A consistent theme over the past five years of shale has been the reaction of the Peak Oil crowd who get stuck at the denial stage of the ignorance, anger, denial and acceptance cycle necessary for addressing cognitive disorders.  

Peak Oil depended on energy supply falling.The rise of natural gas, with its implications for oil displacement caught most PO’s off guard.  

Part of the attraction of Peak Oil has been simplicity: More people mean more consumption, ergo it will run out.  It attracts a diverse crowd: Greens see it as providing a rationale to make renewables economically attractive when they can’t scare people into a catastrophe. It provides a rationale to explain high oil prices which helps anyone from commodity traders to gasoline retailers. Mix in a little racism, and it’s another sign to the angry white men of the world that the world is not going their way. The Peak Oil fantasy unites both left wing greens and the bullets and tins of tuna fish doomsday prepper schools of the right.

It also provides a simple meme  journalists can understand which then gets channeled to politicians. But what if this is all wrong?  What if we’re seeing an increase in supply meeting advances in efficiency?

Peak Oil has had a fundamental failure to understand the inflection point of shale. The entire point of “unconventional” gas is that you can’t understand by thinking it follows the same rules as gas produced from conventional reservoirs.

Conventional reservoirs are hard to find, but easy to produce from. There are analytical tools going back over a hundred years which can predict the actual reserves that come out of the resource plays. You can take those predictions to the bank, literally and figuratively, raising money to make even more money.

What was once called unconventional, but is now just natural gas by other means, sometimes seems to be under almost every rock to some extent. Completely dry shale wells are a hard trick to pull off, but some are more productive than others. However, since the gas is trapped in the microscopic spaces it is very hard, especially from a traditional geological perspective, to understand exactly how much gas is held in the rocks. 

We can talk about fracking and horizontal drilling, but shale quickly moved into being founded on technological advances as much as petroleum engineering. Shale is digital. Conventional oil and gas is analogue. Add Peak Oil to analogue thinking and almost from the first we had people who denied that shale gas would provide anything more than a short term solution. The Shalebubble.org  web site has only been up a few weeks. I hate to break the news to those who excitedly point it out to me, but the theory behind it has been circulating all along.

Another meme that attracts the doomsters is connecting shale geology and a general distrust of the financial system.That too has been around for years as this shows from 2009

The leading shale sceptic analyst is an independent geologist, Art Berman, often described as a “radical”. Rather soft spoken, though, he says: “I hope I’m wrong about shale.” The problem, as he sees it, is that the standard industry analysis about shale well Estimated Ultimate Recovery, or lifetime production, is too optimistic. “They have fantastic initial rates, but the question is whether the (rate of production) persists as they say.” For example, he says, in deep shale formations “the rock collapses as gas is produced, and crushes the proppant. And as the fractures are drained you have to frac and frac and frac.” Expensive.

Ben Dell, of Bernstein Research in New York, whose work is respected by both sides in the debate, says: “The average well deteriorates more in quality, and more wells fail, than people believe. Still, I think a rise in prices would make more (shale prospects) economic. Plenty of plays work at $9 per mcf [1,000 cubic feet].”

This less-than-expected productivity in the leading gas sector tells Mr Dell that US gas production will decline on the order of 10 per cent next year, leading to $8-$9 gas, or $3 to $4 more than the forward curve anticipates.

Fast forward to 2013 and Ben Dell runs Kimmeridge Energy

Kimmeridge recently completed a first test well in the Meade Peak Shale in Wyoming. Kimmeridge has a position in this promising dry gas shale in partnership with Matador Resources.

On the other hand, the author of the above, John Dizard of the FT compounds being wrong by being consistently wrong as he continued in July 2010

There comes a moment towards the end of any financial bubble when even sceptics wonder if they are wrong, and trees really can grow to the sky. They see grey suited investors with the shining eyes of religious converts, gazing on the Revealed Word of sell-side PowerPoint presentations, and feel a little foolish.

Yes, shale gas is there, but it is expensive to produce, and there is much, much less of it available at today’s low prices than policy people, investors, and energy consumers are counting on. It is not a cheap and simple way to replace coal (in America), or Russian gas supplies (in Europe).

