America’s political elites are embracing the promise of American energy independence — and that, Hughes believes, is pure folly.
He says that policies being urged by politicians ranging from former Alaska Governor Sarah “Drill, Baby, Drill” Palin to President Barack “All of the Above” Obama are promoting a quick, profit-making bonanza for the industry rather than the growth of a maintainable national energy policy.
“There is no doubt that the shale revolution has been a game-changer in the short term,” Hughes said. “The implication of my work is that it is not sustainable in the long-term.”
Hughes is no climate-change catastrophist prone to hyperbolic attacks on the fossil fuel industry. He works as a consultant to fossil fuel companies, such as Canada’s Imperial Oil, and frequently advises energy investors. His high regard among energy industry professionals comes from 32 years of analyzing coal, oil, and gas formations for the Geological Survey of Canada, which provides the Canadian government with impartial scientific research on the nation’s natural resources.
A prosperous shale exploration area, known as a “play,” requires the right mix of decomposed organic matter maturing over millennia into natural gas or oil, and rock formations that are permeable enough for surface wells to break them apart and extract the fossil fuel.
Until recently, oil and gas trapped within shale rock formations was inaccessible: too technologically difficult to reach and too costly to extract. That changed in the 1990s, when Mitchell Energy pioneered horizontal, hydraulic fracturing and demonstrated that large-scale fracking could extract a reliable supply of shale gas from the Barnett Play of East Texas.
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According to the US Energy Information Administration, American shale oil production has rocketed over the last decade from 260,000 barrels per day to nearly four million barrels of oil per day, putting the US behind only Saudi Arabia and Russia in total oil production. Roughly 50 percent of US natural gas production comes from shale formations, helping the US become the world’s largest producer of natural gas.
But Hughes’s analysis indicates that this rapid increase in domestic production will quickly decline.
“Companies always drill their best locations first,” he said. “Once you’ve run out of locations in the sweet spots, you’re forced to lower and lower quality rock. The wells don’t get any cheaper, however. They still cost the same, it’s just that you have to drill more of them to offset that fuel decline.”
Hughes explained that more than 80 percent of the nation’s shale oil comes from just two plays, the Bakken field in North Dakota and Montana and the Eagle Ford in Texas. He estimates that production in those regions will recede back to 2012 levels in 2019. Overall production across the nation’s shale oil fields will peak in 2017.
In just the Bakken, Hughes calculates that 1,400 new wells are needed per year to offset current production decline, which right now is 45 percent of current production rates of about a million barrels per day, or 450,000 barrels per day each year.
“You need 1,400 $8 million wells to keep production flat, and they’re drilling more than that — they’re drilling 2,000 wells per year,” he explained. “So production in the Bakken will continue to go up. But it’s because at the moment they’re continuing to drill the sweet spots.”
As those sweet spots are tapped, though, they will also begin to decline.
The scenario is similar to that of the nation’s shale gas plays, where 80 percent of production comes from just five areas, several of which are already in decline, according to Hughes.
“Take a look at the Haynesville play, which is primarily in Louisiana and East Texas,” he said, referring to an area whose natural gas deposits were fracked starting in 2008. “It was the biggest shale gas play in the US in 2012, when it peaked, and it’s now down 46 percent below its peak.”
In order to maintain current levels of shale gas production, Hughes estimates that the high rates of deterioration of such wells across the country will require the drilling of 7,000 new wells a year at a cost of $42 billion annually. For maintenance of the overall production of shale oil, some 6,000 new wells would need to be drilled every year, an endeavor that would cost $35 billion.