Carpe Diem

In just a six-year period from 2008-2014, fracking will completely reverse a 22-year, 41% decline in US oil output

The Department of Energy (DOE) is forecasting that US oil output will increase this year by 14% to an average of 7.3 million barrels per day (bpd), up from last year’s average of 6.4 million bpd.  In 2014, the DOE projects another annual 8.2% increase to an average of almost 8 million bpd, which would bring production by the end of 2014 to 8.5 million bpd, the highest monthly level of domestic crude oil output since 1986.

The surge in domestic oil production to 8.5 million bpd within the next few years will be a phenomenal turnaround in America’s oil production, in an amazingly short period of time.  Consider that it took more than 20 years for America’s oil production to gradually decline from 8.5 million bpd in 1986 to about 5 million bpd in 2008, representing a 41% drop in output over a 22-year period. But thanks to hydraulic fracturing and horizontal drilling accessing America’s oceans of shale oil, the multi-decade decline in domestic oil production will be completely reversed in only six years, as US output goes from 5 million bpd in 2008 to 8.5 million bpd by 2014.

As I mentioned in a blog post yesterday, this phenomenal energy success story is not part of any intentional government policy favoring domestic oil production; rather it’s a success story of private enterprise, private investment, and advances in drilling technology that have accessed shale oil, mostly on private lands.

Update: Considering that oil output has increased by 52% in North Dakota over the last year, and by 32% in Texas, the Department of Energy’s forecast of a 14% increase this year in domestic oil output might be rather conservative. And I’m not sure that the Department of Energy is incorporating recent developments in West Texas oil in its forecasts, but that’s where we might see the next surge in domestic shale oil and gas production. In fact, the shale possibilities in West Texas are so promising that some are predicting it will be the “Eagle Ford Shale on steroids.”  Peak what?

6 thoughts on “In just a six-year period from 2008-2014, fracking will completely reverse a 22-year, 41% decline in US oil output

  1. “which would bring production by the end of 2014 to 8.5 million bpd”

    That may end up being the case, but I’m not sure you can extrapolate that just from the EIA forecast. It could be that the 7.9 million level gets reached in early 2014, then flattens out the rest of the year. Or something like that.

  2. The Department of Energy (DOE) is forecasting that US oil output will increase this year by 14% to an average of 7.3 million barrels per day (bpd), up from last year’s average of 6.4 million bpd. In 2014, the DOE projects another annual 8.2% increase to an average of almost 8 million bpd, which would bring production by the end of 2014 to 8.5 million bpd, the highest monthly level of domestic crude oil output since 1986.

    These are the same people who thought that conventional depletion rates were around 3.5%. Well, they were almost off by 100%. They have no clue just how huge the depletion rates are for shale liquids. You will need to add more and more rigs just to stay flat. But with all those negative cash flows in the shale sector why would anyone finance those rigs?

  3. But thanks to hydraulic fracturing and horizontal drilling accessing America’s oceans of shale oil, the multi-decade decline in domestic oil production will be completely reversed in only six years, as US output goes from 5 million bpd in 2008 to 8.5 million bpd by 2014.

    No, it will not be completely reversed because depletion means that you have to keep destroying capital and keep adding debt on the balance sheets of companies that cannot generate any positive cash flows. In the real world cash flows matter.

    • Vangel,

      You have made this type of comment several times. If what you assert is indeed the case (I am not saying it is not, I do not know how to prove/disprove your statements) then the bubble should pop in the not too distant future. Right now with the euphoria over all the domestic oil being produced I can see where investors (like in the housing bubble) may overlook warning signs. Can you make a prediction as to how long before the bubble would burst?
      I personally like seeing contrarian views like yours here. Maybe you are right maybe you are wrong at least you do add substance to the debate.
      I remember watching a video of someone (Peter Schiff?) giving a presentation in Vegas before the housing crash. No one wanted to believe him, one person in the audience asked (in jest) if he should just slit his wrists.

      • You have made this type of comment several times. If what you assert is indeed the case (I am not saying it is not, I do not know how to prove/disprove your statements) then the bubble should pop in the not too distant future.

        No. The bubble will pop when the liquidity flows dry up. As we saw with the tech and housing bubbles, they can grow bigger and last longer than seems likely.

        Right now with the euphoria over all the domestic oil being produced I can see where investors (like in the housing bubble) may overlook warning signs. Can you make a prediction as to how long before the bubble would burst?

        Actually, that would be hard to do because the central banks and governments are manipulating the capital markets so much that it is hard for rational investors to get proper signals from the energy markets.

        I think that investors will eventually see that some formations will need to have nearly 1,000 new wells drilled just to keep production flat. That means a requirement for $10 to $12 billion a year just to replace supply at a time when the industry has already lost around one hundred billion by selling its product at a loss and depleting all of the early wells to a point where they cannot generate positive cash flow even if all debts were forgiven. Where is that money going to come from?

        One of the possibilities is that we see several shale gas players teeter on bankruptcy and the related news cuts off the sector from the easy money it needs to fund its projects. But the way markets work these days such an event may bring out the ‘fixers’ and paper over the problem, much as Chesapeake Energy was able to by kicking the can down further down the road. But since I never play the short side of the market I am unconcerned about the timing. That said, one of the worst things for the industry was sub $4 natural gas February futures. The bells seem to be ringing but few are interpreting them properly.

        I personally like seeing contrarian views like yours here. Maybe you are right maybe you are wrong at least you do add substance to the debate.

        Me too but only if there is actual substance. Note that nobody here has been willing to debate the economics of shale gas and oil production and that Mark, who is supposedly an economics professor, has not been willing to go anywhere near a 10-K filing or deal with the funding gap issues brought up during the conference calls.

        I remember watching a video of someone (Peter Schiff?) giving a presentation in Vegas before the housing crash. No one wanted to believe him, one person in the audience asked (in jest) if he should just slit his wrists.

        Did you notice that Schiff was talking about both the fundamentals and the actual economic theory while his detractors were ignoring most of his points? For them the only thing that mattered was the short term market action and the safety of ‘consensus’ opinion. That is a danger for all of us.

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