Dizard continued to dig deeper: This from October 2011:

Industry insiders are calling much of the dry-gas shale development “involuntary drilling”, done to cover obligations to JV partners and counterparties for forward gas sales. Without capital markets money, that drilling and well completion begins to trail off next year. Then the gas price has to rise if production is to keep up with the increased demand generated by coal plant shutdowns.

By last year, Dizard was showing his true sympathies:

The Europeans, on the other hand, have been attempting to bluff Gazprom and the LNG exporters with the tale of a vast potential shale industry able to pound Russian, Arab, and African prices down to American levels. Sadly, unlike eurocrats and commentators, the Russians know the European onshore exploration and production industry lacks the required developed geology, equipment, labour force, and lead time necessary to turn their talk into large amounts of actual gas.

Peak Shale Gas was wrong then and it’s wrong now. ShaleBubble just gives it a spiffy web site, nothing more.  Meanwhile this from the University of Texas is about the first US shale in the Barnett. If shale gas declines were happening and shale was all a big scam, that’s the first place it would show up

The study, conducted by the Bureau of Economic Geology (BEG) at The University of Texas at Austin and funded by the Alfred P. Sloan Foundation, integrates engineering, geology and economics in a numerical model that allows for scenario testing based on many input parameters. In the base case, the study forecasts a cumulative 44 trillion cubic feet (TCF) of recoverable reserves from the Barnett, with annual production declining in a predictable curve from the current peak of 2 TCF per year to about 900 billion cubic feet (BCF) per year by 2030.

This forecast falls in between some of the more optimistic and pessimistic predictions of production from the Barnett and suggests that the formation will continue to be a major contributor to U.S. natural gas production through 2030.

Does this look like a decline?

Production-2030

  Although Dizard is now revealed as a Gazprom apologist, and Ben Dell has come over to the shale side, Art Berman continues to spin the same stuff as four years ago, despite soaring production, a move no one dared predict towards shale oil and prices lower than in 2009, not higher

Peak Oil has been disrupted by both sides, increasing supply being only part of the story. The other side is that we are using less energy as this slide from the EIA shows. 

 

Primary energy consumption

This is one of the pieces of great news that is met by disbelief by greens I speak to. They seem as angry  over the success of efficiency and technology in reducing energy use as they are over the success of increasing supply.  

The reality is that as the  Boston Group reported recently:

We are not making a negative call on crude-oil prices. We are simply suggesting that recent advances in supply, multiple pressures curtailing demand and a flagging global economy provide us enough cover to maintain a reasonable supply-and-demand balance, thereby avoiding supply-shortage-related price spikes.

In North America alone, supply has grown annually by almost 500,000 bpd, while demand is shrinking by a similar amount. This has led to a 1 million bpd loosening of supply and demand, aside from the 1 million bpd of supply growth from the rest of the world (which includes deepwater, North Sea, Brazil, West Africa and the Middle East). If another 2 million bpd can be added to supply (including some giveback from weaker demand), Asia — the fastest-growing region in the world — would have to double its trend-line growth in consumption to achieve a balance.

That may be possible, and perhaps the U.S. and Europe could provide a cyclical recovery in a year’s time. However, the likelier scenario is a gradual increase in global demand with ample sources and time for supply growth. Thus, we bid farewell to the days of Peak Oil.

A key social movment like Peak Oil will reverberate for a while yet, before it disappears into history as completely as mass herpes, mass AIDS catastrophes, mad cow catastrophes and my particular favourite Y2K.  Y2K of course was allegedly averted by dint of hard work (and billions of  dollars), although a few people predicted it was rubbish in 1999 when it could have saved everyone some grief. Thanks to the miracle of the internet everybody’s predictions now live for ever. Some are wrong. Some are right:

Thursday, September 23, 1999 Published at 22:44 GMT 23:44 UK

The people that are petrified of Y2K are people like Robin Guenier who have made a career out of creating a mountain out of a molehill. There are thousands of Y2K consultants who will have to get real jobs once the gravy train they have cleverly constructed comes to a halt on January 1. (It will almost certainly be the only thing that will come to a stop). Look back over the dire predictions of the Y2K con artists and every single "critical" date has been a non-event.

