Crippling problems of shale oil and gas
From Mr Martin Gooch.
Sir, Recent articles in the FT relating to shale oil production in the US, although excellent in themselves, have signally failed to address the crippling problems with shale oil production, ie, its catastrophic depletion rates and horrendous costs. So here are a few disturbing facts.
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First, a good shale oil well, fully fracked, may produce in the region of 500 to 1,000 oil barrels a day, when it first starts producing. This is abysmal compared with a conventional oil well that typically produces in the tens of thousands of barrels a day.
Second, after a year of production, the shale oil well will be producing at 50 per cent of its initial rate, and after two years at around 15 per cent of its initial rate, ie, the well is pretty much depleted.
Third, the shale oil project has indeed increased crude oil production by some 2m b/d. Unfortunately to achieve this, in the Bakken shale oilfield alone, this has required the completion of 7,000 wells in a little over five years. To maintain production, some 200 rigs are in operation in the Bakken field, each one drilling a new well every month or so, ie, more than 2,000 new wells every year. Similar figures apply to the other North American shale oilfields.
Fourth, proposals to further increase shale oil production in the US to replace the crude oil still being imported (more than 10m b/d) would require a massive further increase in the already frenetic drilling rate. Are we really to believe that it is actually physically possible to drill and complete several tens of thousands of shale oil wells each year and every year for the indefinite future? Since such an increase is in fact impossible, how exactly is the US going to achieve energy independence, or even maintain existing shale oil production rates?
Fifth, shale oil wells are painfully expensive to drill given the quantities of materials consumed and the sophisticated drilling rigs they must use. While some wells can break even with an oil price of between $50 and $80 a barrel, many need more than $100 a barrel to stay solvent.
Finally, the only investment destination worse than shale oil is shale gas. Think of it as shale oil on steroids as a way of losing money.
If Bernard Madoff had only put his investors’ money into a “shale oil fund”. How would they ever have found him out?
Martin Gooch, Tarvin, Cheshire, UK