Doomsday Postponed

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Stan Robertson's picture
Stan Robertson
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Doomsday Postponed

As part of my usual routine, I read the completion reports for new wells in the mid-continent states. It has been apparent for a year or two that horizontal drilling technology has changed the game of oil and gas production in the U.S. In addition to the large new natural gas reserves being found in shale formations, a great deal of new gas, rich in liquid condensates, and new oil as well, is being recovered from "tight" sands. Many of these low permeability formations have been found over the years, but until now it has not been economical to exploit them. There are many places in the U.S. where one couldn't drill a dry hole, but one previously couldn't make any money either. That has changed. U.S. liquids production has increased by about one million barrels per day over the last two years with a like increase to be expected in the next two years. Despite well costs that are more than double those of conventional vertical wells, they are capable of producing at high initial rates while exploiting about 8X the reservoir volume open to a vertical well. Despite the additional costs of horizontal drilling and massive hydraulic fracs, these horizontal wells are typically EROI ~ approximately 10 to 20 ventures.

In addition to technologically provided new reserves, the development of the Canadian tar sands and the Keystone pipeline project is projected to add approximately another 400,000 barrels per day to presently available oil. If the pipeline is not built, the Canadians will lay a pipeline to their west coast to sell the oil to China. Either way, it will appear as supply to the world market. Whatever one might think of the tar sands as a source of oil, the idea that the pipeline itself would be a serious environmental hazard is simply absurd. The nation is crisscrossed with large pipelines that most folks don't even know exist.

So on the short term, we can expect horizontal well technology to be applied worldwide with similar results. Poland is already embarked on developing shale gas reserves with the intent of decoupling from Russian dominance. Within five years we should expect to see an additional million barrels per day from other tight oil sands around the world. We can also expect the resumption of about an additional one million barrels of oil from LIbya, which may help to rebuild the infrastructure destroyed in the war. Iraq also has known large udeveloped reserves and is physically capable of boosting production significantly over the next decade. Whether or not they are politically capable or motivated is another matter.

So where does this leave us on peak oil? Probably on the despicable "undulating plateau" for about another decade. While new technology will yield new reserves, older conventional oil fields are on an accelerating path of decline. For example, Mexican exports will soon be a thing of the past. Nevertheless, I believe that oil prices near $100 per barrel will keep the horizontal drilling boom going while also providing a serious headwind for the economy. In many important ways, life in the U.S. has already been "reset" by oil prices. If the Mayans are right about 2012, the crash will be an economic disaster rather than a peak oil event.

Stan

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Doug
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production collapse in shale and environmetal damage in tar sand

I read recently (sorry can't cite source right now) that production from wells in the Bakken formation (fracking horizontal drilling) collapse by about 75-80% within two years.  Wouldn't that just lead to exponentially increasing drilling until the surface of the entire formation will be pockmarked with wells?

I understand that tar sands oil is extracted by essentially strip mining, leading to pretty extensive environmental damage.

Can you shed light of either or both of these phenomena?

Doug

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Stan Robertson
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Doug wrote: I read recently

Doug wrote:

I read recently (sorry can't cite source right now) that production from wells in the Bakken formation (fracking horizontal drilling) collapse by about 75-80% within two years.  Wouldn't that just lead to exponentially increasing drilling until the surface of the entire formation will be pockmarked with wells?

I understand that tar sands oil is extracted by essentially strip mining, leading to pretty extensive environmental damage.

Can you shed light of either or both of these phenomena?

Doug

You are correct on both counts. The tar sands are essentially strip mined, but that is not necessarily a disaster if it is required that acidic drainage be controlled and the land surface be restored to a good condition.

In general, shale wells decline about 65% in their first year and another 50% of the remainder in their second. Shale production is of such recent vintage that it isn't yet known what will happen in the later years. Most of the companies drilling the shales project that their wells will settle down at near zero decline rates late in their lives, but that is unlikely. Their estimated reserves are overstated.

You are also astute in realizing that the rapid decline rates of the shale wells means that drilling must proceed at a frantic pace in order to sustain high production rates. For this reason, I doubt that the Bakken formation in the U.S. will ever produce as much as one million barrels per day. But four wells per square mile is not necessarily a large or long term environmental problem. A few decades back most of the midcontinent and gulf states permitted abandoned well sites to remain as festering sores on the land, but most now have adequate regulations and have been cleaned up. New York and Pennsylvania badly need to update their regulatory and tax structures for oil and gas.

Many shales tend to be overpressured; i.e., pressures exceed what would be produced by a column of water extending down to the formation. Shales also are prone to plastic flow. As overpressures are relieved, the fracs can be squeezed off. This is less likely in the tight oil sands, which have a sandstone matrix that can support the overlying strata without plastic flow. There are very large reserves in these sands that can now be recovered economically via horizontal drilling.

