nonlinear decay. Expect the unexpected.”

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