Autonomous Vehicle Consultant

Considerable Gold Rush buzz is streaming throughout the news media about U.S. oil production. According to the Economist, “On November 12th the International Energy Agency (IEA), the rich world’s energy club, forecast that America could become the world’s largest oil producer by 2020, outstripping Saudi Arabia and Russia.” Similar exhilarating headlines are found in Forbes, Bloomberg, and Reuters.

These predictions are based oil production increases using advances in hydraulic fracturing (“fracking”) and horizontal drilling utilized in tight oil formations, such as Eagle Ford, Bakken and several others. Yes, oil production from tight formations (i.e., shale) has increased nearly exponentially in the Bakken play (now approaching 700,000 barrels per day) to the point where there is insufficient pipeline capacity for oil transfer to refineries. Statoil, a Norwegian energy company, has leased 1000 train tank cars to move Bakken oil. (One of my blog posts noted that Statoil has declining oil reserves in the North Sea, and is expanding its overseas operations to offset domestic loses.)

U.S. Oil Production by 2020: Figure 1 shows U.S. tight oil production from 2000 through 2012. Notice that production was flat until around 2006 – 2008 when horizontal drilling and fracking contributed enormous gains. “Tight oil refers to crude oil and condensates that are produced from low permeability sandstone, carbonate, and shale formations. The tight oil Technically Recoverable Resources (TRRs) are for the entire formation, including the non-shale portions.” Definitions of TTR and Estimated Ultimate Reserves (EUR) can be found in this reference.

Figure 1. Tight oil production

Figure 1 is also note worthy because it indicates a possible tight oil production peak starting around 2011 and may foretell a production decline. There is considerable controversy regarding decline rates of shale oil wells that are produced by fracking and horizontal drilling. There is reason to suspect that decline rates from these wells are different (i.e., steeper) than the traditional, vertically drilled wells. Petroleum geologist Arthur Berman and the analyst   Rune Likvern have shed considerable light on this issue.

Figure 2 illustrates projected tight oil production out to 2035 based on several scenarios (i.e., high TRR, high EUR, reference case and low EUR). Considering the most optimistic case (i.e., high TRR), this figure indicates that by 2020, tight oil production will be approximately 2.5 MM barrels/day (b/d). [Note: M = 1000; MM = 1,000,000]. To estimate the total expected U.S. oil production from known reservoirs by 2020, one should include production from traditional vertical wells from the lower 48 states, Alaska, and the U.S. Gulf of Mexico. These reserves have been declining for years.

By “eye balling” these traditional oil reserves out to 2020, we obtain 4 MM b/d (lower 48 states), 0.400 MM b/d (Alaska) and 0.6 MM b/d (Gulf of Mexico) for a total of 5 MM b/d. Adding the tight oil production projection for 2020 (i.e., 2.5 MM b/d) to the 5 MM b/d figure, the total U.S. domestic production for 2020 is 7.5 MM b/d.

Figure 2. Prediction of tight oil production

Conclusion: As of 2011, Russian oil production was 10 MM b/d, while Saudi Arabia had 11 MM b/d. Assuming that these production levels continue, more or less, to 2020, it is highly unlikely that the United States oil production will ever exceed Saudi Arabian and Russian production. Perhaps the major news sources cited previously will come forward to justify their overstated headlines.