In this episode, Nate Hagens interviews Arthur Berman, an expert on oil trends and data analysis. They discuss the decline of shale oil, the economic implications of a decline in oil supply, the impact of shale oil on US production, the peak and decline of Permian well performance, the significance of shale oil and the possibilities of new tight oil plays, the military's perspective on energy and oil, the decline in estimated ultimate recovery in the Permian shale oil region, investor perspective on shale companies and low returns, the importance of RIG count in oil production, and potential future scenarios for oil prices.
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Quick takeaways
Shale oil wells are producing 50% less per well than a few years ago, signaling a decline in global oil production growth.
The decline in shale oil production and lack of financing create uncertainty and challenges for future oil production in the US and potentially worldwide.
Over-drilling of wells in the Permian Basin leads to cannibalization, reducing overall productivity and posing challenges for future oil production.
Deep dives
Shale oil responsible for most of the growth in world oil output in the last decade is declining
Shale oil, which has been the main driver of global oil production growth in recent years, is declining. Despite hitting a new peak in U.S. production, shale oil wells are now producing 50% less per well than they were just a few years ago. This decline in well productivity will have significant implications for both shale oil production and global oil production as a whole.
Uncertainty and challenges in future oil production and investment
The decline in shale oil production, coupled with the current lack of investment and financing for oil companies, creates uncertainty in future oil production. The need for capital to drill new wells is becoming more challenging as investors are hesitant to provide funding to oil companies. This lack of financing, along with the decline in well productivity, suggests that oil production in the U.S. and potentially worldwide could face significant challenges in the coming years.
Potential future scenarios for oil production
Based on the decline in shale oil production and the challenges in obtaining financing, it is likely that oil production will increase very slowly, if at all, in the near future. There is a possibility of reaching a plateau in oil production and then experiencing a gradual decline. By 2040 or 2050, oil production could be about 20% lower than it is today. This projection is based on a combination of geology, the availability of commercially viable oil reserves, and the constraints in obtaining investment capital.
Importance of Tight Oil for the United States and the World
Tight oil, particularly in the Permian, plays a crucial role in meeting the increasing oil demand for the United States and the world. The majority of the oil production increase in the last 13 years can be attributed to the growth of tight oil. This significant dependency on tight oil highlights its pivotal role in ensuring sufficient oil supply to sustain various industries and activities worldwide. The decline or even a slight deficit in oil supply would have profound consequences, leading to increased oil prices and potential disruptions in various sectors, including manufacturing, transportation, and energy production.
Challenges and Potential Risks of Over-Drilling in the Permian Basin
The over-drilling of wells in the Permian Basin has led to a cannibalization effect, reducing the overall productivity of each individual well. The practice of drilling multiple wells in close proximity to one another, as close as 300 feet apart, results in the reduction of oil production potential for each well. This over-drilling strategy, driven by the desire for short-term profit, harms the long-term sustainable extraction of oil. Furthermore, the over-drilling phenomenon, coupled with the diminishing well performance, poses challenges for future oil production and raises concerns about the economic and financial consequences of declining oil supplies.
On this episode, Arthur Berman returns to unpack the complexity underpinning the oil trends of the last 75 years and what new data can tell us about availability in the coming years. After decades of declining oil production in the United States, the past decade of rising oil extraction has eased many worries about peak oil. But the past few years of continued growth have been obtained by using “a larger straw”, merely delaying the inevitability of the depletion of a finite resource. Art presents recent data on well productivity in US shale plays indicating we are much closer to ‘the slurping sound’. How does technology hide the declining availability of oil reserves, causing us to extract and use them faster without creating any new resources? Going beyond geology, how do geopolitics, finance, and social opinion affect oil availability? Where do we go when economically viable oil isn’t available anymore - and will we have the prudence to make the cultural shifts necessary before we have no other options? Have we now passed ‘peak oil’?
About Arthur Berman
Arthur E. Berman is a petroleum geologist with 36 years of oil and gas industry experience. He is an expert on U.S. shale plays and is currently consulting for several E&P companies and capital groups in the energy sector.