Stan

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Safe Fracking? Both Now And For The Long Term?

Even if it were supposedly safe to extract natural gas without contamination, it makes you wonder if all it takes is an earthquake to crack the pipe in a sealed gas well, or for 40 years of rust and desintegration to do the same...

If it were safe, why was the "Halliburton Loophole" inserted into legislation to exempt gas drilling companies from complying with the Clean Water Act?

Poet

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Frac Info

Poet wrote:

Even if it were supposedly safe to extract natural gas without contamination, it makes you wonder if all it takes is an earthquake to crack the pipe in a sealed gas well, or for 40 years of rust and desintegration to do the same...

If it were safe, why was the "Halliburton Loophole" inserted into legislation to exempt gas drilling companies from complying with the Clean Water Act?

Poet

The Halliburton loophole allowed the service companies that do hydraulic fracturing to avoid disclosure of their proprietary recipes for frac fluids. The proprietary parts of the recipes involve clay stabilizers, gels, and biocides such as chlorine.  You probably shouldn't drink these, but they are not horribly hazardous when properly handled. Agreements for disclosure have now been reached with several major companies. In addition, they intended to dispose of the recovered frac fluids without rendering them fit for human consumption. There is no problem with that in most of the midcontinent and gulf states where fracking has been an everyday occurrence for fifty years and fluids are discarded in disposal wells, but Pennsylvania and New York did not require that. For a time Pennsylvania even allowed?required the fluids to be processed in municipal water treatment facilities until it became clear that they couldn't and shouldn't  handle the volume.

It has been known for at least fifty years that frac operations can lubricate minor faults and cause quakes in the vicinity of the wells. Most are well below magnitude 2.5 and might not be noticed if you were standing above the epicenter. In all due respect, the flap over the hazards of fracking reflects simple ignorance of the physical realities and fear of the unknown. As for contamination of water wells, most states have adequate regulations for the protection of fresh water aquifers and for casing and cementing of oil and gas wells. As with any commercial endeavors, a few accidents have happened and will happen in the future but, having worked in the oil and gas industries, I can say that much effort is expended in trying to insure safety. It is just not in any company's interest to have contamination, injuries, lawsuits and bad PR.

Lastly, let me mention that most wells are too pressure depleted to be problems long before forty years have passed. In addition, there are many wells over forty years old that are still producing on pumps. There is one less than a mile from my home.

Stan

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ewilkerson
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Stan, I agree with pretty

Stan,

I agree with pretty much everything you said.  I have followed the shale fracking for several years.  It does seem that you would have to continuously increase the number of wells, but I consider this an aberration in the undulating plateau.  I can't imagine it will increase it by 10 years.  Besides, I think we could fall off a cliff with other production at any time.  Look at Mexico, Britain, and Norway.

As far as Canada, it takes so much energy and water they estimate the maximum output by 2030 will be only 3 million barrels.

Cheers All,

Ernest

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By implication, are you

By implication, are you saying the all the sick and displaced people, the undrinkable and sometimes flammable water, and danger to the aquifers are lies? Your statements come off a bit like a manufactured doubt guy, or perhaps someone who stands to benefit directly from it's production.

That halliburton horror was just what was needed for the energy lobby reps. to be able to say with a straight, `slave of the monied interests' face  "there is no evidence of any connection what so ever between these claimed problems/illnesses and fracking." I am paraphrasing here. It's not a direct quote. But close enough. More and more and more of everything is why this forum and the information behind it exists. 

Ron

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ron45 wrote: By implication,

ron45 wrote:

By implication, are you saying the all the sick and displaced people, the undrinkable and sometimes flammable water, and danger to the aquifers are lies? Your statements come off a bit like a manufactured doubt guy, or perhaps someone who stands to benefit directly from it's production.

That halliburton horror was just what was needed for the energy lobby reps. to be able to say with a straight, `slave of the monied interests' face  "there is no evidence of any connection what so ever between these claimed problems/illnesses and fracking." I am paraphrasing here. It's not a direct quote. But close enough. More and more and more of everything is why this forum and the information behind it exists.  

Ron

Fracking has been a part of oil field technology for over fifty years. It promises and perils are well known and controlled in states with adequate regulatory structures. It has been used on virtually every new well drilled in the continental U.S. within the last forty years, with approximately half a million of them all together. Without fracking, our domestic oil and gas production would be far too inadequate to support a common life style that includes routine posting things on the internet. The reason this forum exists is to provide information, but you have to choose to consider it.

