Fracking: a one night stand?

Well one night in historical terms.  Something more like three years is the actual number.

 

The End of Fracking is Closer Than You Think

Robert S. Eshelman, Vice News, 8 Septemeber 2014 (hat tip: NC)

Working with the Post Carbon Institute, a sustainability think-tank, [Canadian geologist David] Hughes meticulously analyzed industry data from 65,000 US shale oil and natural gas wells that use the much-ballyhooed extraction method of hydraulic fracturing, colloquially known as fracking. The process involves drilling horizontally as well as vertically, and then pumping a toxic cocktail of pressurized water, sand, and chemicals deep underground in order to break apart the rock formations that hold deposits of oil and gas.

Hughes found that the production rates at these wells decline, on average, 85 percent over three years.

"Typically, in the first year there may be a 70 percent decline," Hughes told VICE News. "Second year, maybe 40 percent; third year, 30 percent. So the decline rate is a hyperbolic curve. But nonetheless, by the time you get to three years, you're talking 80 or 85 percent decline for most of these wells."

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."

So I think the title of the article shouldn't be that fracking will end, but "Fracking to Become More Expensive Than You Think".   And that is even more expensive than where we are at currently with the climb down from the initial Chesapeake Oil driven enthusiastic surge.

 

Which is pretty much what you would think would happen when your at a production plateau, a plateau that is naturally going to occur when rising costs hit a demand wall: an extended "peak" of sorts.

On Fairness

"Fairness does not always appear to be in your favor."
-hanging on the wall of the undergraduate advisor in the physics department at UCSD.

"The World isn't always fair Calvin."
"But why isn't it ever unfair in my favor?"
-Calvin and Hobbes

"it’s essential to get past the belief that history is under any obligation to hand out rewards for good behavior and punishments for the opposite, or for that matter the other way around."
-Archdruid Report

Club of Rome data revisited

So, for those of us old enough to remember, the Limits to Growth predictions of an economic collapse driven by depletion and pollution came out in 1972.  Its predictions have been viewed as alarmist and scare mongering.

 

In the booming dot.com years, or before 2008, those were easier arguments to make.

Limits to Growth was right. New research shows we're nearing collapse
Grahm Tunere Kathy Alexander, The Guardian (U.K.), 1 September 2014 (hat tip: NC)

The 1972 book Limits to Growth, which predicted our civilisation would probably collapse some time this century, has been criticised as doomsday fantasy since it was published. Back in 2002, self-styled environmental expert Bjorn Lomborg consigned it to the "dustbin of history”.

It doesn’t belong there...

So were they right? We decided to check in with those scenarios after 40 years. Dr Graham Turner gathered data from the UN (its department of economic and social affairs, Unesco, the food and agriculture organisation, and the UN statistics yearbook). He also checked in with the US national oceanic and atmospheric administration, the BP statistical review, and elsewhere. That data was plotted alongside the Limits to Growth scenarios.

The results show that the world is tracking pretty closely to the Limits to Growth “business-as-usual” scenario. The data doesn’t match up with other scenarios.

So the projections for the "do nothing" scenario, is inline with the data for today's world.

So far, Limits to Growth checks out with reality. So what happens next?

According to the book, to feed the continued growth in industrial output there must be ever-increasing use of resources. But resources become more expensive to obtain as they are used up. As more and more capital goes towards resource extraction, industrial output per capita starts to fall – in the book, from about 2015.

As pollution mounts and industrial input into agriculture falls, food production per capita falls. Health and education services are cut back, and that combines to bring about a rise in the death rate from about 2020. Global population begins to fall from about 2030, by about half a billion people per decade. Living conditions fall to levels similar to the early 1900s.

The folks doing the study note that the scenario does not have to continue to line up with reality.  Major policy shifts, or war, would have a dramatic effect on outcomes.

 

Since I am on the pessimistic side of the resource versus population versus ever compounding economic growth, I am going to give my logic toward being pessimistic about the Club of Rome's pessimism.

 

One issue is that the Club of Rome heavily weighted the issue of pollution. While I think pollution is a major issue, it was also very much an issue for its times.  Unless you take a very expansive view of what is pollution (damaging invasive species for instance) it is not that clear that we are greater polluters so much as more sensitive to the pollution.  You could add global warming and rising sea levels into the equation, but again you have the problem that it is too much a "flavor of the moment" problem, and your not likely to get much serious discussion with all the hand wringing from both sides of the issue: denying the obvious versus near term extinction.

 

So if I am pessimistic about the specific pessimistic notes, why am I still pessimistic?  It's the whole compounding cumulative growth issue.  If your economic model requires more of everything, and ours currently does, you have to eventually run out of things. 

Shale the savior

Shale the savior, until it's not.

Just an interesting blip on the radar screen.  Not a proven point, but the logic has been noted before:


Trader Who Scored $100 Million Payday Bets Shale Is Dud
Bradley Olson, Bloomberg, 3 Septemeber 2014 (hat tip: NC)

Hall is going all in on a bet that the shale-oil boom will play out far sooner than many analysts expect, resulting in a steady increase in prices to as much as $150 a barrel in five years or less.

Investing ever-larger sums of his own money, he’s buying contracts for so-called long-dated oil, to be delivered as far out as 2019, according to interviews with two dozen current and former employees and advisers who are familiar with Hall’s trading but aren’t authorized to speak on the record. To attract buyers, the sellers of these long-dated contracts -- typically shale companies that have financed the boom with mounds of debt -- need to offer them at a discount to existing prices.

Hall’s strategy -- which in a May letter he described as more akin to “loan-sharking” than market speculation -- has already shown some signs of success.

Hall's response to the neigh-sayers who think the shale boom will lower prices:

Hall’s main problem with the falling-price scenario is that it contains the seeds of its own demise. Shale drilling depends on high prices to survive. If oil falls toward $75 a barrel, much of the wave of new U.S. production would become unprofitable, prompting output to be cut, Hall wrote in April.

Scarcity would then start to drive up prices. Hall’s position is that the world may be awash in new oil but that new oil isn’t cheap to produce. The fact that the U.S. shale revolution has been able to replace most of the crude lost to strife in recent years in places such as Iraq and Libya is a fluke, in his opinion.

And while energy powers such as Russia and Saudi Arabia still have plenty of oil, they’ll have to significantly increase investments to maintain production levels. In a June letter, Hall made note of a statement from an OAO Lukoil executive, who acknowledged the “threat” that Russia’s “traditional reserves are being exhausted.”

A preliminary conclusion of sorts:

So far this year, there are signs that he may be on the right track. In North Dakota’s Bakken and Texas’ Eagle Ford formations, which have accounted for almost all of the jump in U.S. output, the combined year-over-year growth in production in July fell below 30 percent for the first time since February 2010.

Two central questions about technology and shale will likely determine the outcome for Hall: how many wells producers will be able to drill in a finite amount of land that sits atop oil-bearing layers of rock and whether the U.S. renaissance will be repeatable abroad. Hall is betting no on both counts.

It has been noted before, by myself and many others, that peak oil does not mean the world runs out of oil.  It means that it runs out of cheap oil.