2016 Tight Oil Reality Check

December 15, 2016

Every year, the U.S. Department of Energy’s Energy Information Administration (EIA), publishes its Annual Energy Outlook (AEO) in which U.S. energy supply is forecast through 2040. The EIA’s yearly AEO has enormous influence with policymakers, the media, and through them the general public. The AEO influences government policy and industry investment.

In 2014, Earth Scientist David Hughes took a hard look at the EIA’s existing forecasts in a groundbreaking report, Drilling Deeper, and found that its projections for future production and prices suffered from a troubling degree of optimism. He followed this analysis the next year with 2015 Tight Oil Reality Check and 2015 Shale Gas Reality Check, with the same trends in highly overstated forecasts from the EIA continuing.

In September 2016, the EIA released its Annual Energy Outlook 2016. We were very interested in how lower prices and declining production influenced the EIA’s projections. David Hughes applied the same scrutiny to AEO2016 as he has in the past to assess the AEO2016 against bothDrilling Deeper and up-to-date production data from key tight oil plays.

Key Conclusions

  • The EIA assumes that tight oil production will begin to grow strongly in 2017, despite a 37% decline in drilling rate from peak levels in 2014. This seems highly improbable, considering that all tight oil plays have peaked except in the Permian Basin.
  • Tight oil production has declined by 13% (as of June 2016)) since peaking in March 2015, or more than one million barrels per day, according to the EIA’s Drilling Productivity report (Table 3). Only the Permian Basin has not peaked.
  • The volatility between successive forecasts and the increase in overall production cannot be attributed to changes in future oil price assumptions, given that prices for WTI are at or lower in AEO2016 than AEO2015 through 2030 and are $6.56/barrel lower in 2040.
  • Prolific tight oil plays are not ubiquitous, as some would have us believe. The Permian, Bakken and Eagle Ford make up 88.2% of November 2016 production.
  • Technological efficiency is not making wells/fields much more productive – at a constant drilling rate, better technology will exhaust a play more quickly at a lower cost – but will not substantially increase ultimate recovery.

Questions for the EIA

After closely reviewing the AEO2016, David Hughes raises some important questions about EIA’s U.S. tight oil forecasts, such as:

  • What justifies the unprecedented growth in forecasted tight oil production, given that drilling rates are projected to remain below 2014 levels through 2040, with only a modest increase in oil price?
  • What is the reason for the substantial variation in AEO2015 and AEO2016 projections?
  • How can overall tight oil production increase by 19% in AEO2016 compared to AEO2015 while assuming oil prices are the same or lower over the 2015-2040 period?

Hughes’ recent findings point to not only increasingly overstated forecasts by the EIA, but also increasingly volatile assessments – both of which are highly troubling. As the pro-fracking Trump Administration sets its domestic energy policy, addressing the serious doubt this discovery raises now is critical. It’s more important than ever to have an independent Energy Information Administration that is providing grounded, realistic, and transparent analysis.

Oil well image (cropped) via shutterstock. Reproduced on Resilience.org with permission.

David Hughes

David Hughes is an earth scientist who has studied the energy resources of Canada for four decades, including 32 years with the Geological Survey of Canada as a scientist and research manager. He developed the National Coal Inventory to determine the availability and environmental constraints associated with Canada’s coal resources. As Team Leader for Unconventional Gas on the Canadian Gas Potential Committee, he coordinated the publication of a comprehensive assessment of Canada’s unconventional natural gas potential.

Over the past decade, Hughes has researched, published and lectured widely on global energy and sustainability issues in North America and internationally. His work with Post Carbon Institute includes: a series of papers (2011) on the challenges of natural gas being a "bridge fuel" from coal to renewables; Drill, Baby, Drill (2013), which took a far-ranging look at the prospects for various unconventional fuels in the United States; Drilling California (2013), which critically examined the U.S. Energy Information Administration’s (EIA) estimates of technically recoverable tight oil in the Monterey Shale, which the EIA claimed constituted two-thirds of U.S. tight oil (the EIA subsequently wrote down its resource estimate for the Monterey by 96%); Drilling Deeper (2014), which challenged the U.S. Department of Energy’s expectation of long-term domestic oil and natural gas abundance with an in depth assessment of all drilling and production data from the major shale plays through mid-2014; and Shale Gas Reality Check (2015) and Tight Oil Reality Check (2015), updates to Drilling Deeper. Separately from Post Carbon, Hughes authored BC LNG: A Reality Check in 2014 and A Clear View of BC LNG in 2015, which examined the issues surrounding a proposed massive scale-up of shale gas production in British Columbia for LNG export.

Hughes is president of Global Sustainability Research, a consultancy dedicated to research on energy and sustainability issues. He is also a board member of Physicians, Scientists & Engineers for Healthy Energy (PSE\Healthy Energy) and is a Fellow of Post Carbon Institute. Hughes contributed to Carbon Shift, an anthology edited by Thomas Homer-Dixon on the twin issues of peak energy and climate change, and his work has been featured in Nature, Canadian Business, Bloomberg, USA Today, as well as other popular press, radio, and television.

Tags: EIA predictions, US tight oil production