Stan

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woomera
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The Lithology itself can be a problem

G'Day,

I work in the oil industry and have been involved in several 'fracs'.  Now, I'm in the Middle East.  We have a problem here, with just the lithology.  They don't 'frac' here.  The formation is fractured already, naturally (tectonically).  My company has been called out to use 3rd party equipment (http://www.seawellcorp.com/well_services/well_integrity/flow_diagnostics), utilizing sophisticated ultrasonic listening devices, to determine where an oil leak is originating from.   These leaks don't come out near the wellhead. The oil comes to surface kilometers from the well.  (even flows into a river).  These wells are vertical with as much as 60m of pay producing  1000's barrels / day with an average depth for 3000m (~10,000 ft).  These wells have multiple casings with liners

We have found the source MANY times to be emanating from the bottom of the well...with NO 'fracing'.  It's the formation itself.  There might be small channels in the cement behind the pipe.  It is subjective, but I think it's the lithology itself.

We are now using another 3rd party service  (http://www.tgtoil.com/) to confirm the previous surveys with different tools  These surveys take days, using noise (sonic) / neutron / temperature  with resolutions of .004 degf.  The temperature is the key to it all.  It shows massive fracturing within the formations with commingling of fluids of different strata.  The noise tools confirm fluid movement. 

All in all, 'fracing' isn't the only culprit.  It can also be lithology and well integrity.  Many wells have no problems.  Some do.   The cost of intervention, usually requires a drilling rig, is substantial.

Everything has its risks.   Texas ground water has been damaged from drilling alone due to lost circulation while drilling..  There are places one can't even drill in New Mexico because the Carlsbad caverns don't stop in Carlsbad, NM.  They continue 200 miles up the Rio Grande. on the west side of the river.   Frac'n is just another of these hazards to be considered.

To drill or not to drill, that is the question.  Lots of Gas and Oil in the Middle East.  The M.E. can send you heaps.  How do you like your $4.00/gal gasoline?  Without domestic drilling, one can only look forward to more of the same. That is why natural gas prices are so low right now in the states.  One can thank the 'fracing'

Regards,

Woomera

Stan Robertson's picture
Stan Robertson
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Doomsday postponed update.

Stan Robertson wrote:

As part of my usual routine, I read the completion reports for new wells in the mid-continent states. It has been apparent for a year or two that horizontal drilling technology has changed the game of oil and gas production in the U.S. In addition to the large new natural gas reserves being found in shale formations, a great deal of new gas, rich in liquid condensates, and new oil as well, is being recovered from "tight" sands. Many of these low permeability formations have been found over the years, but until now it has not been economical to exploit them. There are many places in the U.S. where one couldn't drill a dry hole, but one previously couldn't make any money either. That has changed. U.S. liquids production has increased by about one million barrels per day over the last two years with a like increase to be expected in the next two years. Despite well costs that are more than double those of conventional vertical wells, they are capable of producing at high initial rates while exploiting about 8X the reservoir volume open to a vertical well. Despite the additional costs of horizontal drilling and massive hydraulic fracs, these horizontal wells are typically EROI ~ approximately 10 to 20 ventures.

If I may be forgiven for quoting my own remarks from a year ago, they can be updated as follows: This week's new well completion reports for Oklahoma are typical of what has been occurring for the past two  years. 59 of 86 new wells reported oil production in amounts ranging from  6 to 901 barrels per day with an average rate of 154 barrels per day. (Significant quantities of new natural gas were also reported.) This is new production, primarily from horizontal wells drilled into low permeability formations rather than shales. This level of new production from the mid-continent region should add about 1.8 million barrels per year of new production capacity. Despite the rapid rates of decline of low permeability wells, this level of activity can be sustained for many years. There is no dearth of prospective drilling locations.

I think it unlikely that the U.S. can become self sufficient in oil production, but when the new production from the mid-continent is combined with new productive capacity from the Bakken formation of ND, the Utica shale of OH and the Eagle Ford of TX, it seems clear that the U.S should have the capability of sustaining our present levels of oil consumption for another decade. That may only sustain our no-growth economy for a while longer, but if it does, we should use the time wisely.

Lastly, I would like to provide some clarity for people who know little about the oil and gas business. "Big Oil" is not the beneficiary of huge tax breaks. The several billions of dollars that are supposed to be subsidizing "big oil" actually go to the independent producers who are responsible for drilling the vast majority of new wells. The "subsidy" consists of allowing them to write off the unrecoverable expenses of drilling wells in the year in which they are incurred. These include fuel costs, drilling mud and labor. A dry hole is an instant, and nearly complete, loss. Forcing these costs to be amortized over a period of years would have the effect of stopping drilling. Perhaps that is the plan of some.

