Is energy independence a fantasy?
Can America's vast shale oil and gas reserves – combined with fracking and drilling technlogies – drive the U.S. to complete energy independence? It looks doubtful, according to OilPrice.com and a report from Credit Suisse.
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The biggest question mark for me, however, is what will the decline rates on shale oil be long term? Right now CS suggests average decline rates in the Bakken and Eagle Ford—the two largest shale oil plays right now—are 60% in Year 1, 30% in Year 2 and falling close to 15% in Year 5. CS puts its estimate for the average terminal decline rate - beyond 20 years - of unconventional US oil resources at 8%.??But the Bakken and Eagle Ford shale plays have only been drilled hard for the past 3-4 years. So long term decline rates—which CS thinks will average out at 4% for the Bakken and 6% for Eagle Ford over the life of the well—is an educated guess.Skip to next paragraph
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CS estimates expected ultimate recovery per well for the Bakken of nearly 900,000 boepd and 600,000 boepd for the Eagle Ford shale. Less developed projects like the Permian Horizontal, Woodford shale and Granite Wash are all expected to reach near 500,000 boepd, despite a small sample size.
If declines are steeper than they project, then these wells will get shut-in sooner and produce less than CS suggests. Though they didn’t talk about waterflooding, which will likely GREATLY increase overall reserves in US tight oil plays.
CS estimates that the oil industry will need Brent prices of at least $95 per barrel to justify investment through 2014. After that, investment costs will drop low enough that shale fields would eventually draw interest even at benchmark prices of almost $75 per barrel.
The CS analysis is most sensitive to a change in rig counts. A drop to $80 per barrel within the next year would result in 180 fewer rigs operating within the country and $60 billion less in total investments by 2014. Oil production in this scenario would reach only 8 million bopd.
The report says that massive infrastructure spending (pipelines, refineries, etc.) is a key to energy independence—and notes that oil companies have already proven unwilling to invest in new infrastructure at prices as high as $90 per barrel, despite most wells remaining profitable.
A lack of infrastructure spending—specifically pipelines to take crude oil out of the Cushing Oklahoma hub, and to get Bakken and Canadian oil to the east and west coasts—have caused a $15/barrel discount in North American crude prices to the rest of the world.
This is huge lost revenue for US and Canadian oil producers.
Pipelines such as the Seaway pipeline and the proposed Keystone XL should add between 950,000 and 1.25 million bopd of capacity away from Cushing OK, to the Gulf Coast. But Bakken oil will continue to rely on rail and barge transportation, and both the Keystone XL and the Flanagan South pipelines that would service the region are yet to be approved.
CS also gives some consideration to possible regulatory restrictions, primarily in terms of water restrictions. Several states have already considered limiting water use in the energy sector to prevent the decline of local agriculture industries, while concerns about water safety have spurred most of the objections to the use of fracking in the U.S.
US energy independence is a hot topic spurred by the rapid rise in shale oil production—The Shale Revolution.
While it’s hard for anybody to guesstimate what such a dynamic industry will be doing 10 years from now, Credit Suisse data suggests that will remain an elusive goal.
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