Of course the Y2K industry has it both ways. Although the truth might be that the problem was nowhere near as critical as they wanted people to believe, they will be able to say on January 2 that it was only through their remarkable foresight and hard work that nothing happened. Y2K is a classic Emperor's new clothes scenario. Saying there will be no problem within a business that has wasted thousands of pounds in preparing for this non-problem is just not acceptable.

I just don't understand the gullibility of the media and government in swallowing the Y2K line for so long. How about some brave journalist saying now what a con it is? The media will be full of Y2K overreaction stories written in early 2000. Have the guts to speak the truth now!
Nick Grealy, UK

{jacomment on}

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  • Ian Cooper

    I think it's funny that, while you seem to be arguing that peak oil is false, both of the graphs you use show that it's true:<br /><br />"Does this look like a decline?" Well... yes, as it happens, after 2011, it does.<br /><br />The less energy use graph indicates a supply-driven demand destruction, which is precisely what people like Jeff Rubin have been arguing would happen.<br /><br />Peak oil is not a 'theory' to be proven or disproven. It's a mathematical certainty.

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  • moneybags11

    The reality is that the theory of Peak Oil is only valid at a point in time and for a given price. Just like any other market, the price of oil is in a never ending cycle with the supply and the demand for oil. Markets sort themselves out over time. The price rises and consumers will look for other options. The price drops and production drop & / or consumption increases. The price rises and producers can afford to produce from higher cost sources.<br /><br />To suggest that the supply of oil & gas is a static thing is to fail to understand the basic dynamics of supply and demand. There will no doubt be a point at which supply of oil & gas actually runs out, but to suggest that we have reached this point is laughable. 5 years ago Shale gas was a non-issue. But despite the impact that shale has had on the price of gas in the US, and to a wider extent the price of steaming coal on a world wide basis, the Peak Oil fraternity continues to push the view that we are about to run out. Beware, the end is nigh!!! <br /><br />It would be great to see the world supplied by renewables. No one with half a brain would say no to renewables if they where affordable. But therein lies the issue. If oil is expensive then renewables are affordable. If oil is cheap, renewables are an unaffordable luxury. <br /><br />The focus should not be on the never ending argument of which energy source is best, it should be on how to manage a transition form one to the other. Subsidising renewables won't work. The money needs to be put into research which can drive the development of better technologies. If we simply pay big money to support those that are supplying what can't do the job, we are barking up the wrong tree.

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  • Iain Gately

    In reply to: moneybags11

    A new term for unconventional resources<br />“uncooperative conventional,”<br />see<br />http://blogs.platts.com/2013/03/07/cera-natgas/

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  • Andy

    The issue of methane leakage appears to have just about disappeared after the latest round of point-counterpoint in Journal of Geophysical Research. Michael Levi pointed out that if he is to be criticized for relying on their data, then if the data disappears, so does any basis for believing Methane leakage is a problem!<br /><br />I also did some research on the Degenstein Foundation, who will fund the Geisinger Foundation upon whose opinion the whole exploitation of shale in New York now rests.<br /><br />I say what follows not because I am qualified to give a legal opinion, and certainly not because I think it matters to anyone else, But the Degenstein Foundation is not chartered to do any such thing!<br /><br />On the Degenstein Foundation's home page they state, "To be eligible for funding the applicant must be located within the region served by the foundation limited to a radius of 75 miles of Sunbury, Pennsylvania." According to Google Earth, the New York border might be as much as 77.42 miles from Sunbury! The foundation also acclaims its founder by saying " Thanks to the generosity of Charles B. Degenstein, the residents of central Pennsylvania will benefit forever. " The foundation exists for the benefit of the residents of Pennsylvania, not to mediate broils between New Yorkers. In fact, if they are taking their charter seriously, cooking up an excuse to ban exploiting the New York shale and keeping all the drilling business in Pennsylvania would ensure that Pennsyvanias would benefit forever from shale!<br /><br />I'm being sarcastic because the ability of the Degenstein Foundation to comply with its own rules, or the probity of the Geisinger Foundation are, of course, not at issue. What is the issue is the capacity of New York politicians to go to the uttermost extreme to avoid blame for making the hard decisions that are theirs alone.

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  • Andy

    The Quartz web site has a story lifting quotes from the latest Fed Beige Book that are supportive of shale and its benefits for the economy.

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