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Not sure how long this can be done

Hello Stan,

I don't see how the math works on this. With the decay rates that you state for the well outputs (65% year 1, 50% year 2, ...), if you started with 10,000 wells (or any other arbitrary number) and added 10,000 wells every year you would top out at a production only 1.7 times that of year one's. Put another way, doubling all of the infrastructure gives you a 35% bump in production, adding the next 10,000 rigs gets you only 13% increase in production from year 2 levels, then only 6% in year 4, 3% in year 5 and down from there. In order to expand production there needs to be an exponential growth of the number of wells which leads to all of the common themes Chris talks about. What is the area that theoretically can be produced and what is the maximum density of wells?

The other problem may be the story that Doug was alluding to (possibly this story - After the Boom in Natural Gas). I've seen this in a few forms now and basically it comes down to the current shale play being more about land access than the gas or oil that can be produced.

The drillers punched so many holes and extracted so much gas through hydraulic fracturing that they have driven the price of natural gas to near-record lows. And because of the intricate financial deals and leasing arrangements that many of them struck during the boom, they were unable to pull their foot off the accelerator fast enough to avoid a crash in the price of natural gas, which is down more than 60 percent since the summer of 2008.

Although the bankers made a lot of money from the deal making and a handful of energy companies made fortunes by exiting at the market’s peak, most of the industry has been bloodied — forced to sell assets, take huge write-offs and shift as many drill rigs as possible from gas exploration to oil, whose price has held up much better.

I think that your central tenet that this effectively helps delay things is correct but given the combination of financial and physical stresses I suspect that it will be subject to wild oscillation. It would be very hard to manage this system to have a smooth production/consumption pattern. Now gas is ridiculously cheap, about 25% of what it is on the world market. Given the unreal price signals all kinds of industries are switching over to gas. In the mean time those producing the gas are losing money. Once the current contracts expire they are unlikely to renew, never mind exponentially expand unless they can make money. The massive decay rates of the wells means that if the money well goes dry then the production levels will fall off a cliff and prices will skyrocket. Suddenly all of those economic activities from busing to fertilizer creation stop being economically viable. Maybe after a few wild oscillations the system will be better managed but I am dubious. Is there some way out of this conundrum?

Mark

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Stan Robertson
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It only delays the inevitable

Mark,

You are correct that the oil and gas business is subject to wild oscillations. They have been ongoing for a century. The situation you described with gas previously occurred in the late seventies and early eighties. Shortages caused by prices regulated at levels too low for maintenance of supply were followed by partial deregulation and a drilling boom that glutted the gas market. Government attempts to ration the initial shortages led to 30 different controlled prices for a single substance - methane.

I agree with your description of the unreality of the price signals in the current gas market and their effects. However, most gas is sold on short term spot market contracts. When demand catches up with supply, prices will rise automatically, much to the dismay of the buyers who expected cheap gas forever.

The present circumstances with oil are a little bit different. We have been bumping the limits of world crude oil supply for about eight years. Only a severe worldwide recession caused oil prices to drop and they didn't stay down for long. If some semblance of oil price stability can be maintained for a while, then this game of running as fast as we can to add small amounts of new supply to replace declines elsewhere might continue for a while. What I am seeing in the mid-continent is enough to keep me thinking that we aren't likely to see real shortages in the U.S. for at least two more years and maybe more, depending on oil on the world market from Iraq, Iran and Russia. Part of the reason for this is that the tight formation oil wells do not decline nearly so rapidly as the shale wells.

But you are correct that if the music stops, the rapid decline rates of the new wells means that oil supplies could drop significantly within a year. Unfortunately, it can't be restarted in a year, so it will be a bumpy ride when it starts.

Stan

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Stan Robertson
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Update

Since peak oil has been one of the main concerns on PP for a good while, an occasional status report might be useful. Gail Tverberg's recent article and the following comments provide a good look at the long term prospects for new oil supplies from shales and tight sands. A good look at the current situation in the U.S. is provided here by Frank Holmes.

Although there are other tight formations, such as the Mississippi lime in Kansas and Oklahoma that will soon be added to the mix, it is likely that collective tight formation production will peak below about 3 million barrels per day. Sustaining that level of production would require that drilling continue at the peak pace indefinitely. The reason for this is that about 90% of the ultimate recovery of a well occurs within two years. At best, the U.S. will be left to import at least half of the oil that it uses.

One of the side effects of the oil production from tight sands and shales has been the production of huge amounts of associated natural gas. This has depressed natural gas prices below the levels required for shale gas wells to be economical. Shale gas production has already peaked, however a huge resource remains and will eventually be recovered when price levels permit.

Tight sands and shales are ubiquitous throughout the world and they will eventually be developed by many other countries besides the U.S. As supplements to the production from older conventional fields, they might sustain world oil production at current levels for decades. But, as Gail Tverberg pointed out, there are both physical and economic reasons why they cannot replace the production from the older fields. With $100 per barrel oil and some additional conventional oil production from Iran and Iraq, we can probably sustain the current level of production for another decade, but don't expect economies to grow without additional new supply.

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